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Thursday, Jul 7, 2022

Chet Currier—Testosterone Trap Weakens Male Talent for Investment

In an era when the sky is practically raining investment books for women, somebody needs to speak up for their fathers, brothers and sons.

The financial plight of men has never been properly appreciated. By temperament and biological makeup, they face severe disadvantages compared with women when it comes to managing money.

Men suffer from deficits in rationality, calm and ability to appraise risk appropriately. Please give them your compassion which, come to think of it, is another vital quality they may have trouble supplying on their own.

As a male myself, I don’t expect you to take my word for this. I have an academic study to back me up. Take a look at a paper published in the Quarterly Journal of Economics by Terrance Odean of the University of California at Davis’s Graduate School of Management, an authority in the field of behavioral finance. It’s available online at http://www.gsm.ucdavis. edu/~odean/papers/gender/gender.html.

The study, entitled “Boys Will Be Boys,” found that men, far more than women, fall victim to the error of overtrading in their investment accounts and thus come out with lower returns.

Examining more than 35,000 accounts at a discount brokerage firm from 1991 to 1997, Odean found that men traded 45 percent more often than women. Too much trading is notoriously harmful to one’s financial health; it raises your costs and increases your chances of making mistakes. Sure enough, Odean says, women in his study earned an annual return, adjusted for risk, that beat men’s by 1.4 percent.

For singles, it’s double

When Odean narrowed his focus to single people, the difference was even starker. Single men traded 67 percent more, and single women enjoyed a 2.3 percent edge in annual risk-adjusted return. The presence of a wife evidently helps rein in some of the worst male excesses.

“Psychological research has established that men are more prone to overconfidence than women,” Odean notes.

Looks to me as though he’s opened a window on what we might call the Testosterone Trap. It’s not just in stocks that this hazard lurks. You run into it everywhere there are financial decisions to be made. John T. Reed, who publishes the newsletter Real Estate Investor’s Monthly in Alamo, Calif., says men often see it when they get cold calls from securities salesmen.

As Reed tells the story in his newsletter, “Once, in a moment of weakness, I said we had some money in certificates of deposit. The salesman ridiculed my wimpiness. I forget his exact words, but the import was that ‘real men’ buy growth stocks, not CDs or bonds.”

This is a form of intimidation that no woman has to face. Question a guy’s masculinity, and the next thing you know he’s margined to the hilt in tech stocks and challenging the Internal Revenue Service to a fight.

In the real estate game, Reed says, there is a standard machismo scale. Commercial real estate is more manly than single-family or two-family housing; within commercial real estate, nonresidential (say, an office building) is more manly than residential (say, an apartment complex).

The same kind of hierarchy is plain to see in stocks. Individual stocks pack a higher virility quotient than stock mutual funds; options and futures on stocks are more virile than stocks themselves.

Anything to do with the stock market is more macho than a money-market fund or a CD, which in turn are more manly than a passbook savings account or down close to the bottom of the ladder a Series EE savings bond.

So, fella, you think you’re secure in your manhood? Well then, the next time you go to a neighborhood block party, let’s see you show everybody your Christmas Club account.

The thought crossed my mind that somebody ought to write a book on the Testosterone Trap. After mulling it over, though, I don’t want the assignment. What possible market could there be for such a project? No macho man reads that kind of book.

Chet Currier is a columnist for Bloomberg News.

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