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“Women are better investors than men.”
It’s a headline you’ll see every few months. Companies like to trot out studies on this topic every so often because it’s an easy headline and people tend to write about it. (Look! I’m doing it too.)
Overall, it’s quite possibly true. It’s also not very helpful for investors in general.
If you’re a woman who is bad at investing, you may now feel inadequate by comparison. And if you’re a man – well, there’s not really any hope for you, is there?
However, rather than fret over our biological shortcomings, or playing “girls vs boys”, perhaps instead we should be asking: what is it about the portfolios of high-achieving female investors that we’d all be better off copying?
Mars, Venus, whatever
The latest study to prove that women are better investors than men is drawn from 2,800 accounts held with Barclays over a three-year period. That’s hardly exhaustive in terms of timescale, but it’s a decent-enough sample size.
The Warwick Business School study found that women beat the FTSE 100 by 1.94% a year. The men were just 0.14% above it.
Now, this would normally ring alarm bells with me. Private investors en masse do not tend to beat the wider market. However, the FTSE 100 has been an atypically forgiving benchmark over the past three years – it’s been one of the more sluggish markets over that time – so we’ll let that go.
As for the “men vs women” question, I’m not especially interested in trying to delve into the “whys” of all this. Over time, there have been lots of attempts to nail down reliable personality and skill differences between men and women.
It’s a controversial area, and you often find that historic studies merely reflect the prevailing biases of the day, regardless of how authoritative they sound at the time. That in turn, leads you to question the validity of more contemporary findings.
So rather than embark on some poorly-informed pontificating on Venus and Mars, let’s just acknowledge that an extra 1.8% a year in performance is something worth having. So what was it about the portfolios tagged “female” that helped them to beat the portfolios tagged “male”?
If you want to get better returns, trade less and don’t gamble
One point was that they traded less. On average, women traded nine times a year. Men traded 13 times a year. It’s not a big difference but I suspect it conceals some chunky individual variations.
This makes sense. All else being equal, the less you trade as an investor, the better. Firstly, and most obviously, every time you buy or sell a stock or any other asset, you incur trading costs. On individual shares, this might not seem like a big cost, but they all add up over time.
Less obviously, but probably more importantly – every time you buy or sell you are making a decision. And making good decisions about investing is hard. It takes time to do your research, and it’s intellectually and emotionally taxing. Every time you make a decision to buy or sell, you go through a little emotional rollercoaster, regardless of how composed you are.
There are so many factors to consider. When you invest money in one company or fund, it’s money that can’t be used for anything else. So is this really the best use of your money at that particular point in time? And why this investment? How does it fit with your overarching strategy? What are your expectations? What is your “plan B” for if and when your expectations are not met?
Investing is hard. Warren Buffett (who is personally responsible for at least 99% of the most-frequently-quoted investment stories in the world, according to a statistic that I just made up on the spot), once said that you should imagine that you can only make 20 investments in a lifetime.
Obviously the Sage of Omaha has made a lot more than that over his lifetime. But his point is that you have to focus and take that decision seriously, every single time.
Look at it this way: the person who makes 13 hard decisions a year has less time to spend on each individual decision than the person who makes nine such decisions. So they’re more likely to take shortcuts. They’re more likely to trade in an unthinking manner. They’re more likely to invest emotionally. Which means that the overall quality of their decisions will be poorer.
In short, don’t trade. This isn’t a game. (Also, nine times a year is too many too – it’s just less bad than 13.)
You should take a long time to make investment decisions
The second main point is related to the first. Not only did the men trade more often, but they also liked to take daft punts. Men went for lottery ticket stocks (either bombed-out profit warners or “jam tomorrow” shots), while women opted for quality, “boring” stocks.
Again, this is a consequence of low-quality decision-making. Taking punts and over-trading is what happens when you spend a lot of time monitoring your portfolio on a day-to-day basis, but not enough time thinking about it in the grand scheme of things.
In other words, it’s what happens when you treat investing like a game of Candy Crush on your mobile phone, rather than considering it as carefully as you would the other financial decisions you make in your life.
Be honest with yourself for a moment. If you’ve ever changed current account (or opened a stockbroking account), think about the amount of time you spent researching the best options.
Then look at your investment portfolio. Are there any stocks or funds in there that you bought with less research than you carried out before you swapped bank account? I imagine a lot of you might be nodding sheepishly at this point.
None of this is difficult stuff. It’s all common sense. The difficulty is resisting our desperate desire to get rich quick.
Whether that’s something that men struggle with more than women, or (more likely) it’s got more to do with investing as a game or a hobby being marketed more aggressively to men than to women, is irrelevant.
If you want to be a better investor, you should take a long time to make investment decisions. That way you’ll make fewer of them, and you won’t be tempted to reverse them on a whim.