Investment

Why women are better investors than men and make higher returns

Psychological research demonstrates that, in areas such as 􏰜finance, men are more overcon􏰜fident than women. The ironic thing is, that various researches also show that women are better investors than men! Why is that?

1) Women take less risks;
2) Women invest for the long-term;
3) Women are less confident and therefore orientate themselves extensively;
4) Women do less transactions, which saves a lot of money;
5) Women differentiate their portfolio better;
6) Women are not led by greed;
7) Women are less emotional than men (oooh yes, when it comes to finances).

Brad Barber en Terrance Odean of the University of California followed for six years the transactions of 35.000 investors. In their report ‘Boys will be boys’  they write that men take more risk than women, trade more often and spend more time on following their investments. However, their yearly return on investment is on average 1,4% lower.

The research also shows that single women are the best investors! Followed by women who live together with a male partner. Men who live together with a female partner occupy the third place. The worst investors are single men! Well isn’t that a funny outcome! The explanation is simple. A single woman will do what she thinks is best. A woman with a male partner will most likely take something of his advice, which affects her return on investment in a negative way. A male investor will on his turn listen to his wife and this will affect his return on investment in a positive way. The single male investor, invents his own investor strategy.

Personally I got inspired by the story of Halla Tómasdóttir. Halla Tómasdóttir, together with Kristin Pétursdóttir co-founded Audur Capital in 2008 as a reaction to the testosterone world of the investment banking in Iceland. Audur was one of the few financial companies in Iceland to survive the crash without any equity losses for the firm and its clients. She introduced the world of finance to “feminine values,” which helped her survive the financial meltdown in Iceland and nearly made her president. So what are her core feminine values?:

1) Risk awareness: she doesn’t invest in things she doesn’t understand. Women know what they don’t know.
2) Profit with principles: profit should not be just economic profit, but should also have a positive social and environmental impact. Profits should be for the long term.
3) Emotional capital: when she invests, she does an emotional due diligence and checks on the company. She looks at the people and the corporate culture, since emotional due diligence is just as important as financial due diligence. It’s the people who lose the money, not Excel spreadsheets.
4) Straight talking: she believes the language of finance should be accessible and not full of jargon. She believes in telling the bad news that no one wants to hear.
5) Independence:  she would like to see women being increasingly financially independent, because with that comes the greatest freedom to be who you want to be, but also unbiased advice.

Do you think that if there would be more women in finance, this would lead to less ego, more collaboration, more focus on emotional capital and less obsession with financial capital?

Please check out her TED Talk: Hella Tomasdottir: A feminine response to Iceland’s financial crash.

 

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