|Statistically, the numbers favour women|
This is obviously a very sensitive question to bring up, but one that deserves a thorough investigation.
Does the genetic difference between the two sexes actually affect our trading ability?
What is your opinion? Now ask your partner or a friend of the opposite sex. Do they agree with you? Do men hate to admit they are wrong? Are men more likely to move on before the peak is reached? Do women prefer security? Are men trigger happy risk takers? This could create arguments for hours but let’s look at the facts.
Men certainly have the fanciest gadgets to monitor the markets with one client creating candles that show the volume traded at each level throughout the day, and another using movie editing software to create 3 dimensional candles that change throughout the day.
Who is the Dominant Player?
While men currently dominate the investment world, more and more women are becoming involved in the markets and taking charge of their own investments. Some of this is out of necessity with women on average living longer than men, however more women are choosing to enter the markets and in many cases trade.
Take Harriet a 69 year-old retired grandmother who day trades in Florida. Not the stereo typed image of a day trader we would expect. At a large internet based US brokerage firm, in 1999, 12% of its traders were women. This number climbed to 19% in 2000 and one of the long established day trading academies in the US has seen the number of women attending their classes climb from 2% to 10% within 3 years.
What does the major study reveal?
There is one major study that has been done that most of the literature refers to. This was a study by the University of California of 35,000 brokerage accounts. The conclusion from this study was that women make higher returns than men, by 1.5% on average. Single women made 2.2% more than their single male counterparts.
A likely explanation for the poor performance of single men is that they are simply unable to commit to a strategy? Is it possible that single men are just easily distracted by the next, glamorous hot stock? Worried that the same old blue chip or index fund, which has loved them so deeply in the past just, isn’t going to look so great in the future?
Women out performing men, was backed up by another study by the National Association of Investors Corp in Maryland, USA that found that all women investment clubs outperformed all male investment clubs by an average of 5% per annum.
Do men have an ego problem? Ask your wife!
Anecdotally, men are less willing to admit a loss and hang on, turning a small loss into a much larger one while women are more likely to cut their losses. This was not confirmed by the research.
Let’s look at the reason for this superior performance that women achieve. How do they do it? Before women get too carried away they are no better at picking a profitable share than men. Share picking ability was the same regardless of the sex. Women also sold shares too early, as did men and then those shares went on to make greater profits than the shares they replaced them with.
So why is it that women are better traders?
It came down to one simple fact, women trade less often! Why is this true? Is it because women have more staying power? It has been confirmed by research that women do have less tolerance to risk than males.
A number of studies confirm this including Catherine Eckel who is a professor of economics at Virginia Tech found women in many different situations had a lower risk tolerance than men. This means women are less likely to enter trades unless their confidence level is high and this results in less frequent trades.
Women do not have it all their own way. The other side of women’s aversion to risk is that they are less likely to enter the markets in the first place. In a study conducted at the Hebrew University in Jerusalem students could choose from cash investments and shares of various risk levels.
Who had more cash at the end of the study?
A t the end of 10 weeks the males on average had 60% more cash than the women. The women were far less likely to take on risk, kept more money in cash and bought less volatile shares. As the study progressed and the women gained confidence they took on more risk towards the end of the experiment.
The conclusion to draw from these studies is to select only those trades that you are confident with which have a higher probability (statistically) of working in your favour. Stay away from those trades which the risk reward ratio doesn’t appear to be in your favour (riskier trades) and leave the impulse trades to the ameteurs. Sometimes less can be more.