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I think the male readers of this blog can learn a few things from the ladies out there when it comes to investing. According to an article in The Star, a 15 year study was conducted that compared the investment results of men and women. The research showed that women’s portfolios gained 1.4% more than the guys portfolios did. In another research study, results showed that all-women investment clubs out gained all-male clubs by 4.6%. These results are from a study conducted on behavioral finance by two professors at the University of California at Davis named Terry Odean and Brad M. Barber. What were some of the factors that lead to better performance? What should those of us who are male learn about these results? Here are some of the things that the researches highlighted:
Women are less risk tolerant
We talk a lot about risk on this site. When comparing women investors to men, women avoid more risk than men do. One thing I think that investors (and perhaps guys more than gals) get confused about it the risk reward balance. Just because you take on more risk, does not mean you will get more reward. You should expect more reward for more risk, but that does not always happen. This study highlighted the fact that showing some prudence and taking less risk has meant more reward.
Men tend to be over-confident and women want more information
According to the researchers, overconfidence is usually a result of a mistaken belief among investors that they have sufficient knowledge on which to base decisions. In other words, you don’t know what you don’t know but women realize this better than men do and it helps their investing. As men we need to realize that we don’t know everything and that it is alright to ask questions and look for more information until we have enough answers to base a decision off of.
Men need to think longer term
One thing the study highlighted was the fact that the average turnover of shares for men is nearly 1.5 times that for women, which obviously impacted their performance. I suspect the impact of fees and commissions played a big part in this as more frequent trading has high friction costs. Thinking about myself, I tend to get bored really easy and like to jump from one thing to the next. With investing, I have had to consciously focus on not doing this and sticking to the stocks I buy. The fact that the dividends keep growing helps, but at first it was tough.
So there you have it guys, some things that we can all learn from the women investors out there. Put the ego to the side, realize that you can always do some more research, and think long term and your investing performance can improve. And for you ladies, good job – just one more thing we guys can learn from you.
Great article to kick off the day. I generally agree with all the points made. It would also seem that women would be more prone to adopt dividend strategies since they are lower risk and long-term investments.
Unfortunately, I probably tend to think more like a guy. I think I need to find one of those all-women investment clubs…or maybe start my own. 🙂
Great insightful post.
P.S. Chick’s Rule! 🙂
Who would thunk that women who are described, rightly or not, as emotional would be better investors.
I think that seeking information and patience is the difference. So from now on I will have any buy or sell to be approved first by my wife.
I’ve heard this before as well with the added point that women don’t care to pay attention to business news and what the stock market is doing day to day. It helps them to stick with their portfolio longer because they are oblivious to the daily ramblings of CNBC and the like.
This also seems to contradict the point about men not wanting more information. Some times you need to know when the information becomes too much.
My anecdotal takeaways: Women are very intimidated by investing (if I am discussing $ with a woman, she tends to focus on the budget and cost cutting stuff, and I lose her re: investing).
Men are way overconfident with investing (they don’t like funds, they want to do individual stocks,and they are positive they know what they are doing; and in general not so good savers).
The analysis is spot on. I seem to remember a similar study in the Harvard Business Review seveal years ago with the same conclusion. My wife thinks that anything that “can” go down is too risky. 🙂
Best Wishes,
D4L
I also remember similar studies on new small business startups. According to those studies, women tend to take less risk and stick to try and true models. Men are more likely to try something really new, and riskier They have higher failure rates in these businesses as a result. However, they are also more likely to introduce something really new into the business world. Innovation is always a risky venture.
Fair enough LEBD, but if you had to have your money managed by someone who was using a ‘tried and true’ model or was trying something really new and riskier, which would you go with?
At my point in life , Blue December, I go with the lower risk investment. I was never an early adopter at any time of my life anyway. I was never a big risk taker either. However, all the studies seem to indicate that men in general take greater risks with their money than women. Sometimes taking said risk leads to disaster, and other times leads to innovation and progress.
Hm. That’s interesting. I definitely believe women tend to be more risk averse than men, the question I am less sure about is whether or not men blow it by being too confident. I realize confidence plays a large part in investing psychology, but I’m not sure how the gender difference would be…
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Ryan
http://uncommon-cents.net/
Go girls – we are the superior investor
I am so much better with money than my husband, brothers and father (and most other males)
Girls have a look at this website – its a video to make money – it goes for 27 mins which is longer than a male can concentrate for
http://www.investmentintelligence.com.au/cmd.php?Clk=2208474
Go girls
Katie