Investing styles of men versus women

Overconfidence is related to trading excessively and taking too much risk. The other side of the coin is taking too little risk due to lack of confidence.

When it comes to investing for the long term, taking risk is not a luxury. Insecure investors can hamstring their results by investing too conservatively, nearly as much as their gung-ho counterparts could do by excessive trading and risk-taking.

"When you put it in fixed investments, you are not protecting yourself against inflation and taking advantage of the opportunities to grow," says Hira.

Trading badly excessively

Whether male or female, average investors tend to make somewhat dubious decisions.

In now-famous 2001 research by Brad M. Barber, professor at UC Davis, Graduate School of Management, and Terrance Odean, professor at UC Berkeley Haas School of Business, the researchers found that overconfidence leads men to trade excessively. As a result, their returns suffer more than women's.

But women also buy and sell securities indiscriminately; they just do it less, so their performance doesn't suffer as much.

Both genders seem to make mistakes when it comes to picking the securities to be bought or sold. Barber and Odean found that the stocks men buy underperform the ones they choose to sell by 20 basis points per month. Stocks bought by women underperform those they sell by 17 basis points per month.

The genders have many more similarities than questionable judgment in securities selection, though. In fact, they are more similar than different in most respects.

"The overlap is much greater than the extreme, so there are a lot of women who are more overconfident than men," Statman says.

Invest better by knowing your issues

To improve investing outcomes, investors should learn to identify their own inherent tendencies, strengths and limitations.

"All of these cognitive errors are things that you can identify, and even if it is difficult, you can act against them. The same applies to emotions. You might find yourself fearful, but you stop and ask yourself if that fear is reasonable," says Statman.

If you find yourself investing only in the safest and lowest-yielding options available, consider taking a course on investing in the stock market or speak with a financial planner to help you gain some confidence.

Similarly, if you never met a trade you didn't like, think about the person on the other side.

"If I think it will go up, why is that fellow on the other side willing to sell it to me thinking it will go down?" Statman says.

Knowing where your weaknesses lie can help you avoid mistaking them for strengths. And that can only lead to better investing decisions.


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