An article in the New York Times over the weekend called "Mars, Venus and the Handling of Money" talks about how women now have more money than ever before, but their concerns are not always addressed by the financial services industry. Recent studies show that male investors are driven by objective data, while women want to deal with money holistically and emotionally. "You could talk to guys about research, transactions, performance," wrote M. P. Dunleavey. "Women were more interested in coaching, saving and support."
You might think that the data-driven, math-oriented approach to investing would produce better results. But if you did think that, you'd be wrong. According to several other studies, women actually make better investors than
men. The most recent, from the tax and advisory firm Rothstein Kass,
found that hedge funds run by women outperformed those managed by men
by 6 percentage points over a nine-month period in 2012.
Why do women do better? No one knows for sure. And, of course, there are plenty of exceptions like Warren Buffett. But I can think of a few likely reasons:
Men are more competitive. You'd
think this would be a good thing, right? But as in so many areas of
investing, the obvious answer is not the right answer. For many men, the
most important thing is not the absolute return of an investment, but
whether or not they beat their rivals. This often leads males to
make riskier bets, which are less likely to pay off.
Also, as we all know, men are less likely to ask for advice. Somehow it's seen as a mark of weakness. All this leads men to focus on
the short term and lose sight of the real objective of investing:
producing consistent, positive returns over an extended period of time.
Women take fewer risks. According to research by behavioral scientists, women as a rule are more risk averse than men. Women are more inclined to wear seat belts, avoid
cigarette smoking and get their blood pressure checked. They are 40
percent less likely to run yellow traffic lights. So it should come as
no surprise that women gravitate toward safer investments and hold stock
portfolios that are less volatile.
One investment study concluded
that when things go wrong, men get angry, while women become more
fearful. Anger can lead people to take action that will lead to more
losses, such as doubling down on losing investments or trying to "catch a
falling knife.” By contrast, fearful women are more likely to side-step
market downturns in the first place, then if they do suffer losses
they pull in the reins and avoid big disasters.
Women do more homework. Women are less confident than men, and therefore less likely to be deluded
into believing they know more than they do. They want to be in control,
and therefore do more research to find out exactly what they are
investing in. Women also have more realistic ideas about what an
investment can reasonably deliver, and are less likely to jump on the “next big
thing” or fall for a “can't miss” stock tip.
One report found that
a quarter of the men surveyed admitted they would gamble on a “hot”
investment without doing any research, while only half as many
women would make that same mistake. As a result, women trade less frequently. They incur fewer transaction costs
and fewer tax consequences. Women are more patient. They commit to their investments and do not get
spooked by a short-term hiccup in a company's performance.
Women realize they are not in control. Surveys show that women are more likely than men to attribute success to
factors outside themselves, like luck or fate. This apparent
contradiction – aiming to achieve control when you know you can only
control so much – gives women the perspective they need to avoid panic.
And yet, paradoxically, it also allows them to admit when they have made
a mistake. Women look out for the next storm. When it arrives they batten down the hatches and ride it out. They know
the market is like the ocean. It is much bigger than any one investor,
subject to huge global forces. But over time there's a certain ebb and
flow, and if you're a good navigator you can sail on to richer shores.
If you want some basic investment advice, check out one of my early posts called The Last Word on Investing. But meanwhile, how is it that the best investor of all, the legendary Warren Buffett,
happens to be a man?
Perhaps you should ask author Louann Lofton, who
wrote the book: Warren Buffett Invests Like a Girl: And Why You Should Too.