Monday, March 15, 2010

Confidence Game

Confidence is a very good thing to have, but there's a point at which it becomes too much of a good thing. And a new study shows that men have more confidence in their investing prowess than women - which is to their detriment.

Vanguard found that during the market downturn of 2008-2009, men were more likely to indulge in heavy trading than women. And because of that, they were more likely to end up selling off at market lows. That kind of heavy trading comes as no surprise: Overall, men make 50 percent more trades than women.

The Vanguard study reinforced what a 2001 study on gender differences had found, according to a story in yesterday's New York Times. Men have more confidence in their abilities to pick stocks, so they end up buying and selling them much more often. The study found that the additional churning by men ended up costing them 0.94 percentage points a year over what women made.

These results don't hold for all men or all women, of course, but it's valuable to know what your tendencies might be, where your weaknesses might fall, so you can work against them. Have some of your recent trades reflected a little overconfidence in your stock-picking abilities? These studies remind us to keep an eye on ourselves for just these types of problems.

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