Women are better wired than men to avoid emotionally driven investing mistakes. This is according to recent studies, which indicated that women are better investors than men.
These findings are attributed to certain behavioural traits of both sexes and it seems women are doing it better.
Studies have been conducted which examine the behavioural traits of men and women, specifically regarding investments, and whilst some of the results have been predictable, others have been most enlightening.
It has been shown that women have higher emotional intelligence than men. This is unlikely to surprise most readers. However, it is the application of this superiority to investing that might be novel. The realisation has struck that investing is as much about human behaviour as it is about analysis – it is as much art as it is science. In fact, a whole field of study called “behavioural finance” has been born of this realisation. Any person having the ability to interpret or, indeed, anticipate human behaviour in the investment markets has an advantage.
Women trade less than men (on average, 45% less according to an American study). This sounds innocuous enough until one considers that trading incurs costs, and costs erode returns. As a result, men earn almost 1% less per annum on their portfolios than women. Whilst apparently paltry, this translates into a 22% wealth advantage over a 20 year investment term. Single women have an even more profound advantage over single men: bachelors trade 67% more than their fairer counterparts, and earn returns almost 1.5% per annum less for it!
Men are overconfident in their own abilities. They have a tendency to take too much credit for their own successes. They have a belief that returns are more predictable and so they expect higher returns. Women are more conservative, more intuitive and have a greater sense of urgency. Consequently women are less afflicted by inappropriate risks, “analysis paralysis” and bad timing.
Further to this, women are less encumbered by ego and as such they have no need to feign knowledge where they don’t have it. As a result, women free themselves to ask more questions and more questions facilitate better detection of charlatanism. Satisfactory answers to more questions create well-founded expectations and more comprehensive understanding of the role and consequences of a selected course of action.
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