What High-I.Q. Investors Do Differently

YOU don’t have to be a genius to pick good investments. But does having a high I.Q. score help?

The answer, according to a paper published in the December issue of The Journal of Finance, is a qualified yes.

The study is certainly provocative. Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market. They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices.

The results are that people with high I.Q.’s build portfolios with better risk-return profiles than their lower-scoring peers.

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How Nutritious Are Your Investments?

By Robert J. Shiller for Project Syndicate

NEW HAVEN – Those labels that you see on packaged foods listing their ingredients and nutritional values had their beginnings in an international scandal and in the efforts by governments to deal constructively with the public outrage that followed.

The scandal erupted with the publication in 1906 of Upton Sinclair’s novel The Jungle, a bestseller that detailed the experiences of a Lithuanian immigrant family working in America’s meatpacking industry. The public response to the book’s description of unsanitary conditions in the industry was so strong that the United States Congress enacted the Pure Food and Drug Act – the first law to require labeling of contents on food packages – the very same year.

By 1910, according to The Manchester Guardian, “The Jungle Scare” had spread to the United Kingdom, where it had been taken up by “less scrupulous [sic] newspapers of this country,” with “slanderous” and “sensational” claims about the food industry. That may have been true, but the eventual effect was better food labeling laws in the UK, too.

Indeed, the scandal set in motion a sequence of laws in countries around the world that today require food labeling to go beyond mere lists of ingredients to include information about the vitamins, minerals, and calories that products contain. These labels are undoubtedly useful to consumers, but it is unlikely that many manufacturers, if given the choice, would have introduced them on their own.

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Economic View: Mom, Apple Pie and Mortgages

By Robert J. Shiller in the NY Times:

FOR decades, the federal government has subsidized housing — particularly owner-occupied housing. This has been especially true during the continuing financial crisis, with Fannie Mae, Freddie Mac and the Federal Housing Administration propping up the housing market by issuing guarantees for investors on most new mortgages.

But what is the long-term justification for putting taxpayers on the line to subsidize homeownership? Is this nothing more than a sacred cow in American society — a political necessity because so many voters own homes and are mindful of their resale value?

In fact, there is much more to the history of subsidizing housing. While the crisis in the housing market shows that our current approach is far from perfect, there is a certain wisdom behind it, related not only to economic stimulus but also to the preservation of a sense of national identity. It’s important to remember this as we consider re-engineering our institutions as the crisis ebbs.

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