Tuesday, February 25, 2014

Are Women Better Investors than Men?

     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.


Linda Myers said...

When I met my husband he told me how he'd lost many thousands of dollars on soybean futures when the Soviet Union fell apart.

I've been doing the investing for 20 years now. We're retired and doing fine.

So maybe there's some truth to the article.

Meryl Baer said...

Observations from a former financial pro -
Women are often not as impetuous as men, more willing to 'sleep on it' before making a final decision. Men are more likely to jump on the bandwagon of the latest financial fad.
Men like the action, the speed, the thrill of the hunt, and get too hung up on short-term profits rather than long-term results.
Women do not see it as a weakness to stay on the sidelines at times.
Warren Buffett is a financial genius. I wonder if, outside the feverish Wall Street environment, he had the patience and confidence to go with his instincts - and not with the herd.

Douglas said...

Your post got me to thinking... If men make the best chefs, why are women more often the cooks in the home?

I do not have an answer, of course, only to say that Faye hasn't convinced me to cook (yet) but keeps trying while I keep using my old excuse: "Do you really want to eat terrible food and risk poisoning?"

Anonymous said...

Between female and male brokers, I've found that men were more interested in churning my account than in advising me on wise investments. In my earliest years of investment, I stayed with the same woman for nearly 30 years - even though we lived 1/2 a continent apart for all but two of those years. She did well by me (although I did pay for my education when I bought a couple of complicated schemes through her!)

Now, I don't rely upon a broker's advice. I read, many years ago, that random investment out-performed studied investment. Since then, I've used an eyes-closed, stab-a-pin-in-the-stock-listings approach. So far I've not gone broke.

I must say that my husband takes a much more conservative approach to investing his money than I've ever taken - mostly index funds AFAIK.
Cop Car

June said...

This is all very flattering to women and our good judgment, and I am surprised by none of it.
But I wonder why the men do as they do. What cultural or inborn pressures cause them to feel that they must constantly produce, produce, produce even if the only product is proof of pointless action?
Over the weekend, Husband was snowblowing with the tractor. The chute got stopped up with heavy wet snow. He lugged four pails of water from the bathroom to the barn to melt the snow. I passed by and said, "Why don't you just let it sit in the sun [which was bright that day] for a few minutes?"
And he did.
And the chute cleared out and all was good.
Just more evidence that passive is good.

DJan said...

I am not an investor, but neither is my husband. When I was working, we went to a meeting with a person who examined our stocks and bonds (which I purchased only because I was forced to) and told us what would be prudent. We did so and doubled what we had in a few years, and now we have a decent income from the annuities. I was very fortunate to have someone else make the decisions for us. :-)

Anonymous said...

We have a few investments, my hubs does most of it, we never had much money to lose if it all went south so I just squirreled money into savings accounts I could never ever touch, now we are oky doky, two pensions, fed pension(tiny amount) money from those investments and savings if I go first he is fine, if he goes first I am fine, our only saves every dime she gets not married and to tell the truth unless the fellow is like her dad never will be married, many ask for money from her, she only gives it to people she has known since childhood who get jammed up with tiny babies or little ones, hubs lost the good job and now the real wage earner is her friends she was in kindergarten and 4-h she never expects the money to be repaid rather a lifeline as their parents our age never saved for anything and never went to college and had many kids who they could not help for college at all, she said life is not fair for my dear friends, they did graduate from college and their husbands lost jobs that will never be again, not fair she said..so it goes, ciao!

Anonymous said...

Oh, yes our only lives in the most expensive city NYC and sees what the lack of a good job, health benefits really does to human beings and she lives very well dresses like she is a hippy casually for her job like a pro she is..saves and enjoys what that city has to offer and travels on her companies dime as part of her job..She says life is so damn unfair, she helps many in their times of travilities, she is the sweetest most kind human being, I think she will meet a fellow just like her because of her good Karma, she only wishes love and peace to others, what an only child..we adore her and miss her but get to see her as she travels this way often where she was raised, she sleeps for a week of sundays then the phone starts ringing off the hook as one use to say...we are happy, we live on little and are GRATEFUL AND KIND TO OTHERS WHO STRUGGLE SHE LEARNED THIS EARLY IN HER LIFE, volunteering for those who don't get food and housing, it makes our life so happy, ciao

Anonymous said...

I don't think sex is the cause of good or bad investing! class is. Most working class folks are not taught how money is made in ways other than a paycheck. If you learned to invest from your parents you have a head start. One reason I like the 401k accounts the government set up is that you are encouraged to save and invest no matter who you are. Even the secretaries and clerks can get into the market..

gabygeezer said...

Shucks, it's easy to explain. Women are smarter than men. Buffett is the exception, not the rule.

Kirk said...

The article says women HEDGE FUND managers do a bit better than men. To extend that to women investors as while is quite a stretch.

Douglas said...

One more thing (isn't there always?)...

My investment strategy is simple: whatever a broker suggests, do the opposite. It works as least as well and often better.