Okay ladies, you win.
I always assumed that men were better investors. After all, every time I walk into the investment section of Kinokuniya, it seems like most of the books there are written by some sleazy-looking dude in a suit.
Yet, the numbers don’t lie: Women investors beat men by 12% in net investment returns in 2014, and men were also 25% more likely to lose money in the market. Owtch.
So what’s the secret sauce? What makes women so much better at investing?
It turns out that we men we lack a certain key quality – something that comes naturally to women.
The Pan Shaker Effect
In the book The 4-Hour Chef, author Tim Ferriss describes a derogatory term in the chef community known as a “pan-shaker”.
You know how the actor-chef in any cooking show usually shakes his frying pan vigorously while cooking his risotto? It might make for good TV, but real chefs know that you shouldn’t over-prod your food.
“Learning when to leave food alone is as important as learning when to manipulate it.” – Tim Ferriss.
In the same way, men tend to be obsessive pan-shakers when it comes to investing. For example, I have a friend who freely admits that he has “itchy hands”: He buys and sells as often as eight times a day, depending on where he thinks the market is going.
That might sound sexy, but it’s a recipe for disaster.
In a 2001 study, researchers found that men traded stocks 45% more often than women, leading to higher transaction costs and lower returns. SigFig also found that every time investors sold all their holdings and bought new ones, that statistically reduced their returns by 0.5%.
Your boyfriend might say, “Yeah, all I have to do is buy before the market rises, and sell before the market falls!”. That theoretically makes sense, but it’s tough to do in real life. Research shows that even professional investors can’t beat the market consistently.
Fortunately, women are way more likely to avoid this trap than men are.
How Women Can Use This To Their Advantage
Investment service Betterment found that their female investors logged into their accounts 45% less frequently and changed their asset allocation 20% less frequently than their male counterparts.
Women intuitively understand that sometimes, it’s better to leave something alone. It’s like how my wife makes fun of me for constantly adjusting my shirt when I’m nervous.
Think about it: Since overtrading is a bad idea, doing the complete opposite is a much better strategy. As John Bogle – the founder of investment giant Vanguard – once said:
“Don’t do something. Just stand there!” – John Bogle
What does this mean when it comes to investing? It means:
- Picking the right investment; and
- Holding on for the long-term
In real life, this translates into an investment strategy known as index investing. It’s not some fancy new thing I came up with – it’s been advocated by industry practitioners, most academics, and even Warren Buffett. Google it yourself.
How does it work?
Well, it means picking a stock market index – say, the S&P 500 (which represents the US stock market), or the STI (which represents the Singapore stock market), and then holding on to it for the long-term. For example, if you bought and held the S&P 500 index for 20 years or more, you always beat inflation, no matter when you started investing!
Isn’t that cool?
However, it’s not something that comes naturally to men. When we see our investments falling, we have an inexplicable urge to call our broker and yell “SELL! SELL! SELL!” into the phone.
But as we saw earlier, women are less likely to fall into the “pan-shaker” trap and more likely to hold on for the long term. As the evidence shows, this translates into better investment results.
So, how do you get started?
How To Start Investing Today
I know learning investing might seem really complicated. It’s a problem that’s common among women AND men.
For example, investment books are filled with boring, confusing terms like “quantitative easing” and “401(k)”. And how are you supposed to figure out what those squiggly stock charts mean?
The good news is, 99% of investors will never need to know this stuff. We’ll be far better off if we pick a simple, straightforward strategy (like index investing!), and then TEST it out by investing just a small amount at a time.
To help you out, I wrote a simple, jargon-free ebook on how you can start investing in indexes in Singapore. (No, it’s not one of those “free” ebooks that hard-sells you to a more expensive course at the end. I hate nonsense like that.)
Like Katniss Everdeen in the Hunger Games, remember that the odds are already in your favour. Women are already objectively better at men when it comes to investing. All you have to do is take advantage of it.Recommend0 recommendationsPublished in