“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential,”
“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
“If you have a 150 IQ, sell 30 points to someone else. You need to be smart, but not a genius,”
"Because you have all these smart people out there. The money doesn’t go to the people with the highest I.Q. There would be a very poor correlation between I.Q. and investing and results. And you say to yourself why does somebody with a 500-horsepower motor only get 100-horsepower out of it? And I would say that if you look at the intellect as being the horsepower that’s available, but you look at the output as reflecting the efficiency of that motor, it is rationality that causes the capacity to be translated in output."
-Warren Buffett
There is still a general mindset that IQ is a driver of success, yet the evidence points to a more nuanced view. There is a minimum intelligence needed for most jobs. That threshold may differ by profession, but it is not genius levels. Success is coupled with rationality which can be defined by several broad components —adaptive responding, good judgment, and good decision making. The smartest person in the room may not be successful if he cannot employ good decision-making.
The measurement of IQ (Intelligence Quotient) handles abstract verbal and quantitative mechanics, while an assessment of someone's RQ (Rationality Quotient) focuses on the ability to lay out a problem's logic as well as alternative analytical approaches. We have moved away from standardized IQ tests given our assessment that individuals can have several different skills, yet there has not been a willingness to add RQ measurement or testing to capture rationality.
Is rationality measurable? The answer is yes. While there are limitations like any testing format, questions have been derived to assess rationality. For more on this topic see The Rationality Quotient: Toward a Test of Rational Thinking by Keith E. Stanovich, Richard F. West and Maggie E. Toplak.
Investors should broaden their thinking on the skills necessary for success. Most have the minimum intellect, yet they need to assess and improve skills associated with rationality.
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