Sex, Drugs and Investments

I previously wrote that when investing you should act like a “Vulcan”, using pure logic and no emotion. Based on that premise you would expect that men (kings of logic) would be much better investors than women (queens of emotion). And if you believe that to be true, you are wrong, very wrong.

A recent study showed that women hedge fund managers averaged more than 3% higher yearly returns than their male counterparts. The men tended to hold on to losing stocks too long while the women took their losses and moved the money into better places. The study concluded that testosterone may cause men to take more investment risks and to stick with loser stocks rather than to admit their mistakes. (At this point my female readers are wondering why I had to state the obvious and my male readers are totally in denial) It seems the presence of testosterone can cause poor investment decisions.

Now what does this “testosterone factor” mean for us average people when choosing an investment advisor or broker. Should you drop your male broker and look for a female one? Because the study is based on averages, this would be a much too simplistic approach. However it does mean that if you are looking for a new financial advisor you should not hesitate at all in choosing a woman. And if you have two people of different genders that you regard as equal in ability, the study would say that you should pick the woman.

But men should still be careful when selecting a female broker. You do not want to be sexually attracted to her at all. The goal is to maximize the return on your assets and to do that you can not be influenced by her assets. Be aware it doesn’t matter if she achieves a 10% return on your investment, if you end up losing 50% of your net worth in divorce court. And just as you don’t want your mutual fund to be “front-loaded”, you don’t want your financial advisor to be so either. Some guys (okay most guys) brains turn to jello when in the presence of a buxom lady. No, you want your investments to be “A” rated and your broker to be “A” cupped. You see testosterone is still a problem in this situation also.

The study does have implications for choosing male brokers and financial advisors. If you trust the study, too much testosterone is not good for making wise investment decisions. Since older men have less testosterone than younger men, this plus the experience factor should favor older advisors in general. If your broker is a young guy named “Mike Machismo”, then maybe you should worry. Several of the men recently caught running Ponzi Schemes had very macho personas. And there is no riskier financial venture than a Ponzi scheme.

But now there is another problem to worry about. Perhaps you have seen the commercials warning about a condition known as “Low-T” which is short for low testosterone. Yes, now there is a prescription medicine that will quickly boost a man’s testosterone. Do you understand what this means? One trip to the pharmacy could turn your mild-mannered broker Mr. Feebles into “The Tradinator”. I vill pump up ya portfolio and crush da mawket”. One day your money is in a nice, stable, large-cap mutual fund and the next day it could be invested in a yak farm in Pakistan.

We can’t have this, so I am advocating (sounds so Obamaese) regular testosterone testing for all brokers and financial advisors. If we test athletes for steroids, we should test these people for “T” levels. And when we have this data, the investment firms can publish it along with average return rates for each broker. For example: Greg Morris has averaged a 9.3% rate of return while maintaining a “T-level” of 2.8.

I wouldn’t worry too much about the T-level of your female broker unless of course she is a former member of the East German swim team. But maybe you should check for an Adam’s apple just in case.

The Tale of the Beer Parties

- It’s story time children, with a parable so simple even a child (but not some congress people) can comprehend.

Dan is owner of Wonderful Widget Company. His brother-in law Ron is a major source of financing for the business. Dan has made a request for “emergency” funds to pay several bills that are past due. Ron is making an unannounced visit to Wonderful Widget to determine the nature of the request.

Dan: Hey, what are you doing down here?

Ron: You sent me an e-mail about needing more money and I thought I would stop by and see how things are going.

Dan: Aw man, you didn’t have to do that. You should have just transferred the cash like you always do.

Ron: But I sent you “emergency” funding last month and now you are requesting even more money. Is business that bad?

Dan: Sales have been alright, but it’s those darn extra expenses that are really eating up all the profits.

Ron: What expenses are you talking about?

Dan: You know. The stuff that you don’t plan for, but you still have to pay for it. That stuff.

Ron: This “stuff” doesn’t have anything to do with throwing beer parties, does it?

Dan: Beer parties? Are you serious? Beer? Frankly I’m very offended that you would even consider that. What makes you think that there have been any beer parties?

Ron: Well, the dumpster in the parking lot is overflowing with beer cans. And look over there in your meeting room. There are pretzel bits all over the tables and beer stains on the floor.

Dan: Okay look, the beer is needed because it makes everyone happy, the people really love me for buying the beer, and most importantly, the chicks dig it.

Ron: But you don’t have enough money for these parties. You can’t continue to do this wasteful spending.

Dan: Hey, I didn’t “waste” it. I bought good beer with it. Now just write me another check and I will pay my bills.

Ron: If I write you a check, how do I know you will not spend it on beer?

Dan: Come on man. I will use that money to pay my bills unless something more pressing comes up.

Ron: Such as?

Dan: You know. If there is a very hot day and people need some refreshment. Or if the employees eat too many salty pretzels and need relief. Or if some very thirsty ladies show up here unexpectedly. Then I might need to immediately respond to these critical situations.

----- Just then one the secretaries walked by and called to Dan, “Hey Beer Man. I think I’m going to very thirsty this afternoon. Do you think you can satisfy me?"

Ron: That’s it. I am not giving you any more money. You can’t buy any more beer.

Dan: But you can’t cut off my beer money. The people are very accustomed to having beer. I mean they feel entitled to it.

Ron: That shouldn’t matter. Your main focus should be producing wonderful widgets, not making everyone happy. You have to cut off the beer.

Dan: I think you must hate Bavarians to just cut off their beer. Bavarians are huge beer drinkers and it is very mean spirited to deprive them of beer. You are a Bavarian bigot!

Ron: Wait, this has nothing to do with the Bavarians. I don’t hate Bavarians. How am I a bigot? You are the one talking about the Bavarians as a separate group and associating certain behaviors with them. Doesn’t that make you the bigot?

Dan: That’s not how it works. How can I be the bigot when I’m the one that is pointing out your obvious hurtful behavior towards the Bavarians?

Ron: I’m sorry, but the Bavarians are going to have to get their beer somewhere else. I’m not giving you the money.

Dan: But you have to. If you don’t, I will default on my bank loans and I won’t have money to pay my suppliers and other creditors and they will cut me off. This will have horrible consequences for the business and will personally cost you money and respect.

So Ron was still very hesitant to provide Dan with any more money because he was concerned that Dan would spend the money on beer instead of paying down his debts. And Dan was in danger of defaulting on his debts unless Ron provided him with more money.

What will happen next?

Life In The Slow Lane

(Eagle economics – cue Joe Walsh on guitar)

He was a bright-headed man
He was always in fashion, his team ivy-league degreed
He had a plan and he put it in action
There was no doubt that it would succeed

He had a stellar reputation as a cool guy
They said he was brilliant, they said he was wise
He had a stimulus deal, backed by the Fed
He said “Faster, faster. The charts are turning red.”

Life in the slow lane
Surely make you lose your race
Life in the slow lane

(Are you with me so far?)

Eager for job growth and hot for some votes
He said things were better, but never took notes
He had all the right slogans, He made terrible bets
He took dangerous chances, he ran outrageous debts

There were lines at the job fairs, confidence screeched
He pretended not to worry, he just made another speech

Quarter by quarter, until it was bleak
GDP going nowhere, unemployment too steep

And it was
Life in the slow lane
Surely make you lose your race
Life in the slow lane, nothing works, all the time
Life in the slow lane

Dropping and stalling, blinded by pride
He didn’t see the bad signs, took a turn, then a slide.
They said, “Listen man. What is it do you bring?
You’ve spent all our freaking money
Haven’t changed a ***damn thing”

He said “Call the Chinese, I think we’re going to crash
Chinese say they’ll help us, but you gotta pay in cash.
He went running round in circles, got confused and looked tired
His numbers tanked, but he was trying to stay hired

And it was life in the slow lane

Life in the slow lane
Life in the slow lane
Life in the slow lane