Do Investors Have a Lot to Learn from Their Better Halves?

women-investors

 

Let’s take a look at a controversial topic: how do men and women differ as investors, and what can each sex learn from the other?

To start with, a bit of economic background. In March 2017, The Organisation for Economic Co-operation and Development (OECD) released its landmark employment study, which singled out stay-at-home mums as the “greatest untapped potential’’ for Australia’s workforce.

The report highlighted that young Australian women are better educated than men — nearly 54% of women aged 25 to 34 have a university degree, compared with 43% of men the same age.

In another study, The Grattan Institute calculated the economic benefits of women in the workforce and has found that Australia could add $25 billion to the economy if we could increase female participation rates by just 6%.

Goldman Sachs’s research has suggested that narrowing the gap between male and female employment rates could boost Australia’s GDP by as much as 11%.

US researchers Nancy Carter and Harvey Wagner found that companies with the most women board directors outperformed those with the least. In fact, their research suggests that return on sales is as much as 16% higher and return on invested capital 26% higher.

 

So what would happen if women had full control of the family’s purse strings and investment decisions?

Well, without wanting to put too much stock in gender generalisations, there has been a fair amount of research done over the years that suggests that men and women seem to invest differently, and both sexes could probably learn from each other.

For example, the NAB came out with a study, written by Kajanga Kulatunga, that claimed:

“Australian women are missing out on tens of thousands of dollars in savings during their lifetime because of their tendency to shy away from taking appropriate levels of risk in their portfolio. […] We believe this is the first major study in Australia to demonstrate that women’s lower super balances are not only impacted by career breaks and lower pay, but also investment preferences.”

Kulatunga raised some hackles and opened up the whole nature vs. nurture debate when he went on to say, “Our research shows there are three regions of the brain that are anatomically different in men and women, which may have a major impact in financial decision-making.’’

However, this conservatism could actually pay off: other reports have found that men are generally more confident about investing, while women are more goal-directed and tend to trade less.

One of the biggest studies to look into this came out of the UNSW Business School where professor Peter Swan co-authored a paper, The gender face-off: Do female traders come out on top in terms of trading performance?

They looked at data out of Finland spanning a 17-year period, focusing on the trading history of men and women across 27 major Finnish stocks, including Nokia. The study found that there was a gain to female investors of €194.17 million over the time period, representing a continuous compounded rate of return of 21.44% p.a., rising to 43.16% per annum if you looked only at the main stock, Nokia.

“We concluded that female investors prefer to buy underpriced stocks and sell overpriced stocks – compared with moving average prices,” says Swan.

The research backs up a 2001 study from the University of California called Boys will be boys: gender, overconfidence, and common stock investment, which showed that women investors outperformed male investors by around one percentage point a year, but this underperformance was due entirely to too much trading by males when trading costs were high and not due to better investment choices by females.

“Women are far more likely to buy when prices have fallen, indicating greater scepticism and contrarian behaviour than males. Hence, men should make a special point of having their spouse review any choices the husbands make,” suggests Swan.

The anatomical link has been questioned, however: many researchers believe it has less to do with biology and more to do with the way we were brought up.

Historically, women haven’t been the ones to do the investing. Historically, men earned and invested the money in most families, so it’s a relatively recent trend; to borrow a line from the Eurythmics, “sisters are doing it for themselves”.

In a report of 11,500 investment personality assessments completed by Merrill clients, 55% of the women questioned agreed or strongly agreed with the statement, “I know less than the average investor about financial markets and investing in general,” compared with just 27% of the men.

But do women lack confidence…or do many men simply overestimate their own ability, leading to unnecessary risk-taking and poor investment decisions?

Many men also seem to get caught up in the adrenaline of chasing the big returns which could lead to men expect faster returns thus increasing their capacity to self-destruct.  

Research further suggests that women tend to be more willing to seek investment advice than men, which may put them in better stead to get superior results over time.

Of course, all of the above are generalisations. There are men and women who do not follow the above stereotypes. In fact, the reality is that a person’s gender, education, career, family, intelligence, and just about everything else about them as an individual don’t matter when it comes to investing.

Being a successful investor is about creating a clear strategy of how you are going to achieve your financial goals. It’s about being disciplined, getting the right education, and building a great team of experts around you.