I write to you before leaving for Singapore a financial centre made famous by the trader Nick Leeson – machismo trading personified. Have you noticed there are no trading or financial scandals involving women – no Fox of Wall Street?
Whenever I go to Singapore and give a speech, to a room full of entrepreneurs I am struck by how many are women entrepreneurs. Far more than I would have found in the UK. A room with about a thousand entrepreneurs and about forty percent were women.
So what about in trading – how come women do not rule the world? After all, they make great traders – the research proves it?
There can be little doubt about male dominance when only ever around one out of a hundred of the UK’s largest companies are headed by a woman. Even in the US, it’s a similar proportion of women who head Fortune 500 companies.
How ironic. Research shows 46 per cent of all US businesses are owned by women, and employment at women-owned businesses is growing at 18 per cent, compared with 8 per cent for all companies, according to business magazine Forbes. Actually, US women have an average net worth of £1.96 billion compared with the men, at £1.45 billion.
And when it comes to investment, research also shows women make better investors than men. Luckily for men, there is much they can learn from women. What is it women do in stock picking, research, trading, that produces better results and how can men use the web to close the gender gap?
Women’s portfolio’s earned 1.4% annually more than men’s did in a study of over 35,000 investors by the University of California at Davis. Indeed single women earned 2.3% annually more than single men.
Poor male performance is due to over-trading according to the study. Men trade their accounts 45% more often than women. And single men shuffle their holdings 67% more than single women. Perhaps the adage about men’s fear of commitment is true after all.
A National Association of Investors Corporation ten-year study found all-female investment clubs outpaced all-male investment clubs by producing 23.8% average compounded lifetime annual returns compared to 19.2% for male clubs.
So what lessons are there for men? After all, as a sex, we men are always ready and willing to learn from women, aren’t we? Do not male drivers at the first opportunity admit they are lost and ask passers-by for help?
First, save transaction costs by not churning your portfolio. Men like to fiddle. Actually they love to fiddle. It’s not a cliché. A UK Cabinet Minister, Gillian Shephard, once told me that her male colleagues always wanted to change laws. Always fiddling. In trading this means changing the portfolio, being premature in their actions, not waiting, watching, seeing.
Second, men should spend more time researching before investing. Fear of making a mistake was 50% to 60% higher among women than among males according to the US National Center for Women & Retirement Research. Consequently, women spend 40% more time than men researching and are also less likely to trade on a ‘hot tip’. Maybe it’s because women have been shown in many studies to be less confident that they lack the overconfidence men have been shown to have. Men dive in based on scant evidence, more assured of their views.
Third men need to reign in their overconfidence. 52% of men express confidence in their ability to invest wisely, compared to just 38% of women according to the American Savings Economic Council. Men are overconfident in their abilities to pick market beating stocks. This leads them to enter quickly but stay well past the point where evidence points to an exit. It is a fine balance between ‘over-fiddling’ and so getting out too soon, and being over-confident and so staying in too long.
This in turn often makes women better traders – more risk averse, awaiting clearer market signals for good trading opportunities and more diversified.
So what do women need? A little more confidence to start investing, but not so much as to make them bad investors. Sign up to free webinars on improving your trading whether a man or woman: www.alpeshpatel.com
