Above a certain level, not very important. IQ is a hygiene factor, not a discriminating factor: it helps to be reasonably smart, but above a certain threshold, further increments help less than in some other fields. The two PhD’s in the book specifically commented on this…
Sushil, Chapter 5: “…for anyone in the top few percent of the population, IQ points are not the limiting factor in investment – other qualities such as recognising your ignorance matter more.”
Vernon, Chapter 7: ” Compared to his mathematics degree and his doctoral work in computer science , he thinks investing is not technically difficult, but it does require some mental habits which are possibly unusual, although not difficult…”
Emanuel Derman gives another version of this: “I once said to one of our equity traders that I thought, on average, fixed-income traders seem to be smarter than equity traders. He agreed, adding ‘That’s because there’s no competitive advantage to being that smart in equity trading’.”
I think it helps to distinguish between mental strength and mental characteristics.
Mental strength refers to raw processing power, IQ, analytical ability.
Mental characteristics means things like
- Actively seeking information from dis-confirming sources
- Adjusting for one’s biases
- Accepting uncertainty for long periods
- Deferring decisions for as long as possible
- Calibrating your certainty to the weight of evidence
- Responding unemotionally to new information
- Indifference to group affiliation. (Buffett in 1965: “We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don’t.” )
For intelligence above a certain level, mental characteristics are related only weakly, if at all, to IQ.
By the way, the mental characteristics listed above are not universally positive. There are many occupations and endeavours which require the protagonists to maintain habitual biases (eg politics), reduce or deny uncertainty (eg leadership), and affirm group affiliation (eg almost any role in any organisation). The mental characteristics which are helpful for investing may not be much use for anything else.
Update (1 Nov 2011): some psychologists characterise the distinction above as intelligence versus rationality.