Women have what it takes to win shares game
Gents, it is time to face facts. The global financial crisis and its aftermath offer plenty of evidence to suggest that men and money often don't mix. As The Wall Street Journal put it: "The masters of the universe turned out to be masters of disaster. No matter which aspect of the crisis you consider, there is a man behind it."
When I think back to my greatest investment failures, I'm struck by the parallels: with a natural overconfidence, I took excessive risks, investing too much money in speculative stocks; I panicked when things went against me, often selling out at the worst possible time; and I traded too often, trying to correct for rash decisions.
I learnt from my mistakes but many women don't need to; they inherently understand them. Jennifer Lerner of Harvard University has examined the effects of emotion in decision-making. Men are overconfident. Check. When faced with a crisis, we are driven by anger. Check. That gives us certainty - confidence that our assessment of a situation is correct, which then encourages action. Check.
Women tend to make decisions more fearfully. With incomplete information, they are less prone to act. While men appear happy to take on more risk, often foolishly so, women are inherently more conservative.
How do these differences play out in real-life investing? Men tend to trade more often, turning over their portfolios more quickly than women; in the midst of a market downturn, they are also more likely to sell, but in a boom more likely to buy in; and they quickly reverse buy and sell decisions.
Research supports these findings. In a study titled Equity Abandonment in 2008-2009, mutual fund manager Vanguard found that men were more likely than women to sell their shares at sharemarket lows during the 2008-09 financial crisis.
A 2001 University of California study revealed that men traded 45 per cent more than women and that this reduced men's net returns by 2.65 per cent a year compared with 1.72 per cent for women.
So men are more predisposed than women to sell low and buy high, and pay more in trading costs along the way, while women take a longer-term, more risk-averse perspective than men. Generally, that is a better recipe for investing. And yet investing remains a predominantly male activity.
For women, that is a huge lost opportunity. To them I say: the risk aversion that stops you from investing in the sharemarket in the first place is the very thing that will make you a good investor - go for it! To the men: if you want to benefit from greater diversification, lower trading costs, less risk and higher overall returns, get your partner involved in managing your portfolio.
This article contains general investment advice only (under AFSL 282288). John Addis is the research director at Intelligent Investor Share Advisor, shares.intelligentinvestor.com.au.