It’s been a trend in modern times to explore the behavioral differences between women and men—how they think, act, and communicate. People often examine differences out of curiosity, to improve relationships, for entertainment, and sometimes for reasons of fitness and ability.
Going back to 1992, you may remember the book “Men Are from Mars, Women Are from Venus,” written by John Gray, a relationship counselor. He used the eponymous metaphor of distinct planets to “explain” the psychological differences between women and men. This book didn’t deal with investing, but it may have initiated subsequent academic studies on whether there are fundamental differences in how women and men invest.
In the 19th century, the field of economics based most of its theories using what they called the “economic man”—an idealized person who acts rationally, with perfect knowledge, and who seeks to maximize personal utility or satisfaction. Apparently, it finally dawned on economists late in the 20th century that this was a nonsensical supposition. From that insight, the field of behavioral economics evolved. Today it is commonly accepted that all humans are, at times, irrational and emotional about economic decisions. Also, it is now accepted that knowledge is often far from perfect.
Studies on this topic have been conducted by renowned universities, reported by the “Journal of Psychology,” the “Journal of Finance,” and most major investment firms, all finding differences in both temperament and performance for women versus men investors.
- A study released in 2021 by Fidelity Investments showed that women investors outperformed their male counterparts by 40 basis points or 0.4% after analyzing 5.2 million accounts from January 2011 to December 2020.
- The Motley Fool website in March 2022 summarized 20 years of research and statistics on women and investing. Among their key findings:
- Women are less impulsive investors and don’t trade as much.
- Women get better investment returns; some research shows up to 1%.
Historically, the field of professional investment advisors has been male-dominated; that much is a fact. Picture the movie “The Wolf of Wall Street,” based on a true story set in the early 1990s. A wealthy male stockbroker is consumed by power and greed. Leave it to Martin Scorsese to make the most of the worst stereotypes.
Yet, even today, only about 15-20% of financial advisors in the U.S. are women, according to a Barron’s magazine report from 2021. RCG is unique in that we employ more female advisors than male advisors. We also have more women owners than men, which is also uncommon. Perhaps since RCG has always had a more academic approach to investing, it has always been a more inviting firm for credentialed women advisors.
In 2011, LouAnn Lofton wrote the book “Warren Buffett Invests Like a Girl: And Why You Should, Too.” Underneath the hype and entertainment in the book is a solid approach to investing (attributed to women) that resonates with the investment philosophy RCG has used for over 34 years.
You need a temperament that does not derive great pleasure from either being with the crowd or against the crowd.
This is identified as the most important investment characteristic. Warren Buffett famously said, “Be greedy when others are fearful.”
Think long-term, and don’t trade as much. Don’t bend to peer pressure. Don’t panic in a downturn.
The book suggests that women may be “hardwired” to be calmer and more disciplined investors.
Overconfidence is the enemy. If you think you can confidently predict the future, chances are you’ll be proven wrong. Realism is more important than optimism.
Seems to be a corollary here as to why men will not stop to ask directions when driving.
Don’t trade until/unless there is a likely opportunity for benefit. Frequent trading adds costs, uncertainty and may result in income taxes.
Warren Buffett has summarized his investment approach as “benign neglect, bordering on sloth.”
Risk and return are related. When evidence demonstrates there is little to be gained, then minimize or avoid the risk.
The book suggests that women are more risk-averse or more risk-aware.
Stay both aware and open-minded as the science of investing evolves.
Women are becoming more educated in the 21st century earning almost 60% of undergraduate and 60% of master’s degrees as well.
We all know better than to stereotype any individual or group. But, since we are all human, we risk letting fear, overconfidence, anxiety, and emotion lead us to investment decisions that don’t help us reach our goals. Daniel Kahneman, who won the Nobel Prize in economics in 2002 for his work in behavioral economics, said:
“I think very little about my retirement savings, because I know that thinking could make me poorer or more miserable or both.“
For RCG and our clients, the more we can utilize a disciplined approach to the market that minimizes behavioral characteristics, the better we will be able to harness the power of the market for the long term.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.