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I've got some observations about the role of intelligence vs. temperament in investment success and a suggested test:

1. Most of what we refer to as “smart” more closely reflects a person's work ethic. The “smartest” students in class typically turn out to be the hardest working. The amount of native intelligence required to become rich is fairly modest. Lots and lots of people are more than smart enough to be rich, but very few ever become rich.

2. The correlation is very high between the amount of useful education one accomplishes and annual income. The data to support this assertion is simply overwhelming. For example, according to a recent government report, working adults ages 25 to 64 earned an average of $34,700 per year.6 Average earnings ranged from $18,900 for high school dropouts to $25,900 for high school graduates, $45,400 for college graduates, and $99,300 for workers with professional degrees (M.D., J.D., D.D.S., or D.V.M.). Workers with professional degrees (MBAs included) have the highest average earnings. Unfortunately, the popular result is that most people spend all their income no matter how large or small that amount.


3. The correlation is positive, but much lower than you might expect between the amount of useful education one has accomplished and the amount of wealth accumulated. Highly educated people have more income to work with, but wealth-creating activity is much different than income-producing activity. Wealth creation requires what one might call a productive and purposeful personality that accepts, or even prefers, delayed gratification. I'm not sure such a temperament can be taught. I've tried to teach it with very little success. Some neuro scientists believe we are hard wired with or without such a temperament.


THE COOKIE TEST: Go to the store and buy a bag of your favorite cookies. When you get home, suppose you open the bag and see that one on top is broken. The rest are fine. Which cookie do you eat first?

1. The broken cookie. Bingo! You have chosen to suffer now in return for the prospect of a future of unbroken cookies. You not only accept delayed gratification, you may even prefer it. You have a real shot at getting rich.

2. Any unbroken cookie. Too bad. You aren't in for delayed gratification. Sorry, but it won't be easy for you to get rich. It probably won't happen.

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