Sometimes being stupid is the smartest thing to do

Posted by Maneesh Sethi :: September 18, 2007 @ 12:24 pm

Want to read an article that might shake your world? Check this out: researchers showed that higher IQs can lead to less wealth overall.

Counterintuitive, eh? Doesn't it seem that the smarter you are, the more money you will have? It doesn't turn out that way. The article cites several reasons, such as the idea that intelligent people spend less time managing money and think that they will be able to handle any sort of financial distress. But, by doing some other research, there are lots of reasons why being smart is a hindrance.

Exhibit A: Ben Stein (He is so cool.)
Ben wrote this amazing article about why "stupid investors" seem to do so well. Check out what he says (emphasis mine):

"The ‘smart’ investor also reads that the Fed has injected, say, $100 billion into the banking system in the last week or ten days, and says, "Aha! The whole country is vaporizing. Look how desperate the system is for money!" What he does not see is that the Fed is always either adding or subtracting liquidity and that recent moves are tiny in the context of a nation with a money supply in the range of $12 trillion. No, the "smart" investor is far too busy looking for reasons to run for cover and thinks he can outsmart long-term trends.

The stupid investor knows only a few basic facts: The economy has not had one real depression since 1941, a span of an amazing 66 years.
...
[D]espite wars, inflation, recession, gasoline shortages, housing crashes in various parts of the nation, riots in the streets, and wage-price controls, the S&P 500, with dividends reinvested, has yielded an average ten-year return of 243%, vs. 86% for the highest-grade bonds. That sounds pretty good to him."

The smartest people think they can beat the market. Other people don't think they can, and they follow the general advice of long-term investing. Who wins? The long-termer.