Mark Twain once said, "All you need in this life is ignorance and confidence, then success is sure."
Although Mark Twain said many wise things over the course of his life, this was not one of them. There's a growing body of evidence that, investing-wise, over-confidence in men causes them to be inferior investors to women.
- A recent Vanguard study shows that during the 2008-2009 market debacle, men were more likely to sell at the market bottom.
- In a study by the behavioral economist Terence Odean, men traded stocks nearly 50% more than women...reducing investment returns by 265 basis points annually.
- In the same Vanguard study women are more risk-averse than men. In portfolio selection, they much prefer bonds (i.e. fixed income not James).
- In a study of mergers and acquisitions, female CEOs were less likely to overpay for acquired companies in corporate takeovers.
The most provocative study happened at Stanford. Male undergraduates were shown pictures of partially clothed men and women kissing. This activated the nucleus accumbens, a portion of the brain which is stimulated when one eats a delicious food, or looks at an attractive person...and can also affect financial risk-taking.) Sure enough, when the young Stanford males were given financial tests following their nucleus accumbens activation, they were more likely to undertake high-risk gambles.
Women did not respond much to the same pics.
By the way, for further discussion on this intriguing topic, see this article from the NY Times.
Research continues to seek a possible explanation for these differences. One possible theory might be found in evolutionary psychology where our prehistoric male ancestors may have had an advantage in finding mates with their aggressive risk-taking. Ugh!
Regarding the Mark Twain quote about confidence, Twain was a legendarily bad investor. Over a period of 11 years he went bankrupt by investing in the Paige Compositor, an automatic typesetting machine. He invested more than $8 million (in today's dollars) in the new invention...that never came to market due to the inventor's obsessiveness.
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