The vast majority of fund managers are male. Nearly all the bosses of the big banks are male. About 26,000 of the 31,000 individuals regulated to give financial advice are male. Yet the reality is that men, in general, are not that good at investing.
Why? Because men are too emotional. They don’t focus. They buy the latest trend. Above all, they are inclined to be just too darn risky.
How do we know this? (OK, I slightly over-egged it.) Because of a fascinating study by Warwick Business School, which looked at the habits of men and women who trade shares and funds using Barclays’ Smart Investor service.
It found that the annual return made by men who invested on the site was just 0.14% above the performance of the FTSE 100.
But the results from women were strikingly different. Female investors on average achieved an annual gain of 1.94% better than the FTSE. Compound that up over a longer period, and it makes a huge difference. If the FTSE grew by 5% a year, with £100 invested a month we’d expect the men to enjoy a gain of £18,000 over 20 years, while the women would make £28,000.
So what were the men in the study doing wrong, and what were the women doing right?
The biggest difference was in the type of shares that men like to buy. Too many men get excited about the potential for lottery-style winnings from highly speculative shares or instruments that appear cheap but which can soar in value.
So in the past they probably bought penny shares in Turkmenistan oil companies because, you know, they’re a dead-cert “ten bagger”. The same fools today buy initial coin offerings believing them to be the next bitcoin. Good luck on that one.
And men have problems dealing with things that go wrong. One of the worst mistakes in investing is to hold on to shares after they have dived, in the hope that they’ll recover. Women are more likely to cut their losses, men hold on – to see their shares shrivel to nothing.
Then there’s emotionality. It appears that men are more sensitive to news events than women, and are more likely to buy and sell as a result. But one thing we’ve learned in recent years is that high levels of trading tends to diminish returns. The study found that the female investors traded nine times a year on average, while for men it was 13.
Neil Stewart, the Warwick Business School professor who led the analysis, says: “Men are just a little more likely to be drawn to more speculative stocks, whereas women are more likely to focus on shares that already have a good track record. Women also take a more long-term perspective, trading less frequently. This possibly means women are investing more to support their financial goals, whereas men are attracted to what they see as the thrill of investing.”
The research was a snapshot of the behaviour of 2,800 investors over a 36-month period, so make of that what you will.
Having been burned by a speculative investment in oil exploration companies a decade ago, I learned my lesson and now invest almost entirely through cheap index funds. But I still play at asset allocating between what I regard as expensive or cheap markets. Right now, UK domestically focused equities look screamingly cheap, priced for a no-deal Brexit when such a daft outcome is highly unlikely. But I could well be wrong. After all, I am a man