March 17, 2010

It's a guy thing: Study finds men more likely to sell at market lows

Okay, guys. Show some backbone. Or some patience. Or stop being so overconfident.

A study from Vanguard (released late in 2009 but picked up last week in the New York Times) shows that during the market downturn of '08 and early '09, men were much more likely than women to sell their shares at stock market lows, rather than patiently waiting for a rebound.

John Ameriks, head of Vanguard Investment Counseling and Research and a co-author of the study (PDF), ascribes the disparity to male overconfidence. "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," he told the Times.

Maybe. Or perhaps guys just tend to be more impatient than women. Or maybe they're more apt to track their investments closely, and therefore more apt to respond to the short-term direction of the market.

Here's more from the Times article, "How Men's Overconfidence Hurts Them as Investors":

Staying the course and minimizing costs...are the classic characteristics of good long-term...investors. But during the financial crisis, the Vanguard study showed, men were more likely than women to trade — and to do so at the wrong times.
That fits the patterns found in path-breaking research by Brad M. Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley.

In a 2001 study titled, "Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment" (PDF), they analyzed the investing behavior of more than 35,000 [investors who had accounts with] a large discount brokerage firm. [The accounts were segregated into those opened by women and those opened by men.] All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up the men's costs and lowered their returns....

Short-term financial news often amounts to little more than meaningless "noise," [Professor Barber said in a telephone interview with the Times]. Far more than women, men try to make sense out of this noise, and to no avail.

Of course, like all social science research projects, the studies mentioned above may not have taken into account all the factors that could affect outcomes. But these studies — and others that have shown correlations between testosterone and risk-taking— certainly should cause us guys to think twice before taking action.

Indeed, the best approach is to keep emotion (and, yes, testosterone) out of the investment decision-making process entirely. Either of SMI's two core strategies, Just-the-Basics and Fund Upgrading, will do just that — with positive results for both men and women.