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    Joined: May 2008
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    Great discussion, my only goal is that my son’s make enough money to support my wife and me in our retirement. My 10 year old still says he will support us and give us a big house, our 20 year old said he will place us in a home. (I hope it’s a nice one). IQ is just a factor in wealth (cash and assets); it’s an important factor to a degree. Very high IQ may be a detriment at some point, money may not mean as much. Most of the very wealthy took risks that many of us would not take, and many just work harder, or smarter (Not always IQ smarter), some give up things that many of us would not. The price for wealth can be high. If you look overall a low IQ can make it difficult to become wealthy, so the converse may hold some truth. This is mostly anecdotal but I know many HG adults doing very well financially, many gifted, and some average doing very well also. I also know many HG that are not doing so well (Some by choice). (And who defines well anyway?). I think (Like anyone asked) that the subject of wealth and IQ is much broader, then the results on an IQ test that falls apart after 140, and maybe isn’t that good after 130.

    Last edited by Edwin; 04/15/13 06:52 PM.
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    Originally Posted by aquinas
    Also, with securities markets best modelled as a random walk plus drift, I don't know that stock portfolio performance is really indicative of anything at all to do with intelligence. It's a random variable, per JonLaw's results.


    The financial markets are close to being efficient because there are smart people who are paid well to exploit inefficiencies. Hedge fund managers who went to colleges with high SAT scores (and who presumably have higher scores and IQs themselves) earn higher returns:

    http://web.ics.purdue.edu/~zhang654/jfqa_manager.pdf
    Investing in Talents: Manager Characteristics and Hedge Fund
    Performances
    Haitao Li, Xiaoyan Zhang, and Rui Zhao∗
    June 2009
    Investing in Talents: Manager Characteristics and Hedge Fund Performances
    Abstract
    Using a large sample of hedge fund manager characteristics, we provide one of the
    first comprehensive studies on the impact of manager characteristics, such as education
    and career concern, on hedge fund performances. We document differential ability among
    hedge fund managers in either generating risk-adjusted returns or running hedge fund as a
    business. In particular, we find that managers from higher-SAT undergraduate institutes
    tend to have higher raw and risk-adjusted returns, more inflows, and take less risks. Unlike
    mutual funds, we find a rather symmetric relation between hedge fund flows and past
    performance, and that hedge fund flows do not have a significant negative impact on future
    performance.
    JEL: G23, G11, G12.
    Keywords: hedge fund performance, manager characteristics, hedge fund flows.

    The same pattern holds for mutual fund managers:

    http://www.nber.org/digest/aug97/w5852.html
    In Are Some Mutual Fund Managers Better Than Others? Cross-Sectional Patterns in Behavior and Performance (NBER Working Paper No. 5852), Chevalier and Ellison focus on managers, instead of funds: given the high rate of managerial turnover in the mutual funds industry, the distinction between fund performance and manager performance is not a trivial one. They then examine cross-sectional performance, instead of searching for correlations in fund returns over time.

    During the time period they study, there is a strong correlation between fund returns and a manager's age, the average SAT score of his or her undergraduate school, and whether he or she holds an MBA.

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    Originally Posted by aquinas
    Also, with securities markets best modelled as a random walk plus drift, I don't know that stock portfolio performance is really indicative of anything at all to do with intelligence. It's a random variable, per JonLaw's results.

    The lesson I learned was "don't short the market during a major QE session."

    So, it was pretty non-random.

    [Linked Image from hussmanfunds.com]

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    Originally Posted by Bostonian
    In general, IQ is positively correlated with good outcomes. Anecdotes and speculation about the tails should not obscure this pattern.

    Yes, because that would be inconvenient to your argument.

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    This discussion brings to mind a funny anecdote. Years ago, dh went through a top ranked graduate program in theoretical high energy physics (I think it is safe to say this was a high IQ cohort of students). After they all graduated, some stayed in physics, and some of the ones who didn't went to Wall Street, where they made oodles of money. After one of his friends had done several physics postdocs (i.e., low pay), he contemplated Wall Street. He first asked friends still in physics about those who went to Wall Street, and they told him, yes they're rich, but they're not happy. His next step was to track down the Wall Street physicists themselves and what did he find? "Yes, they're rich, AND they're happy."

    On the other hand, there have been a couple of stock market crashes since then, and we've been out of touch, so we don't know the epilogue.

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    Originally Posted by Bostonian
    The financial markets are close to being efficient...

    Sounds like you're arguing the semi-strong efficient markets hypothesis. So far I'm nodding in agreement.

    Originally Posted by Bostonian
    ...because there are smart people who are paid well to exploit inefficiencies.

    Ehhhh...not really.

    Markets are efficient because, otherwise, arbitrage opportunities would exist that investors would trade away. This presence of institutional bankers with market-making capabilities simply means that the process is accelerated because of the trade volumes they can sustain on transactions where retail investors' profits would otherwise be consumed by transaction costs. This is a volume- and specialization-linked advantage, not necessarily an intellectual one.

    Also, this line of reasoning appears to be inconsistent with your efficient market values. If you believe that markets are efficient, then you should be advocating for investing in a well-diversified ETF. The article you cite doesn't factor in serial correlation of returns captured by managers outperforming the market, which is problematic, because mean reversion to returns approximating a random walk plus drift is what the literature observes. (See Malkiel, Fama).


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    Originally Posted by JonLaw
    Originally Posted by aquinas
    Also, with securities markets best modelled as a random walk plus drift, I don't know that stock portfolio performance is really indicative of anything at all to do with intelligence. It's a random variable, per JonLaw's results.

    The lesson I learned was "don't short the market during a major QE session."

    So, it was pretty non-random.

    [Linked Image from hussmanfunds.com]

    An important lesson. But, then, QE was an unprecedented response to a black swan event.


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    Originally Posted by Bostonian
    The financial markets are close to being efficient because there are smart people who are paid well to exploit inefficiencies. Hedge fund managers who went to colleges with high SAT scores (and who presumably have higher scores and IQs themselves) earn higher returns:

    Pretty much the only thing hedge fund managers are exploiting are their investors, it seems.

    http://www.automaticfinances.com/monkey-stock-picking/

    Quote
    The long-story short is that, except in a very rare occasion, I’m not knowledgeable enough to beat the market over an extended period of time with my investment choices. And neither are you.

    If you’re paying someone to do the job for you, you’re likely not even beating the indexes they’re benchmarking against — and then you have to pay them fees.

    http://www.ft.com/cms/s/2/66608056-f287-11e1-86e0-00144feabdc0.html

    Quote
    Since the beginning of 2010, the {hedge fund} industry has registered net inflows of nearly $150bn from investors. Yet in the same period the average hedge fund has returned just 7.5 per cent – compared with 9.3 per cent for global equities and nearly 15 per cent for global bonds.

    http://www.stamfordadvocate.com/new...-pay-stretches-to-10-figures-4436581.php

    Quote
    Certainly, plenty of hedge fund titans took home billion-dollar paydays last year despite the fact they lagged the big gains in stocks.

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    Originally Posted by SiaSL
    Not the OP, but Google gives me The Everything Parent's Guide to Raising a Gifted Child by Sarah Robbins for the first quote (p125) and Giftedness 101 by Linda Silverman (p87) for the second.

    Amusingly enough links to the page with quoted materials in Google Books came as #2 results for both searches. The #1 result points to this thread. I have no idea what the DA uses for SEO but Google just laps it up...

    Our library just got the everything parent book - unimpressed I must admit and not just with that quote.

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    Originally Posted by aquinas
    Originally Posted by JonLaw
    Originally Posted by aquinas
    Also, with securities markets best modelled as a random walk plus drift, I don't know that stock portfolio performance is really indicative of anything at all to do with intelligence. It's a random variable, per JonLaw's results.

    The lesson I learned was "don't short the market during a major QE session."

    So, it was pretty non-random.

    [Linked Image from hussmanfunds.com]

    An important lesson. But, then, QE was an unprecedented response to a black swan event.

    They weren't reacting to a "black swan" event.

    In fact, the collapse of the credit/housing bubble was as far from a "black swan" event as you can get.

    When you stuff a financial system chock full of credit that has no business existing in the first place, what you get is what happened.

    I mean the dot-com bust just happened. It wasn't like everyone hadn't just lived through a boom and bust.

    It was a standard-issue mania, panic, and crash. Classic "white swan".

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