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Self-Discipline Matters More Than IQ

A research article by Angela Duckworth and Martin Seligman from the University of Pennsylvania showed that self discipline matters more than IQ in predicting academic performance. This does not surprise me. Hard work, discipline and true persistence are a hard combination to beat over the long-term.

Obviously intelligence, as measured by IQ, matters in almost anything you do but only up to a certain point, and then things like discipline and emotional intelligence begin to matter more. Even Warren Buffet – the greatest investor of our time – agrees with this. He was once quoted as saying, “You don’t need to be a rocket scientist…investing in not a game where the guy with the 160 IQ beats the guy with 130 IQ”.

When it comes to investing, it may be a person’s EQ (Emotional Intelligence) that is most important -- or better put, a person’s ability to remain calm and unemotional when faced with the emotions of others and the markets.

In June 2006, John Reed a well known real estate newsletter author stated:

Researchers at Carnegie Mellon, Stanford, and the University of Iowa tested a number of people with an investment game. They found that people who did best have brain damage to the emotional areas of their brains as a result of strokes or diseases. Unlike people with undamaged brains, the people with the damaged brains were not hampered by emotions when it came to making rational investment decisions.

Keep that in mind the next time we have a market correction and your emotions are telling you to make a quick, emotional change to your portfolio. And don’t ever forget that market corrections are a normal part of investing and occur on a regular basis. So regular in fact that since 1900 the US stock market has experienced 5% corrections on average three times a year, 10% corrections on average once per year and 20% corrections on average once every three and a half years.

The self-discipline of not making emotional investment decisions could be far more important than your IQ or anyone else’s IQ for that matter.