Why do men habitually resist reading the instructions or asking for directions?
Ongoing research in behavioural finance is unearthing alarming consistencies in how we act around money and stark differences between men and women that have some investors sitting up and taking profits. Here are five reasons why you should consider your feminine side when it comes to investing:
1. It's no secret that men prefer to learn from experience than reading instructions. For women, there's no social stigma attached to asking for advice yet, men get the short end of the stick in this arena (Signtings, 2013). Generally, women are much more comfortable asking for guidance (Belsky, 2012) and learning from others, where men often prefer to learn from practice, bruises and all. This plays out in investing returns by giving those who seek advice and advantage over those who don't.
2. The remote control advanced our society from the living rooms of the 70s where children reluctantly got up from their T.V.-tray dinners to turn the set dial at their parent's request, to the Lazy-Boy channel surfing Shangri-La of today. Not only can we see 'what else' is on T.V. with a tap of the finger, we can sell or buy securities with the click of the keyboard from the comfort of our bathrobe. Despite the age of accessibility, women are surprisingly less likely to check their investments, less likely to trade securities (Chatzky, 2015), and more likely to let well thought-out investments run. Investors who review their portfolio more frequently are more likely to over-trade, cutting winners too early, and to regret aggressive asset allocation decisions at the wrong time. If you're fingernails are bitten down to the quick after a market correction, you probably also dismissed reducing risk in your portfolio when the markets were up. These are the folks who often fall into the emotional trap of panic selling at the bottom of the market and buying during the euphoric upward trend.
3. Whether due to socialization or a lower level of testosterone, women tend to be more risk-averse then their male counterparts. For example, it has been shown that men were more likely to take additional risk than a platform's algorithms advise for them (Chatzky, 2015). Whether on a motorcycle or in front of a Bloomberg terminal, a risk-seeking individual is more willing to stick his neck out and make quick decisions, "but overall, the female brain is often said to be better suited to making a killing on trading floors" (S.V.P., 2014). Also, men generally take more risk than recommended, while women are more apt to follow guidelines for asset allocation decisions (Croson & Gneezy, 2009).
4. When investing, men tend to be more likely to sell securities too soon in order to capture profits rather than letting winners run, while leaving losing positions open hoping for a bounce. For women, having lower expectations for investments makes cutting losses more palatable. Also, holding lower expectations makes them less susceptible to all for a 'hot stock tip' or likely to jump on the next investment fad (Sightings, 2013). Mathematically speaking, it takes 11.1 per cent to regain a loss of 10 per cent and making unnecessary volatility works against long-term profits.
5. Confidence is a trait that we commonly attribute to people who know their stuff. In contract, overconfidence is the natural tendency that occurs when our lack of accuracy is overridden by our conviction. That's a nice way to say that more often than we'd like to admit, we convince ourselves we are right based on insufficient or biased information, and the more confidence we have the more likely that we will fall for a biased confirmation.
Both men and women display overconfidence, however, in situations with higher uncertainty, men tend to be more overconfident than women (Croson & Gneezy, 2009). This stands to reason. Survival of the fittest has translated into the need to rush in for the kill with resolve. There's no room for the faint of heart in the vast Planes of Abraham or around the quarter-cut oak boardroom table. As Blezy (2012) states, "We believe there is a simple and powerful explanation for high levels of trading on financial markets: overconfidence. That is, the more that people overestimate their ability...the more likely those people are to take action based on their beliefs."
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