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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.