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In the world of investment, the traditional image of a savvy investor is often portrayed as a pinstripe-clad risk-taker fueled by testosterone. However, recent studies have shown that this stereotype may not hold true. In fact, it appears that those of a more feminine persuasion may have the upper hand in the investment markets.

The University of California conducted a large study in 2001, which revealed that men traded 45% more frequently than women. Despite this, their average risk-adjusted returns were 1.4% lower. Another survey conducted by DigitalLook found that women’s portfolios outperformed the FTSE by 3% in the year ending on July 31, 2004, while men’s portfolios lagged behind by 1%.

Since then, evidence supporting the idea of female superiority in the investment markets has been steadily growing. Psychologists are now able to identify the character traits that make for a successful investor, as well as those traits that explain why more men seem to suffer losses in the markets.

So, what are these attributes that set women apart? One possible explanation for women’s better investment performance is that they tend to be more cautious. Women’s portfolios are often more balanced and diverse, and they tend to choose lower-risk options that are less susceptible to trends and fads.

Furthermore, women are also less competitive when it comes to investing. They invest less of their ego in a deal and are not as motivated to prove their financial prowess to others or to seek thrill in the markets.

In addition, women have been shown to have a more consistent investment strategy compared to men. They tend to back less volatile portfolios and are better at tuning out the excessive information that others may react to impulsively. This allows them to weather the ups and downs of the markets more effectively.

Another characteristic that sets women apart is their patience. They engage in less frequent trading and hold onto their investments for longer periods of time. Studies have shown that those who trade most frequently actually earn the lowest returns, whether they are individuals or mutual funds.

Finally, women tend to be better researchers. While they may have less experience in investing compared to men, women are more likely to conduct thorough research and are less influenced by herd mentality.

It is important to note that these aspects of the female psyche also contribute to their more conservative approach to investing compared to men. As a result, they may not see the same astronomical profits (or major losses) that men do. However, by investing in consistently good funds over time, women are able to achieve higher net returns, which ultimately matters most.

Of course, it is worth mentioning that many men possess the qualities that make them excellent investors. However, these winning traits may not align with the typically masculine ideals. It is possible that the best male investors are more in touch with their feminine side than commonly assumed.

Apart from biological factors, what else contributes to the divide between winners and losers in investment? There are three key psychological traits that tend to trip up men when it comes to making smart investment decisions.

The first trait is attitude towards risk. Men are generally less risk-averse than women and tend to back more uncertain portfolios. They are more likely to concentrate their investments and opt for less diverse portfolios. Additionally, men’s higher earnings and greater net worth allow them to take greater risks compared to women. A study in the US conducted by Wang in 1994 also found that women are more likely to be offered safer investment options by advisors who assume they are risk-averse.

The second trait is overconfidence, which is consistently found to be more prevalent in men compared to women. This is particularly true in male-dominated fields such as finance. Men often overestimate the returns of their investments and have an exaggerated sense of certainty. They also tend to have misguided overconfidence in the accuracy of their own knowledge and overrate their abilities. In a Gallup study, both men and women expected their portfolios to outperform the market, but men expected theirs to outperform by a greater margin.

The third trait is the herd instinct. Constant monitoring of the market can lead to overactivity in men and cause them to act irrationally. Men are more susceptible to following the crowd and engaging in information cascades. They also tend to become overwhelmed by the endless stream of news and financial information instead of sticking to regular portfolio reviews.

Despite women having the innate skills that could lead to the best returns, there is still a significant gender gap in the investment industry. Male investors outnumber females by a ratio of eight to one, and only 3% of hedge funds are led by women. Simonne Gnessen, owner of Wise Monkey Financial Coaching and an advisor to predominantly female clients, believes that women could benefit from adopting some of the overconfidence commonly seen in men. She argues that many women have the potential to reach great financial heights, but they often lack the belief and confidence to act upon it.

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Ihab Salloum