You may be glued to the television for the new season of "Breaking Bad", but in the meantime there is a new drug of choice among traders on Wall Street and it's not even a drug…it's a naturally occurring hormone: testosterone. But does amping up testosterone pay off? Many researchers are questioning the value of this ultra-male habit, particularly in light of studies that suggest women traders may be more effective in the long run…
1) Low T
Depending on age and health factors, testosterone levels in men are typically between 150-850 nanograms per deciliter. After the age of 30, these levels begin to fall. Low testosterone or "Low T" has been attributed to fatigue, aching muscles, belly weight gain, lower stamina and a lack of focus. Testosterone injections are aimed to raise a fellow's levels back up to around 850-900. In the highly competitive world of finance, many men are using testosterone boosts to increase their energy, focus and maintain a youthful 'edge'.
2) Testosterone trading
High levels of testosterone have been correlated with greater risk-taking and higher levels of confidence, two qualities inherent to financial traders who make lightning fast decisions. At New York clinics specializing in testosterone boosts, the majority of clients are men working in finance, including executives at such elite firms as Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), Bank of America (NYSE:BAC), American Express (NYSE:AXP), Morgan Stanley (NYSE:MS), JPMorgan (NYSE:JPM) and Deutsche Bank (NYSE:DB).
3) Is it an illusion?
But does testosterone drive profit or do profits increase testosterone? John Coates of Cambridge University is an expert in the study of hormone levels among financial traders. In a recent New York Times article about his research, Mr. Coates wrote that "in one experiment we sampled hormones from 17 male traders and found that their testosterone did indeed rise with above-average profits, and in other studies, with 54 traders, we found that higher testosterone led to greater risk-taking."
4) Less is more
Testosterone junkies might be surprised by a study led by economists Brad Barber and Terrance Odean that found that over the long term, it's actually women investors who outperform men because they tend to trade less within their accounts. Hedge Fund Research also conducted a study revealing that hedge funds run by women have significantly outperformed hedge funds run by men. We don't need no stinkin' testosterone!
5) Case in point
Renée Haugerud runs Galtere Ltd, a New York based hedge fund company with more than $1 billion in assets under administration. She donated $1.5 million to a university program specializing in teaching finances from a female perspective. Ms. Haugerud theorizes that women are successful in finance because they do not trade what they don't understand; they stick with long-term positions and are better at synthesizing information and therefore evaluate risk in a different way. Perhaps too much testosterone clouds judgement?
6) Irrational exuberance
Too much of a good thing can certainly become a very bad thing. According to Mr. Coates, too much testosterone-driven profit can encourage a person to take ever-greater, sometimes foolish risks. "And when this happens to traders and investors, they suffer an irrational exuberance or pessimism that can destabilize financial markets and wreak havoc on the wider economy." This sense of invincibility on the part of a trader recently led to a multi-billion trading loss at JP Morgan Chase.
7) All about balance
As a result of his findings, Mr. Coates advocates the achievement of more balance in the financial industry — between men and women, young and old. "Women and older men have a fraction of the testosterone of young men, so if more of them managed money, we could perhaps stabilize the markets." It's no coincidence that two women - German Chancellor Angela Merkel and IMF Chair Christine Lagarde - are at the forefront of managing the European debt crisis.
Step up, sister
It's not likely that Wall Street will drop its testosterone habit and embrace its female side in any great hurry, however it is fantastic to see female virtues increasingly becoming respected and valued among the financial sector. We need more women to have the (testosterone-free) confidence to drop their fear of finances, step into the industry and claim our own space alongside our male partners. After all, it's only the stability of the global economy at stake!
GoldenGirlFinance.ca is a free personal finance and education site for women.