By 
Our image of a canny investor might be lined with pinstripe, testosterone fuel, and a ruthless risk taker. However, he is in grave danger of being outdone by those of a more feminine persuasion.
One of the most important studies on investment activity, conducted at the University of California in 2001, showed that men traded 45% more than women. However, their average risk-adjusted return was 1.4% lower. Another large survey by DigitalLook found that women’s portfolios grew 3% more than the FTSE in the year ending July 31, 2004, while men’s lagged 1% behind.
Since then, the evidence of female supremacy in investment markets has been increasing steadily. Now psychologists can identify the character traits that make up a winning investor. They are also pointing to those traits that explain why more men end up counting their losses in the markets.
What are those attributes that place one above the other? The better return on women’s investments may be due to the simple fact that they are:
- More cautious
Women’s wallets are more balanced and diverse. They also choose lower risk and less fanciful options.
- Less competitive
Women invest less of their ego in a deal. They are less motivated to demonstrate their financial prowess to others or to enjoy the excitement.
- More consistent
Women have been shown to support a less volatile portfolio than men. They are also better at disconnecting from “information” that others may overreact to and weather the ups and downs of the markets.
- More patient
They engage in fewer fund changes, trade less frequently, and hold investments for longer. Those who trade the most frequently obtain the lowest returns, according to studies by Barber and Odean (2000) and Carhart (1997). This is true for both individuals and mutual funds.
- Best Researchers
Although women are generally less experienced investors than men, they will do more research and be less influenced by the herd.
Sure, these aspects of the female psyche also make women more conservative investors than men. And therefore they may not reap the stratospheric gains (or make the mega losses) that men do. But, by investing in funds that are consistently good over time, women’s net returns are higher. And isn’t that what counts in the end?
Of course, many men have what it takes to become top-tier investors. But your winning traits may not be the usual masculine ones. Truly important male investors may be more in touch with their female side than we think.
Aside from a lack of estrogen and fewer wallets, what else explains the divide between winners and losers? There are three key psychological traits that, when it comes to making the smartest investment decisions, can trip men up at all times.
These are:
- Risk attitude
Men are less risk averse than women and will support more uncertain portfolios. They are more likely to put all their eggs in one basket rather than opting for a more secure and diverse portfolio. Higher income and higher net worth for men also make it easier for them to take greater 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 advisers who expect them to be risk averse.
- Overconfidence
Overconfidence is consistently found in more men than women, research shows. And this is especially true in male-dominated fields, such as finance. They overestimate the returns that their investments will bring and the certainty of the return. They are also overconfident in the accuracy of their own knowledge and overestimate their own ability. In a Gallup study, both men and women expected their portfolios to outperform the market, but men expected theirs to outperform by a greater margin.
- 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 games of follow my leader and waterfalls of information. They also fail by being too well informed, instead of disconnecting from the endless stream of news and financial information and sticking to an annual portfolio review.
Even though women have more of the innate abilities that could earn them the best returns, sadly few of them are in the game. Male investors outnumber women eight to one, and only 3% of hedge funds are headed by a woman. Simonne Gnessen, who owns Wise Monkey Financial Coaching and has a predominantly female clientele, says women could use to borrow some of that male overconfidence. “Many women have exactly what it takes to reach dizzying financial heights,” she said, “the only thing stopping them is knowing they have it and acting on it.”