The secret of a successful investment lies in your feminine side

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Our image of a savvy investor might be dressed in fine stripes, fueled by testosterone and a ruthless risk taker. Still, he is in serious danger of being overtaken by those of a more feminine persuasion.

One of the largest studies of investing activity, conducted at the University of California in 2001, found that men traded 45% more often than women. Yet their average risk-adjusted returns were 1.4% lower. Another large survey conducted by DigitalLook found that women’s portfolios grew 3% more than the FTSE in the year ended July 31, 2004, while men lagged behind by 1%.

Since then, the evidence for the supremacy of women in investment markets has grown steadily. Now psychologists can identify the character traits that make up a successful investor. They also identify the traits that explain why more men end up counting their losses in the markets.

What are these attributes that put one above the other? The best investment performance of women may be due to the simple fact that they are:

  • More careful

Women’s portfolios are more balanced and diversified. They are also choosing more low-risk and less fancy options.

  • Less competitive

Women invest less of their ego in a deal. They are less motivated to prove their financial prowess to others or for fun.

  • More consistent

Women have been shown to support a less volatile portfolio than men. They are also more adept at ignoring “news” to which others may overreact and weathering the ups and downs of the markets.

  • More patient

They do fewer fund jumps, trade less frequently and hold their investments longer. Those who trade the most often earn the lowest returns, according to studies by Barber and Odean (2000) and Carhart (1997). This is true for both individuals and mutual funds.

  • Better researchers

While women on the whole are less experienced investors than men, they will do more research and be less influenced by the herd.

Of course, these aspects of the female psyche also make women investors more conservative than men. And so they may not reap the stratospheric benefits (or the mega losses) that humans do. But, by investing in funds that are consistently good over time, the net returns for women are higher. And isn’t that what matters in the end?

Of course, many men have what it takes to make them top investors. But their winning traits may not be usually masculine ones. The best male investors may be more in touch with their female side than you think.

Apart from a lack of estrogen and fewer handbags, what explains the win-lose divide? There are three key psychological traits that, when it comes to making the best investment decisions, can trip men up every time.

These are:

  • Attitude to risk

Men are less risk averse than women and will support more uncertain portfolios. They are more likely to put all of their eggs in one basket instead of opting for a more secure and diverse wallet. Men’s higher incomes and higher net worth also allow them to take more risks than women. An American study by Wang in 1994 also showed that women are more likely to be offered safer options than men, by counselors who expect them to be risk averse.

  • Overconfidence

Overconfidence is consistently found in more men than women, according to research. And this is especially true in male dominated fields such as finance. They overestimate the returns their investments will bring and the certainty of the return. They also overconfidence in the accuracy of their own knowledge and overestimate their own abilities. In a Gallup study, men and women expected their portfolios to outperform the market, but men expected theirs to outperform by a larger margin.

  • The herd instinct

Constantly monitoring the market can fuel men’s overactivity and cause them to act irrationally. Men are more likely to be drawn into financial tracking games and news stunts. They also fall in love with being too well informed, instead of ignoring the endless stream of financial news and information and sticking to an annual portfolio review.

While women have more innate skills that could bring them the best returns, woefully few are in the game. Eight times more male investors than women, and barely 3% of hedge funds are headed by women. Simonne Gnessen, owner of Wise Monkey Financial Coaching and whose clientele is predominantly female, said women would do well to borrow some of this male overconfidence. “A lot of women have exactly what it takes to reach sky-high financial heights,” she commented, “the only thing holding them back is knowing they have it and acting on it.”



Source by Karen Pine

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