Testosterone and Trading

May 23rd, 2008 at 09:09am Tracy Beard

 Tracy S. Beard, CFP® 

A recent study done in Britain attempted to link testosterone levels with trading performance.  The general conclusion indicated a higher testosterone level resulted in more aggressive trading. Aggressive trading led to better trades, and more profit for the investor.  However, it also referenced irrational risk taking when traders had elevated levels of testosterone.  Large declines and losses in a portfolio are often a direct result of irrational risk taking.  Normally, we do not get caught up in the speculative trading practices utilized by most of the investment world. After all, it is extremely difficult to beat the performance of a broadly diversified portfolio of low cost index funds.  But if you prefer to invest on the speculative side of the curve, this study maybe helpful.  Here are a few considerations. 

1. If you are using a female broker, you can probably ignore this whole blog.
2. Prior to placing trades with your broker, ask if he recently checked his testosterone levels. If the levels are high, have him call you tomorrow.
3. If you have a male managing the account, see if he is willing to get married.  Marriage has shown to lower testosterone levels. Better yet, see if they can have children as well.  Becoming a dad has been linked to lower testosterone levels.

Kidding aside, the investment world is always trying to find methods or explanations to make a quick buck. Many experts agree the most successful investments avoid aggressive and speculative trading.  Your time is probably better spent focusing on the following items: 

• Reducing your investment costs
• Broadly diversifying across US and international markets
• Remaining disciplined during volatile periods
• Rebalancing your portfolio when necessary

Entry Filed under: Financial Planning, Investments