Why do men trade too much? Professors Odean, Barber and Odean attributed this to overconfidence. And where does the overconfidence come from? William J. Bernstein is a neurologist who has turned his attention to investing since years past. He points to testosterone.
Three problems are caused by the hormone for investors: It decreases anxiety, increases greed, and contributes greatly to overconfidence. “It does wonderful things for muscle mass and reflex time but doesn’t do much for judgment,” he said.
If you fear too little, you’re more likely to get hit hard when markets fall, since you’ll have too much money in the wrong kinds of investments. Excessive greed can lead to too many risks. As for overconfidence, Mr. Bernstein, who is the author of books, including “The Investor’s Manifesto,” suggests a self-administered test question: How certain am I of what I’m doing? “In finance, if you’re certain of anything, you’re out of your mind,” he said.
Women, meanwhile, probably aren’t as confident as they should be. Fidelity’s evidence on this topic is downright depressing: In 2017, one of its surveys showed that just 9 percent of women thought that they would outperform men as investors. Only 14% of women felt confident in making investment decisions, and 33% said they knew very little about saving and investing.
How did we get here? The obvious answers are obvious for women married to men: For a long period, many husbands seized control over investing. This was either because they felt entitled to it as the primary earner or because they were convinced they were better suited to the job. It’s hard to gain confidence with no experience.
It is not possible to even try to invest if you don’t have all the information. But this can be hard for women, said Manisha Thakor, a financial planner and founder of MoneyZen, a consultant in Portland, Ore. “Women are socialized to be perfect, to know everything before we take a step,” she said, pointing to a TED Talk that Reshma Saujani, founder of Girls Who Code, gave on the topic. “Men are more comfortable making decisions without knowing everything,” she added.
Fidelity’s Ms. Kapusta also attributes some of the reasons for underconfidence to the way the financial industry has talked about itself. “It’s jargon,” she said. “Alpha. Beta. Even the names of new solutions. Roboadviser. What’s a roboadviser?”
Source: NY Times