Why are women better stock pickers than men?
Women trade better, but lack confidence15th Jun 2022
We often hear about how women need to save more, as they tend to earn less and usually have an income gap during the time they go on maternity leave to look after children while their partner continue to work.
However, women could play a bit of catch-up if they use (and trust) their stock-picking skills. Many studies are repeatedly supporting the theory that women are better at choosing winning shares than men.
Most recently, research from Capital.com found that female traders are consistently better than their male counterparts when it comes to trading. This is even though women take up just 13% of the platform’s trading community.
But why is this, and how can men learn from their female counterparts when it comes to investing? Here are four reasons why women often get it right and what men could improve on:
1. Don’t take big risks
According to research from Capital.com, women take fewer risks and have smaller investment portfolios. While having a smaller investment portfolio is not necessarily an advantage, taking fewer risks certainly is. It means that women are less inclined to trade on whims or try to make quick gains. Generally, it’s not smart to take big risks when trading, particularly if there’s a lot of volatility in the market. There’s always a danger of making decisions based on emotion rather than the facts.
2. Do your research
It’s been found that women tend to do more research into the companies they are trading than men do. This makes them less susceptible to taking a risk on ‘hot’ tips from others.
Take time to find out more about the company, its history, its share price and board members, and study its trading updates and company results. It’s also worthwhile to find out whether it’s a socially responsible company and whether it treats its staff well. All these factors could influence how a company performs, both now and in the future.
3. Women invest for the long term and look for value
Women tend to invest for the long term. Men, on the other hand, sell quickly if they think a stock is underperforming.
Men also tend to trade more often. The negative here is that they tend to reduce their net returns through poor investment performance and the cost of trading – bear in mind that changing your mind over a share costs money (this, of course, can vary depending on the investment platform you use).
Claudia Gonzalez, financial advisor at Kovar Capital, adds: ‘Geraldine Weiss was one of the first women to make a name for herself in the finance world. Her investment strategy was to pick value-based, dividend-oriented stocks.’
4. Women don’t get emotional
Another skill that women seem to possess is the ability to hold their nerve when markets are down. Men have, however, been found to give in to their emotions more frequently and sold (often too quickly) when they think a share is underperforming. Gonzalez advises: ‘Emotional investing is a key factor, so just make sure your trading activity matches your goals. If you’re trading for the long term, then keep that in mind when you see red in your portfolio. The market fluctuates daily, so it can be a bit nerve-wracking if you’re constantly checking it.’
What can women learn?
So, is there anything that women can learn from men when it comes to trading? Confidence: they can learn to build confidence. Research shows that fewer women engage in trading but, despite this, they can outperform men.
If women could trust their instincts more, they could make great progress in replacing the income lost when they took maternity leave and perhaps even play catch-up with their retirement fund savings despite typically earning less than men.