IQ < RQ in Investing

I could even have written “RQ > IQ in Life”, but it would just be an opinion.

TL;DR

• Intellectual Quotient (IQ) = ability to compute; Rationality Quotient (RQ) = ability to make robust decisions under uncertainty.

• RQ = quality of beliefs (epistemic rationality) + ability to turn those beliefs into robust decisions (instrumental rationality).

• The greatest investors have a high RQ, not necessarily a high IQ. Their RQ is what allows them to survive long enough to compound for decades.

• RQ can be trained and developed continuously. It’s a daily, lifelong battle.

• A complete method to train your RQ is provided at the end of the post. The core idea is to build a repeatable process that generates feedback, and to use that data to improve.

• The edge comes from your ability to repeat these long, boring steps over time. Simple, but not easy.