Invest Like A Girl

Young student studying homework Research, time and again, have shown that women are better investors than their testosterone-driven counterparts. I’m a male and I’m not afraid to say that females trounce us as investors, most of the time. Show me the evidence, you may ask. So here it is.

In one of the studies by Barclays Capital and Ledbury Research, it was found that women were more likely to make money in the market, mostly because they were risk-averse. They also bought and held for the long-term. Women trade this way perhaps because they are not as overconfident as men, the study found.

Another study by finance professors Brad Barber and Terrance Odean shows that women’s risk-adjusted returns beat those of men by an average of about 1% point yearly. The study revealed that women trade less frequently, hold less volatile portfolios and expect lower returns than men do.

In a third study conducted by consulting firm Rothstein Kass, it was found that hedge funds led by women, who are the minority in the hedge fund industry, far outperformed the global hedge fund index in 2012.

In the stock market, overconfidence brings about disastrous effects. Overconfidence leads to over-trading and a more short-term oriented portfolio. This eats into our returns due to commissions and disallows the eighth wonder of the world, compounding to take effect.

In the studies above, it was found that women tend to exhibit less overconfidence and trade less than men do. Women also tend to be more risk adverse and long-term oriented, putting in more time and effort researching before parting with their money.

In a book called “Warren Buffett Invests Like a Girl: And Why You Should, Too” by LouAnn Lofton and The Motley Fool, it was revealed that Warren Buffett’s way of investment – investing in what you know; investing for the long-term; researching thoroughly before investing, among others, helps your portfolio a lot. By investing as such, our aim becomes not to beat the other guy (which is ego-driven) but protecting our downside, allowing the upside to take care of itself.

Local-listed companies such as Vicom (SGX: V01), Raffles Medical Group (SGX: R01) and Super Group (SGX: S10) are some of the companies that fit into Warren Buffett’s way of investing. They are companies with a competitive advantage and are resilient businesses. No matter what the economy does, people still need to send their cars for inspection, visit a doctor when they are unwell and have a nice cuppa coffee to wind down.

By investing “like a girl”, we might all do a little better.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P owns shares in Vicom.