The study is based on data from Finland where young men are required to serve in the military and, thereby, are given IQ tests. Finland also has a wealth tax which requires investment portfolios to be reported. According to Shiller, the researchers find that the propensity to follow accepted portfolio techniques--diversify, invest in low cap stocks, etc.--is greater for higher IQ men (it seems that females may have been skipped in this study!). Interestingly, nothing is reported, as far as I can tell, on performance, which of course would be the bottom line!
Shiller goes on to say that the bigger issue might not be intelligence per se but a lack of trust. The ability to learn who to trust though, according to Shiller, is dependent on intelligence. He cites a second study that found those with a "high level of trust" were more likely to invest in the stock market. To me, this is a sort of "duh!" finding.
I am a huge fan of Shiller and have admired his books and especially the research he has done on the p/e ratio. I believe it is useful for determining entry points for long-term investing. Still, I have some difficulty with statements he makes. For example, he says
Successful investing requires that we judge other people, and it relies on an ability to develop a good model of others’ minds.Frankly, I'm not even sure what the last part of the sentence means. My main beef, though, is that just investing in the market with a well-diversified portfolio comprised of low-cost funds has been very successful over the long run. In fact, voluminous evidence supports the finding that it outperforms 70% to 80% of all professionals after all costs are accounted for! There is no need to "...judge other people." More than anything, it requires a belief that the economic system will continue to produce remarkable products. In a world where the information available to geniuses with a laptop is proliferating at an amazing rate, I believe it is a belief that is easy to accept.
I would like to see a study on how much wealth has been lost because people went to Mr. High IQ for investment advice!