By Medha Rijal
Even after years of economic progression, it is assumed that making an investment is the job of a man. Women live under the shadow of knowing little and hesitate when it comes to taking charge. The question that we are here to counterfeit is that, are women better stock market investors?
To correctly address the elephant in the room I have come up with a list of 7 reasons as to why women are better stock investors. Well, for all the men reading this you might be wondering as to what does gender have to do with investing ?
To get better clarity, you should read the novel by LouAnn Lofton titled, “Warren Buffet Invests Like A Girl: And Why You Should, Too.”
Also, you might be wondering that even if gender did make a difference, would men not be better at this ?
Trading is still considered an alpha male territory even in a developed economy such as the United States.
There is data to suggest that there are more male fund managers in comparison to the number of women working in the industry. As per industry data reported in 2017 in the US, only 28% of individuals registered with the Financial Industry Regulatory body were women.
Also, if you google And try to find the top ten investment advisors around the world, there is only one lady, Suze Orman, who appears in the list along with 9 other men. Now, that definitely does raise the question, are women better stock investors than men?
The Women Investor Landscape
Suze Orman is an American Financial advisor and the founder of the Suze Orman Financial Group. She is recognised as New York Times Bestselling author for her contribution in topics in personal finance. Her books have sold over 25 million copies and are available in more than 12 languages globally.
If you were to examine the Indian landscape, Dolly Khanna is a leading investor with a portfolio worth more than INR 157.1 crore. She has been actively investing in the stock market since 1996.
Why Are Women Better Stock Market Investors?
Consistent & Cautious Nature
When women look at the stock market they are always in it for the long haul. Women are inherently known to be less of risk takers when it comes to making an investment.
There is a behavioural book written by Barbara and Allen Please titled , “ Why Men Don’t Ask and why Women Can’t Read Maps. Going by popular belief, this too applies while making an investment.
Men have too much of an ego to take a second opinion even if it means taking an additional amount of risk which might result in a loss. Research states that male traders are 2.5 times more likely to break trading rules in comparison to women.
Women are far more patient and consistent. When a woman invests she is not in it for an adrenalin rush but for the best return on her investment.
Interestingly, research also states that male traders have more of a probability to break rules while trading. Similarly, the same study concluded that 58% of women placed trades correctly in comparison to men. This definitely does lay the foundation for a better return which positively means that women are better stock market investors.
Are Women Better Stock Market Investors because their investments generate greater returns?
When it comes to investing in the stock market, majority of women are hesitant and not sure. However, women who do go ahead and invest tend to outperform their male counterparts.
Warwick Business School had conducted a survey between the periods of April 2012 and July 2016 where 2800 male and female investors were studied. This study was conducted comparing male and female investors investing through Barclays. At the end of the study it was concluded that women outperformed the FTSE 100 and outshone male investors by 1.8%.
The annual returns for men were 0.14% above the FTSE 100 whereas portfolios held by women secured an annual return of 1.94% above the FTSE 100.
Risk Taking Abilities
Women are conservative and believe in the slow and steady approach. Men on the other hand, are aggressive and live by the high risk high reward approach.
If I were to describe the risk taking ability of a man I would state that a man invests in a stock similar to swinging a bat in a cricket batch hoping it would land up as a six. A woman invests in hoping to make one run per ball.
There was a study conducted by Fidelity Investments in 2013, which concluded that men have a higher percentage chance of holding 100% of their investments in stocks.
Women being less of risk takers need a flurry of questions to be answered before investing anywhere. Questions such as, how is the company performing and how well is the company established? What were the profits of the company for the last financial year? Is the company capable of generating healthy dividends?”
Frequency In The Number Of Trades
After a considerable amount of research over a period of time, it is wise to state that men trade more frequently than women.
Trading less reduces brokerage fees and settlement costs which positively increases returns.
There was a study conducted by the University of California -UC Davis in the 1990s, where professor Brad Barber and Terrance Odean tracked the trading pattern of over 38000 households over a six year duration of time.
It was concluded that men traded 45% more frequently than women. If we were to examine recent data, Openfolio conducted a study in 2015, where data showed that men traded 7.4 times more in comparison to their women counterparts who traded at 5.1 times.
With a greater number of trades, it is imperative to have a systematic risk and compliance network in order to maintain semblance.
The Buy What You Know Formula
This is in line with what Peter Lynch elaborates in his book, “One Up On Wall Street”, where he explains the best research tools for any investor are their eyes and ears.
Peter Lynch headed Fidelity Magellan from 1977 to 1990. He is known for his expertise as a mutual fund manager.
Women do majority of the shopping for the household and are up to date with the brand of cheese that sells the most in a supermarket store or which clothing company is everyone’s favourite.
This resonates with what he says because to invest in a company you need to be aware of the company such as its business model, it’s long term plans and the growth strategy that the company is adopting for this year.
Outcome Based Approach
Women do not rely on speculation and pick stocks after thorough research from blue chip companies with a good track record.
Women invest basis the long term financial goals that they have in mind. Men on the other hand thrive on an adrenalin rush for the thrill of investing. They speculate more, have a greater number of trades which thereby results in lower returns.
It is noticed that women rely on an outcome based approach and are more focused.
Women as Team Players
Building a portfolio is a collaborative activity. There is a great amount of research and planning. We generally tend to consult our friends, relatives or even hire a professional investment advisor.
Women are more open to consulting and hiring a professional investment advisor. While men like to be the sole decision makers and manage their portfolios independently, women generally work as a team.
Women never shy away from asking for a second opinion. They delegate responsibility to portfolio managers and build their investments constructively.
Does this conclude that women are better stock market investors ?
It can be testing to work in the finance industry which is known for its pressure packed timelines and male dominance. However, there is some relief knowing we have come far ahead than the times where Geraldine Weiss, could not even reveal her gender because of the opinion that men were better investors.
Hopefully, more women would take up to investing and realise that women too can dominate the stock market.
This article is authored by Medha Rijal. She is an active blogger and writes about topics such as financial planning, investments and wealth management.
To read more topics related to women and investments, do have a look at the article, Why Women Should Take Their Own Investment Decisions.
