Why He Jumps In And She Tests The Water

Merrill Lynch Investment Managers, now part of BlackRock, studied these differences, surveying 1,000 investors. The findings were striking, especially when it came to a phenomenon in behavioral finance known as loss aversion -- the idea that losing money hurts more than getting money feels good. Loss aversion is one explanation for why investors often hold on to losing investments longer than they should. Selling losers forces us to admit that we are, well, losers.

The survey showed that 47 percent of men held on to a loser too long vs. 35 percent of women. Perhaps not surprising: Forty-eight percent of men said they had done this more than once vs. 34 percent of women. Conversely, 43 percent of men vs. 28 percent of women reported waiting too long to sell a winning investment, perhaps squandering some profit.

Men were also more likely than women, according to the study, to allocate too much money to one particular stock, buy a hot stock without doing any research, attempt to beat the market and ignore the tax consequences of their trades.

Men also reported that they traded stocks far more often than they should, which is a considerable problem. Research by Terrance Odean, a prominent behavioral economist at the University of California at Berkeley, has shown that too much trading is harmful to the portfolios of average retail investors using online trading services.

When people have a choice of two stocks to sell, they more often sell the stock that does better in the future and hold on to one that does worse, Odean found. And they tend to then buy stocks that do worse than the stock they just sold. In a study called "Boys Will Be Boys," Odean found that single men trade 67 percent more than single women, earning 2.3 percent less in returns.

"It's the overtrading that causes men to have lower returns," Odean said. "On average, both men and women tend to make trades that they would be better off not making, but men just make more of them."

Where a lot of these studies fall short is looking at what happens when men and women actively trade together, as a single unit, bringing both their tendencies to the table. Few researchers have looked at this, but earlier this year, Brooke Harrington, a sociologist at the Max Planck Institute for the Study of Societies, published a fascinating book called "Pop Finance" that looked at the behavior of investment clubs.

She found no evidence that single-sex clubs did better than the opposite sex. But she did find what she calls a "diversity premium" -- men and women earn 2 percent more together than alone.

They each bring their own biases and decision-making approaches to trades, and their portfolios are more balanced. A remarkable example: the bias for and against investing in consumer products companies. The all-male groups that Harrington examined had 4 percent of their assets in such companies. The all-female groups had 35 percent. But when investing together, there was more balance -- 26 percent of assets were in consumer products.

The results show that "if you are a male investing alone, you should adopt a female perspective, too," said Gary Charness, an economist at the University of California at Santa Barbara. "If you are a female investing alone, you should adopt a male perspective. If you put the two groups together, you get balance."