Thursday, January 27, 2011

Are Women Better Investors than Men?

Hilary Kramer, the lady in the video (whose main purpose obviously is to promote her website together with this "contentious" idea), starts with the following statements:
  1. Women who are in the stock market outperform men.
  2. The reason why there aren't many famous women investors (despite their investing edge) is that not enough women invest in stocks because they are fearful of the stock market and they don't understand how it works.
The statements are easy enough to believe, especially since Ms. Kramer keeps on talking about how research supports these claims. What I find hard to swallow is how these two contingent statements lead to an all-encompassing generalization that "women make better investors that men," with the most obvious point of confusion for me being how women can be better at something they are fearful of and don't understand (her words, not mine).

Anyway, Ms. Kramer supports her claim with these reasons:

1. Women know how to do their homework; they take a look at the macro picture. They are able to multi-task. Thus, they are more capable of coming up with a "deductive-reasoning choice."

In other words, women are more capable of looking at all available alternatives than men, leading to a "deductive-reasoning choice" which, I take, just means "more informed decision." I could agree with this point. We all know how a lot of women take ages to shop for one item, how they would not stop until they see "the one." Men, on the other hand, go straight to specific store in the mall to buy what they want; it's all really very simple if you go online first to look at the alternatives, then decide what you want to buy and where you want to buy it before you even step out of the house.

2. Women are very inquisitive; they will ask questions of others. They do not rely on their ego, unlike men who are egotistical.

Is she saying that women nag and men are so full of themselves? I won't argue against that...

3. Women in general tend to be less risky and they understand things like asset allocation and diversification. 

Yes, I am aware of some studies that show how women are more risk averse than men. But there's more to the diversification issue than risk aversion. She can't generalize that men would more likely be stock pickers than women, and that women would tend to hold more diversified portfolios than men. One cannot generalize based on gender, and even risk aversion, because ultimately, investment strategy is a matter of personal belief. Even practitioners, regardless of gender, don't agree as to which strategy is better: active portfolio management (stock picking) or passive investing (something you all know I'm quite biased for). 

4. Women will cut their losses. Women understand the longer term horizon.

I've lumped these two together because they contradict each other. A woman who has a long-term investment horizon would not care about short-term ups and downs, and would thus not "cut her losses" when the price of her stock goes down. 

In any case, selling when stock prices are down is one of the most critical mistakes investors often make; we all know that the only way to make money in the stock market is to buy low and sell high, not the other way around. The testicular fortitude, the guts to make a counterintuitive decision, like sell when everyone else is buying and buy when everyone else is selling, is what separates the rich from the poor, regardless of gender.

Enough about what I think. What do you think? Do women make better investors than men?
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