Updated: Nov 15, 2019
Make no mistake about it. Numerous studies by banks, investment and financial institutions have concluded that overtime women are better investors than men. This seems counter intuitive; does it not? In the majority of households that I council, the men are far more likely to take the lead role in the family’s investment decisions. Why then do men statistically under-perform their feminine counterparts?
The answer is really quite easy although it may not be immediately intuitive to most. First of all, men have a little thing that women do not called testosterone. My theory is that it’s testosterone and not logic that leads men to adrenaline driven white knuckle investment experiences. The thrill of “hitting it big” and gaining bragging rights among one’s golfing buddies sometimes drives men to make highly imprudent investment decisions. This shows up when I look at peoples’ investments, where the client had no idea whatsoever about the amount of risk he was taking. What makes matters worse is that sometimes someone gets lucky and makes a huge return in a short amount of time. This is when someone, usually a man, can become highly overconfident and reason with himself that he is very brilliant at this “investing thing”. A false sense of confidence takes over and as it has been said, “pride goes before the fall”.
I saw this with my own father-in-law who became a stock picker in the early 1990s and turned his 1 million dollar portfolio into 2.5 million dollars in the next few years. Never mind for a moment that he punched a clock in a chemical plant for 40 years. He was now in his mind a bona fide stock picker. He bragged regularly at our BBQs about his stocks, his research and his unique ability to ferret out bargain stocks that turned to gold with little risk. Then the gut punch came at the end of the 90’s; the tech bubble busted. He would come over to our home and go immediately to the computer. He was nervous and twitchy. My mother-in-law would roll her eyes and say “there he goes again”. His portfolio did begin to climb back and then he got hit with the 2nd gut punch in 2008. He lost during this time over 1.5 MILLION dollars. He panicked, went to cash, and then missed the great rally between 2009 to current where the market climbed almost 300%. After all the angst and anguish he was back where he started. Never mind that if he had just stuck with a risk adjusted and well diversified portfolio he would have had 3 million dollars rather than just 1 million. He might have even had more quality of life and time with his grand-kids. He never saw value in diversification because he owned several stocks and he thought that he was diversified. He did not understand that stock with a similar correlation can all go down at the same time. He had no idea that he had built a portfolio that could wipe his family out - in a perfect storm.
The Greeks call this hubris, which is thinking you are more powerful than you actually are and then paying a terrible price.
Women are typically more logical, patient, and risk adverse. They are less driven by ego and pride. Women are more likely to accept advice and the idea that prudence in investing will yield the greatest return over time. We men can learn something from our feminine counterparts about investing and I would suggest that we should.