Harriett Harman has drawn a lot of flak this week over her comment that the financial crisis might not have happened if Lehman Brothers had been Lehman Sisters. And rightly so: her “men are thick” approach comes across as chippy, patronising to people of both sexes, and is pretty much guaranteed to rub almost anyone who reads her comments up the wrong way.
That’s a pity. Because in some ways, she has a point. A range of studies over the years has shown that women tend to be better investors thanmen . In 2001 for example, US finance professors Brad Barber and Terrance Odean found after analysing seven years’ worth of trading data from a stockbroker that women’s risk-adjusted returns beat those of men by an average of about one percentage point a year.
Why the big gap? It comes down to a couple of key factors: women traded less, and they were also less keen to take risks, focusing more on preserving capital.
Now you can get too caught up explaining this with a lot of pseudo-scientific twaddle. The financial world suffers from a surfeit of testosterone, no doubt about it.
I’m currently re-reading Frank Partnoy’s Fiasco, an inside account of how investment banks managed to blow up parts of the financial system with derivatives in the 1990s (yes, this isn’t the first time it’s happened). It’s chock-full of boys behaving badly and the sort of macho language that looks laughably over-the-top onthe page. For example, whenon e salesman manages to sell a particularly dozy client an utterly unsuitable but expensive financial product, he tells Partnoy: “I ripped his face off!”
But the women in the book don’t come off any better. For example, Partnoy has a rather scary female boss who is a key player in his derivatives unit. I suspect that the way these people are incentivised – with short-term bonuses that reward the quantity of product sold rather than the quality of the actual product – explains the short-termist, reckless attitudes a lot better than their sex.
But, male or female, you can use the lessons from the ‘gender gap’ in your own investing. Avoiding over-trading (which cuts costs) and focusing on capital preservation(which stops you from taking stupid risks with money you can’t afford to lose) is just good sense.
And it’s particularly vital at times like now, when the fear of being left behind by markets can lead you to make hasty decisions you regret later.
That’s why it’s not a bad idea to bounce your investment ideas off your partner, or someone of the opposite sex you trust. Simply articulating your reasons for buying or selling will help you to figure out if the decision makes sense. And if it doesn’t, I’m sure your partner won’t be slow to let you know.