I have considered writing a column about female investors for at least two years but have consistently put it on the back burner. Why? One reason is that the generalizations about all women (and men) spelled out below certainly don’t apply to millions of individuals. Also, as a twice-divorced 80-year-old male, my life experience has taught me that my ability to analyze female behavior is lousy.
Nevertheless, I can persuasively argue that women are better investors than men, even though they are far less confident and have lower financial literacy.
According to Anna Maria Lysardi, director of the Global Financial Literacy Excellence Center at George Washington University, women are more likely to answer financial-literacy questions incorrectly and also to choose “do not know” far more often than men. Remarkably, her study took place in 15 countries where across-the board female financial literacy was consistently worse than their male counterparts “regardless of age, income, education, or mental status.”
A recent study of baby-boomers affirms that females are less confident: 46 percent of men responded that they were very knowledgeable about investing compared with only 25 percent of females. One reason may be that women are far more reluctant to discuss their finances than men.
If women know less, then why are they better investors? The landmark study of male versus female investing performance took place in the 1990s when Terrance Odean and Brad Barber, two behavioral-finance economists, studied trading in 35,000 accounts at a discount broker from 1991-97. They found that women averaged almost 1.4 percent better per year than men; they concluded the main reason was because men traded 45 percent more frequently than women.
Odean and Barber argued that “overconfidence” is “a simple and powerful explanation” as to why men’s portfolios underperform their female counterparts. And it is as true today as it was in the 1990s. According to SigFig that tracks current actual portfolios: “The more overconfident investors are, the lower their returns tend to be.”
A recent 2014 and 2015 study of 60,000 users of Open Portfolio once again proved that female outperformance is no myth. Typically, women are more cautious than men. Yet in 2014, when the average stock U.S. mutual fund was up 8 percent, women beat men by .4 percent and in 2015, when the average fund fell 2 percent, females lost 2.5 percent compared with male portfolios that fell 3.8 percent.
Kevin O’Leary, TV’s Shark Tank popular host, speaking in Dallas last spring, told the audience that he had invested in 30 start-up companies — 15 headed by women and 15 by men. Yet the female-headed half of his portfolio had produced “virtually all of his positive returns.” He argued that women tend to have five traits that help them be better entrepreneurs than men: 1) quicker to admit ignorance, 2) more likely to seek advice, 3) better at specific goal setting, 4) do more “homework” and 5) are more cautious.
In her 2012 book. “Warren Buffet Invests Like a Girl: And Why You Should Too,” LouAnn Lofton claims that hedge funds managed by females had beaten male-managed hedge funds by more than 3 percent (9.1 percent to 5.8 per- cent) since inception. Because they were more cautious during the 2008 crash, female-led hedge funds lost only 9.6 percent compared with the 19 percent sell-off by the funds managed by men.
The problem for many women is that, compared with men, they are less focused on growing wealth. Given demands on them to raise kids, manage a home, care for relatives, etc., it certainly is no surprise.
A recent survey by Blackrock found that only 28 percent of the women said that growing wealth was a priority. Out of that group, 63 percent claimed saving was a priority and one-third (34 percent) saved/invested regularly. The remaining 72 percent, who didn’t prioritize getting wealthier, reported that 38 percent thought saving was important but only one out of six (16 percent) saved/invested regularly.
What are the lessons?
The obvious caveat is that men are overconfident, trade too much, and so earn less on their investments than female investors. Women are better buy-and-hold cautious investors, partly because they realize they are less knowledgeable about investing.
My concluding advice to women is to take investing more seriously, make it a priority. Women outlive men so they need to save more for retirement. A recent survey of 5,100 U.S. employees found that “a significant smaller percentage of women than men feel confident about having enough savings to live comfortably for 25 years in retirement.”
Almost 40 percent of working women make more money than their spouse, yet married women typically suffer more financially than men after a divorce. Certainly it is imperative that females pay more attention to saving and investing. However, as their investment knowledge increases, they should guard against the overconfidence that plagues men!
Larry Hungerford is a partner at Woodard & Co. Asset Management Group in Bermuda Run. He can be reached at larry@wcamg. com. Contact him at 998-7000.