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Written by: Amber McKenna | Vista Capital Partners
According to two academic papers we recently reviewed, the answer is yes.
Using data collected in Finland, professors Mark Greenblatt of UCLA, Matti Keloharju of Aalto University in Helsinki and Juhani Linainmaa of the University of Chicago found that high-I.Q. investors not only invested more heavily in the stock market than their lower I.Q. counterparts, but also held more diversified portfolios. Published in the Journal of Financial Economics, the paper also found that high-I.Q. investors tilted their portfolios toward small-cap and low-priced value stocks. This will ring familiar to Vista clients who know small cap and value stocks have historically outperformed the broader market.
Hunting for data in Finland might seem unusual, but the authors found the Nordic country to be fertile territory for two reasons. First, all able-bodied Finnish males must perform military service, and from 1982 to 2011, the Finnish Armed Forces subjected these men to a battery of psychological tests which resulted in an intelligence score, or I.Q.
Second, up until 2006 Finland had a wealth tax which required all citizens to report their investment portfolios to the government. As a result, the authors of the study were able to compare the investing habits of Finnish males with their intelligence scores. The opportunity to perform this analysis is remarkable because similar data sets simply do not exist in other countries.
Using similar data in a separate paper, Greenblatt and Keloharju teamed with Seppo Ikaheimo of Aalto University and Samuli Knupfer of London Business School to look at the influence intelligence had on investors’ mutual fund choices. The authors found high-I.Q. investors were less likely to own balanced funds, actively-managed funds and funds sold by brokers, all of which tend to charge higher fees. High-I.Q. investors, the authors concluded, were indeed smarter about their fund choices—they favored low-cost and passively-managed (index) funds.
Perhaps what’s most interesting about these papers is what they don’t conclude. The authors never suggest smart investors have some edge in picking stocks or timing the market—two activities often seen as the special domain of the most intelligent among us.
No, what the studies clearly conclude is that smart investors simply follow a few of the most basic rules of successful investing: Favor stocks for long-term growth, diversify, and minimize fund expenses whenever possible.
These timeless principles form the foundation of Vista’s approach, and can be used by investors all around the world, no matter their level of intelligence.