Men have been dominating the financial services world since its establishment. With men running the big corporate companies, they dominate Wall Street leading us to believe that investing is, predominantly, a man’s game. Is this just a stereotypical belief?
A recent study by SigFig suggests that the fairer sex may have the upper hand when it comes to investing. The study, which accumulated and anonymised data from more than two and a half million portfolios, worth over US$350 billion in total assets, found the following conclusion:
Female investors outperformed men in 2014.
Last year women outperformed men by 60 basis points, 4.7 to 4.1 percent.
Why did women outperform men?
There are many factors to take into consideration, but a viable reason for the difference in performance could be due to the volumes of trading. The study shows that men experience portfolio turnover at a rate 1.5 times higher than that of women.
Returns decrease as motion increases.
Activity is expensive. The more you trade the more you underperform. It has been proven time and time again. Trading costs eat into your gains, causing your portfolio to perform worse than expected. With each transaction you pay fees, commissions and tax. Extensive active trading can cause your fees to outweigh your gains. This leads to your portfolio underperforming and you losing money.
Pick stocks that are worth holding forever to eliminate the need for frequent trading. Trading less often keeps transaction costs to a minimum, and your gains at a maximum. We want to hold wonderful shares for as long as possible, but fundamentals do change and we might want to sell when they don’t align anymore.
Create your own value investing checklist to ensure you are selling your stocks for the right reasons. I use a value investing checklist when managing my portfolio and it has been working extremely well for me. If I can check off all the criteria on the list, I know I won’t regret selling a share and can rest assured that I made the best decision for the sake of my portfolio.
Why do men trade more than women?
Men tend to be a lot more confident in their investing abilities than women. The study shows that women are less likely than men to expect to beat the market, but men are more likely to miss expectations.
It's good to be confident in your investment choices. You need to believe in yourself and be motivated to beat the market. The problem occurs when investors become over-confident. This seems to be a problem especially for men if we look at the graph presented above. Men’s expectations to beat the market are higher than their actual performance in the market. It is a clear indication that men tend to be over-confident, causing them to trade more which leads to their portfolios underperforming.
Over-confidence is a bad personality trait, as it can easily derail investment results. Curb your bad personality trait if you want market-beating success by taking control of your emotions and abiding by your investment approach.
The million dollar question
Are women better investors than men? Not necessarily. Gender doesn't affect your portfolio performance, but emotion does. I believe it has nothing to do with gender, but rather revolves around emotion and more specifically the level of confidence an investor has. Saying that one gender outperforms the other is pure generalisation, because it is possible for both men and women to become over-confident and underperform.
The best investors are those who are able to control their emotions and keep a level-headed mindset when times are tough, whether they are male or female. We can all become great investors by applying the principles of our value investing approach, doing sufficient research and keeping our goals in mind so that we obtain a sense of objectivity. Don't become a part of the majority of investors who make their decisions based on emotion. Take the contrarian approach and manage your portfolio effectively without any emotional influences.
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