22nd June 2011
Females thoroughly research investments, are more committed over the long-term, and manage their emotions, according to a new book.
LouAnn Lofton, author of Warren Buffett Invests Like a Girl: And Why You Should Too, pulls research from a number of scientific and psychological studies on male and female investors.
Ms Lofton says on The Motley Fool: "…what makes Warren Buffett the investor whom every investor wants to be like is that he approaches investing differently from the way most men do. Buffett has famously said that temperament is more important when it comes to investing success than is intellect. And his temperament tends to be more feminine than masculine.
"He's patient and does thorough research. He doesn't buy the latest whiz-bang technology company that he can't understand. He doesn't take excessive risks. His goal is to never sell the companies he invests in. He doesn't do something just to do something. He's the anti-trader, if you will."
So what is it about the female style of investing that works? Here are some of the traits that make female investors more like Buffet, says Lofton.
· Women spend more time researching their investment choices and tend to take less risk than men do. This prevents them from chasing "hot" tips and trading on whims — behaviour that tends to weaken men's portfolios. Women are also more likely to seek out information that challenges their assumptions, rather than only relying on data that confirms what they already thought.
· One study found that men trade 45% more often than women do, and although men are more confident investors, they tend to be overconfident. By trading more often — and without enough research — men reduce their net returns. But by trading less, women produce better returns and also save on transaction costs and capital gains taxes.
· Women have less testosterone than men do (not a surprise, we know). New and continually unfolding science points to the possibility that testosterone is responsible for herd-like risk-taking behavior from men in the financial markets. That makes a lack of it a decided asset.
However, on the Bigthink blog, psychologist Maria Konnikova comments on whether it is a simple case of women being more cautious because they have less testosterone. She says: "To focus exclusively on risk-taking would be myopic. Yes, it's true that risk-taking is a big factor in the picture, and women on the whole have been shown to be more risk-averse than men. Why? The greatest culprit, according to researchers, is testosterone. Women have less of it, men have more of it, and biology, in this instance, does matter. But that's far from the whole story – and, actually, far from the wholly accurate story.
"…the relationship between testosterone and risk-taking is a U-shaped one, not a linear one. Both very high and very low levels lead to increased risk-taking. And there are men and women who fall into both categories.
"…Moreover, when it comes to investing, the environment and the end goals matter. Less risk-taking does not equal better investing, nor does great risk-taking equal worse investing. It all depends – on the markets, on the investments, on the strategic considerations."
According to the Wall Street Journal, in survey after survey, women rate themselves as less confident about money and investing than men do. Only 26% of women were confident making their own investment decisions, compared with 44% of men, according to a survey by MassMutual Financial Group of 1,500 participants in its retirement plans published in March. Both were less confident than a year ago.
In surveying 2,000 adults about investment accounts that they direct themselves, Mintel found that men were more likely to invest in stocks, exchange traded funds, futures and options, while women were more likely to invest in mutual funds.
Cathy Leow comments on the report: "I find it ironic that recent studies show women are less confident but past studies actually conclude women are the better investors.