"Mindware" has been coined by David Perkins, a cognitive scientist at Harvard University as the set of rules, data, procedures, and strategies that are used or retrieved from memory to think rationally and solve problems. It is our skill at thinking about probabilities and making scientific inferences. This skill is different than what is measured by IQ tests, yet it is closer to what we use the word intelligence.
Intelligence is more complex than what we see in IQ tests. Perkins will state that intelligent is the combination of power (raw intelligence or efficiency at using our brain) plus tactics and context. The context is our ability to place a problem in the right domain or use specific knowledge to solve a problem. We can do investment management better when we understand the mechanics of investment management.
However, the tactics or our frames for thinking is what matters most. Better "software" is critical for using the hardware correctly. Similarly, better "mindware" or tactics such as reasoning skills or our ability to make inferences, measure probabilities, and use appropriate reasoning is essential for problem solving.
The problem is that many thinkers are "cognitive misers" according to Keith Stanovich whose work can be summarized in, "Rational and Irrational Thought: The Thinking that IQ Tests Miss; Why smart people sometimes do dumb things". The cognitive miser will chose the thinking tactic that uses the least effort. This is what will get us into trouble. He has coined the term dysrationalia which is analogous to dyslexia. This is the equivalent of fast or system 1 thinking as described by Daniel Kahneman. It is fast thinking that will usually get us in trouble with complex problems.
Due diligence, in a sense, is measuring not the intelligence but the mindware of a manager. It is not his brilliance at showing how intelligent he is with knowledge and facts, but what are the tactics he uses to solve investment problems.
For the quant, it is not so much that he knows new statistical techniques, but that he knows how to use the right tools for the right problem and understands the context of the problem so as to use the right tools. For the discretionary manager, the tactics will be driven by his ability to use the right thinking for right problem. If a stock is viewed as undervalued by others, the manager is able to take a fresh perspective and truly determine whether value exists.
Mindware for investment management may be acquired through experience. It may not be bestowed through a degree. The critical skill for due diligence is not being fooled by intelligence but discerning what it means to be smart.