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.