Some of the best performing investors are those who are not too smart.
I have found many intelligent people to be suboptimal investors with regards to their behaviours.
1/. Many smart people tend to be overconfident
A lot of smart people are overconfident in their abilities. Thinking they know everything. This can often result in trading frequently trying to time the ups and downs, thinking you can beat the market, or trying to pick winning stocks. All of which are signs of underperformance. Thinking you are a better investor than you are can result in complacency and not being prepared, or aware of, large potential risks.
2/. Many smart people tend to lack confidence
A lot of smart people are the opposite. These are the smart people that realise they don’t know everything. In fact, they think they don’t know much at all because the more they learn, the more they realise they don’t know. This can also result in sub-par investment performance through lack of decision making or not being aggressive enough for your needs.
3/. Many smart people think they have done well in life because of their intelligence and good decisions
And whenever something bad happens they blame others. For example, if they are in an investment fund that performs poorly, an unbiased observer may be able to point to the intelligent person’s poor asset allocation or selling in a panic, etc. Whereas the intelligent investor will often blame factors outside their control such as the economy. This leads to a terrible outcome where the intelligent investor continues to believe they are making great decisions by making up stories to match their decisions and to justify them. This means continued poor investment decisions and sub-par returns.
The best investors understand their limitations
Many of the best investors understand they are not perfect. They understand they are not the most intelligent person. They know their limitations.
A lot of investors perform worse than the index because of their poor behaviours. Not necessarily the investments they pick. Two people in the same fund can perform vastly different based on their (poor) investing behaviours.
Novice investors are frequently beating the returns of experienced investors by doing nothing. That’s right. Just by buying a wide range of stocks and holding on for the long term, not trying to outguess the market, the majority will perform better than the frequent traders and professionals.
You don’t have to be intelligent to be a good investor. In fact, some may say it’s better not to be too smart.
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The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here