Wall Street has been dominated by men for decades. But what does this say about their investing results? According to a study performed by Cal-Berkeley, women outperform men by 0.94% every year. Though this seems like an insignificant percent, over a lifetime it could amount to a difference of over half a million dollars. In another study performed by Fidelity covering nearly 8 million investment accounts, they found that on average, women are better savers and achieve better investment results.
Why is this?
The studies showed that these results were caused by one major character trait in men: Overconfidence. In general, men will assume more often that they know what they are doing. In consequence, they become disillusioned by thinking they have more control over the outcome than they actually do. This attitude often leads to excessive trading and higher transaction costs which kills their returns.
Women, on the other hand, tend to rely on rules of thumb that have been proven to produce results for decades. They don’t become too emotionally involved as the market fluctuates because they are confident in their strategy and not necessarily in themselves. They also tend to be more patient and more risk- averse.
Men, on average, try to time the market more than women. This means they try to predict exactly when the market might swing up or down and try to trade accordingly. This strategy might work in the short-term but is very difficult replicate over time. According to an article by Merrill Lynch, it is nearly impossible to time the market and we need to focus on time in the market.
Conclusion:
It is important to remember that there are both men and women that are incredible investors. It is not the gender that best predicts success in investing (or life) but the behaviors and habits that have been proven to be successful over decades. We can all be a little better by practicing patience and not letting our emotions get the most of us when the market turns. These behaviors will not only improve our investing results but our lives as a whole.