Wed 15 Jun 2011
Adding the phrase “like a girl” to the end of whatever you were saying was a put-down, an insult, something to come to fisticuffs over. Little boys the world over hated being told that they, for example, “threw like a girl.” I’m not defending the statement, I certainly don’t agree with its intent, but hey, that’s been the case from the playground on up.
As far as women are concerned, investing belongs in the same category as childbearing, socializing, fundraising, community organization, and consensual leadership. It’s something that women may approach with trepidation, but the reality is they can be darn good at it.
California professors of behavioral finance, did a study of the investment activities of men and women and found that men traded 50 percent more frequently than women. They were ALSO less apt to learn the lessons of former investment mistakes. The professors more kindly called it male “overconfidence.” Whatever the official diagnosis, it costs money. As a result of this affliction, the returns to men’s portfolios trailed those of women’s.
It’s important to recognize that in the study everyone was already an investor. However, what about all the women who may have saved money, but never invested it? The women who suffer from investment “stage fright,” making them unable or unwilling to undertake an activity they may in fact be great at? What I often hear from my women clients, would-be stars wilting in the wings, is that there are too many lines to learn and they cannot follow the plot. “I don’t understand how investing works and I don’t have the ______? to figure it out.”
You need to know very little to be successful at investing. In fact, the sooner you accept that you (as well as the stockbroker or the advisor) cannot know or predict how investment markets will perform, the simpler and more rational the investment process becomes.
The EMH of Investing
Call this humility—something that most women get. Fully tenured professors of finance and Nobel Prize winners call it something else—the efficient-market hypothesis (EMH).
Women and investing
So how exactly do women invest? Check out just a few of the characteristics of female investors that distinguish them from their male counterparts.
Women spend more time researching their investment choices and tend to take less risk than men do. This prevents them from chasing “hot” tips and trading on whims — behavior that tends to weaken men’s portfolios. Women are also more likely to seek out information that challenges their assumptions, rather than only relying on data that confirms what they already thought.
One study found that men trade 45% more often than women do, and although men are more confident investors, they tend to be overconfident. By trading more often — and without enough research — men reduce their net returns. But by trading less, women produce better returns and also save on transaction costs and capital gains taxes.
Women have less testosterone than men do (not a surprise, we know). New and continually unfolding science points to the possibility that testosterone is responsible for herd-like risk-taking behavior from men in the financial markets. That makes a lack of it a decided asset.
With this approach, all the impediments that keep many women from investing—no time, no interest, no technical skills—don’t really matter. You are free to grab the remote from your partner, switch off the investment noise on MSNBC and instead watch American Idol, all the while knowing that you are making money.
You, too, can be wise, without having to be smart.