Investing in the stock market is an intellectual exercise, based on making operational decisions to buy and sell shares based on the consequences that we reach through our mental processes. Therefore, it would be normal to think that the smartest people would make the most money on the stock market.
Has this happened in practice?
In this article I will analyze what is true in this and if the key to investing in the stock market is intelligence or if something else is necessary. To do this, I will comment on 3 examples of famous historical cases of true geniuses who invested in the stock market.
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- Stock index S&P 500 posted an annualized return of 15,3%. This implies that $ 10.000 invested in the index would have become $ 84.500 in those 15 years.
Once again, we have another clear example that being very smart or having a great IQ are not necessarily synonymous with financial success.
Do the smartest earn more in the stock market?
Not necessarily. You must be clear that neither because you are very intelligent you are going to be able to beat the market easily nor because you do not have a prodigious mind you are going to stop doing it.
What does it take to beat the market?
On the one hand, good training is necessary. By the way, I remind you that if you want to learn to invest in the stock market, you have my "Free Introductory Course on Investment and the Stock Market”. I don't promise that this course will make you smarter, but I think it's the best way to start learning how to make money on the stock market in the safest, most sensible and profitable way.
On the other hand, you need to have common sense. That's trickier than it sounds, especially in times of panic. As the legendary investor said Peter Lynch:
"To invest in the stock market, the stomach is more important than the brain."
By this phrase he means that practically everyone has the mental skills necessary to invest. However, not everyone has the ability to sell when everyone buys and buy when everyone else sells without being carried away by it. herd effect.
eye! With this article I don't mean to say that being smart is inconvenient. Obviously, being smart helps, even if it's not essential. If you are a person with normal intelligence, you will see how with training, common sense and, above all, cold blood, you will have a good long-term profitability. As I always say, it is not easy or quick, but it is worth it.
To end this article I want to quote once again one of the most lucid minds in stock investment, Charlie Munger, speaking of the key to Berkshire Hathaway's success.
"It is extraordinary what a great advantage we have gained simply by trying not to be stupid rather than trying to be very smart."