For the past nine years I have presented workshops on investing in listed equity shares that have been attended by over 1 000 people. One of our projects is to develop a paper portfolio to get experience in portfolio construction. I monitor and measure the performances of these portfolios, as well as 25 actual portfolios from participants. In this exercise women have consistently outperformed the male participants. Despite only 20% of participants being women, they have topped 60% of our portfolio competitions - with their returns outperforming the average by 18%. Having dealt with thousands of students over my lifetime, I have identified possible reasons for this. Do note that my below statements are necessarily generalisations, but these are my observations after many thousands of hours with female and male participants in my workshops.
Focus: Women tend to focus better than men. Women will make notes in workshops and follow up on these ideas. The minds of men can be all over the place, e.g. we will be in the middle of analysing platinum when a male will ask: “What do you think of ETFs?” They battle to concentrate on any one topic for any period of time.
Patience: Women will wait for a good investment to blossom. If an investment does not perform immediately after buying it, a man will dump it for another. For example, I lost patience with BATS and SAB after they underperformed the market for months on end. Within a few weeks of selling the shares, they both gained over 20%.
Execution: Both women and men are good at strategising. However, men will tend to ignore the carefully designed strategy and allow emotion to dictate actions during execution. Women tend to have a culture of disciplined execution of their strategies.
Evidence: Men will believe the first thing they are taught, they read or they hear. Changing minds is not an option for them, even if confronted with irrefutable, verifiable factual evidence. Women tend to have open minds and are prepared to consider alternative ideas.
Herds: Men love fads. If ‘everybody' does it, they will be there in the middle. No amount of logic and common sense will pull them out of the herd. Women tend to avoid stampedes.
Arrogance: Men seem to go out of their way to prove others wrong. Despite presenting a wealth of information illustrating that a certain industry or company is a dog, they will include that industry or that company in their portfolios to prove me wrong. Women are not that desperate to prove anything.
Research: Men tend to take decisions without researching the company in which they invest. I will ask a man: “Why did you buy that share?” and he will say: “Someone mentioned it on Summit TV.” Women take care with their hard-earned money, obtaining information about the company, analysing it, attempting to find value in it and studying its past performance.
Risk: It's a macho thing to expose oneself to risk. Men believe that the higher the risk the higher the return. When they buy a highly risky share, they are astonished when they lose their shirt. Women understand that the higher the risk you take, the higher the loss you will make.
Emotion: Contrary to conventional wisdom, men are far more emotional than women when it comes to investing. Fear and greed fight for dominance. During this turmoil decisions are made without proper consideration. Women tend to be more driven by fear than greed, so are more careful when assessing investment opportunities, thereby making fewer mistakes.
Mistakes: Men seldom learn from their mistakes, possibly because they never acknowledge them. Women will learn from the mistakes of others and, when they make these themselves, will learn from them. The path to riches is strewn with rectified errors.
Psychic: Men really believe that they can tell the future. They will tell you, with confidence, what is going to happen to the economies of China, India, Greece, Italy, Spain, Ireland and Tonga. Women understand that, when it comes to the future, “nobody knows nutting”.
Gains: Men chase gains. They will tell you how much they made on various shares in the past, never telling you about their losses. Women, on the other hand understand that 80% of one's wealth over time is driven by the reinvestment of dividends so women will focus on returns (alpha). The tortoise beats the hare every time.
While researching this article, I found a book called “Warren Buffett Invests Like a Girl: And Why You Should Too”, written by LouAnn Lofton, editor-in-chief of The Motley Fool investment website. Lofton's observations are uncannily similar to mine, and she concludes that women tend to abhor risk, make decisions based on research rather than emotion, and avoid short-term trades – all attributes of Buffett's legendary investment formula. asa
Author: Charles Hattingh CA(SA), Chartered Financial Analyst, is the Managing Member of P C Finance Research cc.