Women are more patient and have a longer-term focus
MORE and more academic research shows that women are better at investing in the stock market than men, despite their massive underrepresentation in the industry.
Learn how to become a better investor – by investing like a woman!
Women are less likely to be overconfident
To be a successful investor you need to trade very little. Some contributions, withdrawals and rebalancing of your portfolio is all it takes. The massive amount of trading the stock markets sees is mostly due to overconfidence.
People believe they are able to beat the market and trade accordingly. In general, people are overconfident about their skills and knowledge, but men more so than women.
Men cannot be fully blamed for their mistakes. Hormones, such as testosterone, play a role in giving men a heightened sense of optimism.
Men are also more competitive and have a much stronger desire to outperform a boring ‘buy-and-hold’ strategy. They also have a much stronger conviction that they are actually able to outperform the market.
Optimism, coupled with overconfidence in their talent and insights and underestimation of risk, easily results in an active – costly – trading strategy.
In 2011, the U.S. study https://faculty.haas.berkeley.edu/odean/papers/gender/BoysWillBeBoys.pdf researched 35,000 households and discovered men traded 45% more than women did. The transaction costs and poor market timing led to men’s annual returns being 1% lower, compared to women’s returns.
A study from https://www.betterment.com/resources/investment-strategy/behavioral-finance-investing-strategy/data-suggests-women-are-better-behaved-investors/, an online brokerage, found that men are more than twice as likely as women to invest 100% of their savings in stocks, which is a much more risky strategy than diversification. Men were also 6 times more likely to make ‘big bets’, changing their portfolio from 100% stocks to 100% bonds and vice versa, which is akin to betting everything on black at the roulette table.
Men more often think they are able to ‘time’ the market correctly. Of course, the (male) counterpart of every transaction that they do has exactly the same belief about timing the market, but an opposite view on whether you should be buying or selling!
Women also do better when they are managing investments in a professional capacity. Women-run hedge funds in the AsiaHedge Composite index earned total returns of 153.26% between January 2000 and December 2007, significantly outperforming the overall benchmark, which returned a more modest 88.82%.
Women are more patient and have a longer-term focus
Women have more patience. They recognise that you don’t need to monitor the performance of your stocks every day.
This only increases the risk of knee-jerk reactions because it increases the risk of seeing “something” happen in the market, which you want to react to.
Women are better able to look beyond the current crisis or bubble and recognize that all markets rise in value eventually.
Women remain steady under pressure and are less inclined to cash out and sell when markets are rising. They will also not sell when their stocks lose value, waiting for the rebound that is bound to happen.
One of the most important things to do as an investor is to remain cool in times of crisis. So perhaps it is not about being ‘ballsy’, when you are an investor and crisis hits?
Can women learn something from men?
Actually, yes they can! Being risk averse certainly helps women. They have a more diversified portfolio and shy away from high risk investments.
Women also tend to research more and take more advice from financial advisors. However, many women have taken their aversion to risk to such extremes, that they are not investing at all! Instead, they are putting all their money in a savings account.
Hence, many women would benefit from increasing their risk appetite a little bit and invest a part of their savings in a diversified portfolio of stock.
It seems men and women both have characteristics that make them successful at investing. They would do wise to combine their strengths. However, the truth is that women should contribute more than men!
Mark Reijman is co-founder and managing director of http://www.comparehero.my/, dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, loans and broadband plans in Malaysia.
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