Women are Better Investors Than Men Why ?

• Men and women perceive and take risks differently due to thedifferences in their emotional responses. This is why women investors almost always outperform their male counterparts.
• We are not done debating men versus women. Moving away from simplistic arguments about whether women can do what men have done for years, we now have growing evidence that women may actually be better in several professions, including investing.
• Women love control, as any married man will vouch for. They desire control over their futures, their cars, their husbands, their staff and much else. If these behaviours lead to them being different, it may not be a disadvantage. Many men identify a women driver from a mile, and quickly make jokes.
• The truth is that women are less prone to accidents, and almost always wear the seat belt. Women’s behaviour, driven perhaps by the desire to control, is different, but the outcome is mostly beneficial. It is this difference that seems to work in women’s favour in several cases, but we will stick to investing.
• If they are thrown in a situation of uncertainty, risk, incomplete information and unknown outcomes, what are women likely to do? If this describes the investing world, how would women behave? They would get stressed out, yes, but their desire for self-control results in them acting with caution and desisting from taking undue risks.
• Men on the other hand love the demand for action that a crisis situation throws up for them and end up making quick decisions. Then they spend time reversing their calls over and over again, drawn in by the lure of action. Women see no merit in too much action without evident purpose. There is a growing case for the woman’s way of managing money.
• Are women wired differently to be better investors? Jennifer Lerner of Harvard University, whose work on the effects of emotion on decision-making is widely acclaimed, provides some insights. Men and women perceive and take risks differently, due to the differences in their emotional responses.
• In a situation of crisis, men respond with anger and women with fear. Viewed from a lens of anger, the world seems more certain, more amenable to our control and less risky. Viewed through a lens of fear, however, the world appears full of uncertainty, beyond our control and rife with risk. Men could be more prone to selling furiously when markets fall, and buy with overconfidence. Women tend to be cautious, unwilling to take risk, or act with haste in situations of uncertainty.
• Men might be operating from a position of overconfidence, looking forward to beating their competitor and bragging about it later. Women may instead expect lower returns, watch out for risks, and be willing to sit out for the long term. Brad Barber and Terrance Odean, who have written extensively in the area of behavioural finance, have found that women trade less frequently and hold less volatile portfolios. They, thus, beat men by an average of about one percentage point annually on risk-adjusted basis.
• A survey in 2001 found that if the available information was incomplete, women were unwilling to act and felt less confident, while men were quick to extrapolate and draw quick conclusions that led to hasty action before complete information was available.
• Dan Abrams published last year, a book elaborately titled “Man Down: Proof Beyond a Reasonable Doubt That Women Are Better Cops, Drivers, Gamblers, Spies, World Leaders, Beer Tasters, Hedge Fund Managers, and Just About Everything Else.” Among the string of facts that Abrams presents, is the finding that women hedge fund managers outperformed men. They generated an average annual return of 9% between 2000-2009 compared to 5.82% that men managed.
• This is in an industry where 97% of the hedge fund managers are male. Women are more risk averse, thoughtful and deliberative, he finds, compared to men who may be self-destructing because of pride and overconfidence. It may be in the interest of the investment industry to encourage more women money managers and advisers.
• In an interesting exercise in the previous week, I asked a classroom of men and women in their late 20s to write out their financial goals and tell me how they plan to fund those goals. The women wanted to live with theirparents to reduce their monthly expenses and, instead, save a large portion of their income to fund their wedding or house. The men wanted the freedom of living by themselves and wanted to buy a car or begin a business. The women chose debt instruments and the men were willing to buy equity.
• The difference in preferences was clear and contrasting. It seemed to me that a household portfolio that would be managed by both would benefit immensely from this diversity in preference. A mix of caution and risk could deliver a well balanced allocation between equity and debt, something financial advisers strive to get a household to consider.
• Are household finances managed by women? There is little evidence in India about how decisions are made in a typical household. If I were to draw upon my interactions with investors who have been my audience in several talks, I would think on these lines: Women increasingly love their financial independence and like the power of earning for themselves. Women like to assert this independence by making choices about how their money will be spent, on themselves or others.
• However, women do not participate as extensively in the investment decisions of the household. They either shun this aspect of the money decision since they think it is complex, or they do not assert themselves when the men decide differently. I have met several smart women who understand and manage money for themselves or advise others, but they could still be a minority. My conjecture is that money management in a household is still dominated by men, as it is in the investment management industry. Time for change, woman!
• Source: Economic Times