Prompted by a new study, this week we revisit the question of whether women are better investors. There’s some empirical evidence they are, and some indications we ain’t seen nothing yet. Look no further than the 2011 Hedge Fund Rising Stars. The trend seems inevitable, though some of the male commentary seems forced. One notable exception on this angle: a thoughtful Wall Street Journal piece by Jason Zweig suggesting couples manage their portfolios together. Otherwise, I have a theory about men who compliment women too much — either they’re hiding something or after something. Stop trying so hard guys, we’re not buying it.
Having said that, behavioral economics is fascinating and women do a buy a lot. As duly noted by Hilary Kramer, women notice things like which parking lots are most full — one of the earliest sales indicators you can spot. No need to wait for same-store sales numbers to be tallied and reported. But the other reasons for suggesting woman are better equipped to make a profit in the markets seem like back-handed compliments, among them:
Women are more risk adverse: Guys pride themselves on going for it and “killing it.” While people say they want their risk managed, as one longtime female player in the market told me, “everyone secretly yearns for the extreme highs.” That being said, “risk aversion” is applauded but not truly revered, and may signal lack of confidence.
Women exhibit self control: You can never go wrong with self control, and apparently lack of financial overconfidence can prove advantageous too. Why women exhibit this trait is debatable. Fear of failure is a pretty powerful motivator. In the meantime, we get credit for buying less, and not panicking and selling too fast. Men think they trade too much. Academics agree that they probably do in an attempt to beat the average.
Women age particularly well: Move over, youth-chasers. Mellowing with age has a positive material effect. We’re more calm, have a higher degree of acceptance, and are generally more satisfied. The best characteristics of female investors seem to be accentuated over time.
At the end of the day, though, we’re all human beings. Greg Davies, head of Behavioral and Quantitative Finance for Barclays Wealth sums it up this way, “Classical finance does not take into account the emotions involved in decision making. It assumes we are all rational, but we aren’t.”
Ah, rational thinking for rational portfolios. Get there if you can.