Do You Invest the Same Way You Drive a Car?

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In both cases, when you are overconfident and take a lot of chances, you’re bound to crash. And when you refuse to ask for directions, it’s really hard to get where you want to go.

As the stereotype goes, men famously (or infamously) hate to ask for driving directions. I also can’t think of one guy who would say his driving skills were below average. It seems like we, as a gender, aren’t only overconfident on the road, but overconfident when it comes to stocks and bonds as well.

The NY Times cites a study, conducted by mutual fund giant Vanguard, that during the recent financial crisis, men were more far likely than their female counterparts to get antsy and sell their stocks as the market bottomed out. And as men did so, they missed out on the historic market rally in the latter part of 2009:

Male investors, as a group, appear to be overconfident, said John Ameriks, head of Vanguard Investment Counseling and Research and a co-author of the study. “There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” he said.

Women, on the other hand, appear more likely to acknowledge when they don’t know something — like the direction of the stock market or of the price of a stock or a bond.

Another study, from 2001, cited in the Times piece yielded similar conclusions:

All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up the men’s costs and lowered their returns.

We’re taught that confidence is good. But overconfidence? Not so good. Overconfidence has led many a man to make a foolish decision, from I’m going to turn this $500 into $5,000 at the blackjack table to Sure I can handle this ninth shot of tequila.

The moral: No one has a completely intuitive sense of direction, and no one can time the stock market right—at least not consistently, over a long period of time. Unless you really know what you’re doing, no amount of time staring at market data is going to help your cause as an investor, the same way that no amount of time staring under the hood of your car is going to help your cause as a mechanic.

Admitting you have no idea what you’re doing may seem unmanly, but it’s better than getting totally lost on a road trip—or even worse, losing your nest egg when you’re 50.

On the upside, since both of the studies mentioned indicate that investors who stay put and don’t trade much fare better than those who are constantly making trades and toying with their portfolios, here’s your excuse to be lazy and do nothing. I know lots of guys who are good at that.