February 11, 2009, 06:41 AM ET

Why Men Can't Handle Money (Part I)

“Guys trade around, apparently looking over their shoulders for any fresh, tantalizing, practically nubile investment possibility.”

A study came out of the UC Davis Graduate School of Management in 2001 — stay with me here — loaded up with scientific collateral as well as convincing simplicity, announcing what a few of us already regard as truths so self-evident they’d be up there with the pursuit of happiness and the right to upgrade if you have earned enough miles: Men and women are different, and one way this difference manifests itself is through diverging styles, strategies, and ideologies of investment.

I think we should take another look at it.

Here’s my reductive but not, I hope, misrepresentative version of the results presented in Terrance Odean and Brad Barber’s “Boys will be Boys: Gender, Overconfidence, and Common Stock Investment”: their evidence shows that women trade less often, take fewer risks, look for smart advice and precise information, and remain loyal — one might even say monogamous — to patterns of fiscal management that have worked to our advantage in the past.

And, in what I imagine is a revelation that will cause only a very few hearts to leap in surprise, it turns out that men spew their cash all over creation, trade stocks like greedy kids at a baseball-card convention, and feel a sense of deep satisfaction in trusting their own instincts about the market even when their hunches are 100-percent fact free and — how to put this gently — wrong.

Guys trade around, apparently looking over their shoulders for any fresh, tantalizing, practically nubile investment possibility, eager to embrace it, tossing logic and rationality aside in one cavalier gesture of welcome. In contrast, women cleave to what is established and proven. This sounds far less sexy or stimulating but it turns out to be far wiser in the long run; as Barber and Odean quip: “Trading is hazardous to your wealth.” But when women do choose to invest in equities, observes Barber, “They tend to do better because they trade less.”

What explains the high levels of counterproductive trading made by men in financial markets? The researchers offer one word: overconfidence. “Those who trade the most realize, by far, the worst performance. . . .This result suggests that not only are investors too willing to act on too little information, but they are too willing to act when they are wrong,” declares the study. “The average annual risk-adjusted net return earned by men is 1.4 percent less than that earned by women.” So those bright fellows hurrying to act on their latest hunches might well be taking risks in all the wrong ways, given that “men (and particularly single men) are more likely to act (i.e. trade) despite their inferior ability. The net returns earned by married and single women are greater than those earned by their male counterparts, regardless of the benchmark used.” Standing by your stock picks may be more profitable than standing by your man, especially if your man trades often and is, therefore, regularly shellacked by commission fees.

Much of the general advice being proffered to women by a cluster of best sellers over the last fifteen years volunteering outlines and blueprints for financial management, however, urges women to consider acting and thinking more like men, insofar as risk-taking is regarded as masculine. Risk taking is presented as a sort of desirable secondary sex characteristic — and, like a deep voice, presented as something useful in the professional world — one for which men are genetically hard-wired but which most women will need to cultivate in order to possess.

Our culture’s vision of success is enameled in a conventionally masculine compound of self-confidence, assertiveness, and risk. But how about if you want to win without extreme risk and achieve goals without edging up to some financial precipice?

“Impossible” said the guys on The Street.

Women were told that it was necessary to play like the proverbial big boys if they wanted a seat at the table.

(to be continued)

(Brainstorm illustration incorporating Flickr images here and here)