All else being equal, someone new to investing would likely think that the smarter you are, the more success you would have in investing. The ability to gather, extrapolate, analyze, vet and measure information and data better than the next person certainly gives you a demonstrable edge that manifests in better investments returns.
The Wall Street Journal recently highlighted a hedge fund manager who once managed the investments for Harvard University’s multi-billion dollar endowment. Some of the smartest people in the world, working at Harvard, chose one of the smartest investors in the world, Jack Meyer, to manage the university’s money. From 1990 to 2005, Mr. Meyer had a stellar career at Harvard. When he quit to launch his own hedge fund, it opened with over six billion dollars, one of the largest opens ever.
So what did the WSJ write about? For the last five years, Mr. Meyer’s fund has underperformed his benchmark, every year. Such is the magnitude of the fall from grace that billions are being pulled from his fund. Even Harvard, who became Mr. Meyer’s client after he left, has redeemed their investment with him.
Mr. Meyer is smart. So is his staff. Yet, like the rest of the investing world, his attempts to beat the market fell short. Were it a matter of intelligence, this would not have happened.
If it’s not smarts you need, then what? Decades of science and research tell us without a doubt that discipline and patience are the key mental traits that drive successful investing. If you apply those traits to a well-constructed, “Evidence-based” portfolio, you should expect success over the long run.
Of course, being smart probably doesn’t hurt. But being just smart enough to know that it doesn’t matter is far more valuable.
John & Bill