Overview – STEM and Investing Skills Are Very Different, or Are They?
Unlike engineers, doctors, lawyers, teachers, and other professionals, there’s no formal educational requirement needed to become an investor. Because of this, investors have all sorts of educational credentials under their belts – some investors may hold advanced degrees, while others may only have a high school education to their name.
Although there are no major barriers to entry when it comes to investing and is open to virtually everyone, certain types of people are more drawn to it than others.
Because investing is so analytical and data-driven, it comes as no surprise that people with that sort of background are drawn to it, namely those who hail from a STEM (Science, Technology, Engineering, Mathematics) background.
If someone hails from a STEM background but has limited experience/knowledge of investing, can the STEM skills they currently possess be used to their advantage when they start their investing journey? Absolutely.
STEM and Investing Skills Have More Overlap Than You May Realize
Let’s say you want to start investing, but your formal educational background is in biochemistry. You’ve spent countless hours studying various biochemical reactions, mechanistic pathways, and other intricacies of biochemistry, and have probably spent just as much time in the lab performing all sorts of experiments.
With such a highly specialized background, can the skills you developed while studying biochemistry be of use to you as a new investor?
Well, for starters, we know that investing is a highly analytical activity. Whether you’re reading a report, poring over financial statements, or trying to decipher an earnings call transcript, a key skill every investor needs is knowing how to pick apart information and extract the information they feel is relevant for their decisions.
Fortunately, your biochemistry education most likely covered a wide range of analytical-based classes such as introductory biochemistry, cell biology, and organic chemistry, all of which required you to pick apart a body of information and extract the details you needed to arrive at the correct solution.
Investors will sometimes need to test hypotheses and make assumptions every now and then to determine which course of action will help them reach specific investment goals. As new data become available, they adjust their hypotheses and assumptions accordingly. Given the countless hours you’ve spent in the lab doing this is probably second nature to you by now.
It’s no secret that investing involves a fair bit of number crunching, but that shouldn’t be a problem for you given that you’ve likely taken at least an introductory calculus course, along with additional math courses that pertain more specifically to your particular field of study. The numeracy skills you developed when taking these math classes will most definitely be of use to you when dealing with investing-related math and number crunching.
Although the example we used was biochemistry, the same phenomenon can be observed in almost any other STEM discipline: many of the skills that were learned and developed while pursuing a technical field of study are highly transferable to investing.
Whether it’s engineering, natural/medical sciences, or robotics, many of the quantitative/logical skills that an investor uses on a regular basis overlap with the skills that are developed when pursuing these fields of study. The overlap may not be readily apparent at first glance, but it becomes much clearer once you take the time to stop and think about it, as was shown in the biochemistry example from earlier.
Arguably the reason why so many people with STEM backgrounds are drawn to investing is that it’s highly analytical, requires a moderate-to-high level of numeracy, and involves working with lots of data. The people who come from a STEM background most likely enjoy performing this kind of intellectual work already, so it’s not surprising that investing draws a lot of interest from these types of people.
Not All STEM Skills May Transfer Perfectly to Investing, but They Don’t Need To
Although certain STEM skills such as numeracy, data analysis, and critical thinking are highly transferable to investing, there are other skills where that may not be the case.
For example, my chemical engineering education taught me a lot of math classes which helped develop my numeracy and the wide variety of different physics classes I took helped sharpen my problem-solving and analytical ability, all important skills that I use regularly in investing.
However, there were some skills which I acquired that weren’t completely transferable to investing, such as reactor design, distillation column design, and basic FEED (front-end engineering design).
Does that mean these high-level skills had no use to me as an investor? Not at all.
Sure, they may be specialized skills, but they build upon a foundation of problem-solving, critical thinking/reading, and numeracy. The specific details may not be applicable to investing but the foundational concepts certainly are, and those foundational concepts are still very helpful.
Regardless of what STEM background a person comes from, chances are they possess some very high-level skills that are only pertinent to their specific field. Although these skills may not be entirely transferable, certain aspects of them might be – it all depends on understanding what those transferable elements are.
Not every STEM skill you have will be perfectly transferable between certain domains, but they have to. As long as certain elements of a given skill are transferable, and you can successfully identify what those elements are, then that’s already extremely valuable to you.
It’s also important to point out that although many STEM skills are transferable to investing, not all of them will be. There are some skills that may prove to be too specialized, and as a result, don’t have enough transferable elements that would be of much use in investing.
The fact that not every STEM skill will transfer to investing should come as no surprise – STEM programs equip people with the skills and knowledge needed to thrive in their chosen field, not necessarily to transfer those skills to other domains. It just so happens that many of the skills developed in a STEM program share a fair bit of overlap with some of the skills required to be a successful investor.
Coming From a STEM Background Doesn’t Guarantee Investment Success
There’s no shortage of smart people in investing: many hedge funds, private equity firms, and institutional investors have employees who almost all have an advanced degree (or degrees) to their name. Many retail and accredited investors who manage their own portfolios also have impressive credentials to their name.
It’s no secret that STEM fields are highly technical and come with very unique challenges. Because of this, some people who come from this background may develop an air of superiority, believing that because of their strong numeracy, analytical, and problem-solving skills they can conquer almost any problem that puts those skills to the test.
However, just because you have an engineering or math degree doesn’t mean you’re in a better position to succeed in investing than someone who holds a fine arts degree or no degree at all.
STEM skills are highly transferable to investing and can certainly give investors who have them an edge, but by no means does it guarantee any sort of success.
The now-defunct Long Term Capital Management had two Nobel Laureates under their wing, as well as countless people equipped with a wide variety of advanced degrees, yet it still collapsed despite all that brainpower. Investing isn’t some game where your IQ or educational credentials determine whether you succeed or not.
Skills such as emotional intelligence, the ability to think rationally under any circumstance, reading between the lines, and keeping your cool when those around you are panicking are all equally important skills that contribute to an investor’s success.
You could have some very refined STEM skills, but they won’t matter if you panic and proceed to sell at the first sign of trouble, or if all it takes for you to start thinking emotionally is when market indices go down ever so slightly.
Remember, what makes investing so unique is that it’s both an art and a science. The investors who go on to succeed are the ones who have skills in both of these domains and can synthesize them in a way that works for them.
Identifying and Filling in the Gaps in Your Skill Set
Although STEM skills cover a lot of the core competencies needed in investing, there are still a wide variety of skills that investors need to master in order to improve their chances of succeeding.
STEM programs place great emphasis on teaching very quantitative and technical skills, but how many STEM programs teach their students the importance of emotional control, learning to find information through unconventional means, maintaining the ability to think rationally in the face of overwhelming emotions, and how to pick up on signs of fraud and dishonesty?
This isn’t to say that everyone who hails from a STEM background lacks these “soft” skills. Rather, the point is to emphasize just how broad an investor’s skill set needs to be, and how a STEM background alone usually isn’t enough to cover all of them.
Because a STEM background alone isn’t enough to succeed in investing, it would be wise to have a good look at the skills you currently have, identify any gaps you may have, and fill them accordingly. Who knows, perhaps the gaps in your skillset come from areas you originally thought were your strengths.
There’s no such thing as a “perfect” investor, that is, someone who has all the investing skills they could possibly need. By choosing to become an investor, you’re also choosing to commit yourself to continuous study and improvement. There will always be something for investors to refine and get better at – after all, continuous improvement is the name of game.
Wrapping Up
Investing demands its participants to possess a broad skill set if they wish to have a fighting chance at succeeding. Of those many skills, a good portion of them are quantitative/logical in nature, such as numeracy, analytical thinking, data sufficiency, and critical thinking, to name a few.
Many of these quantitative/logical skills are learned and developed by pursuing a STEM program, so it comes as no surprise that many people who come from this background are drawn to investing.
Although STEM skills have the potential to be put to use in investing, the degree of transferability varies. Some are highly transferable, some may only be partially transferable, while others may not be transferable at all.
While a STEM education can equip people with skills that can potentially be used in investing, it’s important to remember that just because you hail from a technical background doesn’t mean your investment success is guaranteed. There are a whole plethora of skills that investors need in order to do their work effectively, and a STEM education alone likely won’t cover all of them.
