The secret to successful investing lies in your feminine side

Our image of a cunning investor could be dressed in stripes, fueled by testosterone and relentlessly taking risks. Yet he is in grave danger of being surpassed by those of more feminine persuasion.

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

Since then, evidence of women’s dominance in investment markets has steadily increased. Now psychologists can identify the character traits that make up a winning investor. They also highlight those traits that explain why more and more men are ending up counting their losses in the markets.

What are the attributes that put one above the other? The better investment performance of women can be reduced to the simple fact that:

  • Be careful

Women’s portfolios are more balanced and diverse. They also choose more low-risk options, less annoying options.

  • Less competitive

Women invest less of their ego in business. They are less motivated to prove their financial power to others or to be in it because of excitement.

  • More consistent

Women have been shown to support a less volatile portfolio than men. They are also better at adapting ‘information’ to which others may overreact and overcoming market ups and downs.

  • More patient

They are less involved in jumping funds, trading less and retaining investments longer. Studies by Barber and Odean (2000) and Carhart (1997). This applies to both individuals and mutual funds.

  • Better researchers

Although women as a whole are less experienced investors than men, they will research more thoroughly and will be less affected by the herd.

Of course, these aspects of the female psyche also make women more conservative investors than men. And so it may not reap the stratospheric profits (or make mega losses) that humans make. 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 everything they need to make them top investors. But their winning traits may not be the usual male ones. True top male investors may be more in touch with their female side than we would think.

Aside from the lack of estrogen and fewer purses, what else makes the division of winners and losers? There are three key psychological traits that, when it comes to making the smartest investment decisions, can stumble men every time.

These are:

  • Attitude towards risk

Men are less at risk than women and support portfolios that are more uncertain. They are more likely to put all their eggs in one basket instead of opting for a safer, more diverse portfolio. Higher earnings and higher net worth of men also make it easier for them to take on greater risk than women. A 1994 U.S. study conducted by Wang also found that women counselors are more likely to be offered safer options than men, who expect them to be risk-averse.

  • Excessive self-confidence

Excessive self-confidence is constantly found in more men than women, research shows. And this is especially true in male-dominated areas, such as finance. They overestimate the returns that their investment and return security will bring. They also misjudge overconfidence in the accuracy of their own knowledge and overestimate their abilities. In the Gallup study, both men and women expected their portfolios to outperform the market, but men expected their portfolio to outperform the market by a larger margin.

  • Herd instinct

Constant monitoring of the market can encourage excessive activity of men and cause irrational action. Men are more likely to be drawn into my leader’s financial tracking games and information cascade. They also fall for being over-informed, instead of ruling out the endless flow of news and financial information and sticking to the annual portfolio review.

Despite the fact that women have more innate skills that could bring them the best returns, unfortunately there are still few of them in the game. Male investors outnumber women by eight, and only 3% of hedge funds are run by women. Simonne Gnessen, who owns Wise Monkey Financial Coaching and has a predominantly female clientele, says women could borrow some of that male overconfidence. “Many women have exactly what it takes to reach dizzying financial heights,” she commented, “the only thing holding them back is knowing they have it and acting accordingly.”