Warren Buffett: Emotional Stability Will Always Beat Intelligence In Investing

During the 2009 Berkshire Hathaway Annual Meeting, Warren Buffett explained why emotional stability will always beat intelligence in investing. Here’s an excerpt from the meeting:

WARREN BUFFETT: The market is there to serve you rather than instruct you and to a great extent, that is not a matter of IQ. If you have — if you’re in the investment business and you have a IQ of 150, sell 30 points to somebody else, ’cause you don’t need it.

I mean, it — (laughter) — you need to be reasonably intelligent. But you do not need to be a genius, you know. At all. In fact, it can hurt.

But you do have to have an emotional stability. You have to have sort of an inner peace about your decisions. Because it is a game where you get subjected to minute-by-minute stimuli, where people are offering opinions all the time.

You have to be able to think for yourself. And, I don’t know whether — I don’t know how much of that’s innate and how much can be taught.

But if you have that quality, you’ll do very well in investing if you spend some time at it. Learn something about valuing businesses.

It’s not a complicated game. As I say — said many times — it’s simple, but not easy.

It is not a complicated game. You don’t have to understand higher math. You don’t — you know, you don’t have to understand law. There’s all kinds of things that you don’t have to be good at. There’s all kinds of jobs in this world that are much tougher.

But you do have to have sort of an emotional stability that will take you through almost anything. And then you’ll make good investment decisions over time.

Charlie?

CHARLIE MUNGER: Yeah, you do have the basic problem that exactly half of the future investors of the world are going to be in the bottom 50 percent.

In other words — (laughter) — you’re always going to have more skill at the top than you have at the bottom. And you’re never going to be able to homogenize the investment expertise of the world.

There is so much that’s false and nutty in modern investment practice, and in modern investment banking, and in modern academia in the business schools, even in the Economics departments, that if you just reduce the nonsense, that’s all I think you should reasonably hope for.

WARREN BUFFETT: Beyond a certain basic level, though, of skill, wouldn’t you say your emotional make-up’s more important than the — than some super high degree of skill?

CHARLIE MUNGER: Absolutely. And if you think your talent — if you think your IQ is 160 and it’s 150, you’re a disaster. (Laughter)

You know, much better a guy with a 130 that’s operating well within himself.

You can listen to the entire discussion here: