Financial Planning Blog

Many researchers, and all the women that I know, believe that men are more likely to be afflicted with the wealth destroying trait of overconfidence. Terrance Odean and Brad Barber gave support to this argument in their 2001 paper entitled, "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment". Their real point was not that men are total idiots, although I'm sure there is ample research somewhere to support this thesis. Their claim was that men traded more often, presumably due to overconfidence--a trait that psychologists associate with men in manly-man* areas such as finance. In fact, their study showed men trading 67% more actively than women.

Odean and Barber's previous research, including "Trading is Hazardous to your Wealth: The Common Stock Investment Performance of Individual Investors" had demonstrated how excessive trading led to significantly lower returns for individual investors who traded stocks more frequently. Men and women both traded too much, and underperformed a buy-and-hold strategy. However, men underperformed women by an additional 1% per year, presumably due to the additional trading.

Even John Ameriks, head of Vanguard Investment Counseling and Research, has bought into the "men are overconfident" line of thinking. He said, "There's been a lot of academic research suggesting that men think they know what they're doing, even when they really don't know what they're doing." However, I'm not so sure his recent research really supports this conclusion, but it earned him a mention in a recent NY Times article. The Vanguard research showed that men were 10% more likely to abandon equities in the 2008-2009 market downturn, which although statistically significant, was not nearly as important as the differences in other criteria (e.g. age, and type of investment vehicles). As Brad Barber commented regarding generalizations about investor behavior, "The differences among women and the differences among men are much greater than the differences between men and women."

Even if men demonstrated a higher propensity to abandon equities during a downturn, this is hardly a sign of overconfidence. Wouldn't an overconfident man (I mean a real manly-man) stick with his stock investments when the going gets tough? Wouldn't it be the man who lacks confidence (a girly-man) who sells out at the market bottom. Doesn't selling as the market bottoms out just scream, "Boy, did I screw up, honey!" Wouldn't the real manly-man feign confidence and reassure his wife, "This is just the sissies selling out. These stocks will come back. I know they will."

Fortunately, more research is being done on this matter. According to Brian Knutson of Stanford University, new brain imaging technology is making it possible to determine exactly "what is happening in the brain before people make financial decisions." Who needs brain imaging technology? Any woman can tell you what the real manly-man is thinking before deciding to buy the next hot stock, or sell out as that investment plummets.

He's thinking about sex...and he's overconfident.

See Part 3, Dealing With Overconfidence.

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*According to a Recognized Internet Authority, men may be overconfident--but, we do it for women.  Topping the list of "10 Ways To Be A More Manly Man" is:

1. Confidence--Honestly, confidence is number one for a reason. Girls generally don't think men are manly if they don't have any confidence and even guys that are total dweebs, in many cases, can still attract gals by displaying this characteristic. Ways that guys can better gain and have confidence is by being happy about who you are and just being yourself (as cheesy as it sounds).