Trust to girl power in 2020….

Tuesday, 26th November 2019

Trust to girl power in 2020….

After the global financial crisis of 2008/09, Christine Lagarde, chief of the International Monetary Fund, made some comments that enjoyed wide circulation. She said this….

‘I do believe women have different ways of taking risks, of addressing issues…. of ruminating a bit more before they jump to conclusions. And I think that as a result, particularly on the trading floor, in the financial markets in general, the approach would be different….’

The comments did not represent an outright condemnation of the entire male species nor any individual member of it….

But the insinuation was clear: had more women been at work in senior positions on Wall Street and in other financial centers around the world, the crisis probably wouldn’t have happened….

  • Lehman Sisters?

Once the crisis had been digested, many top-level bankers attended the World economic Forum in Davos, Switzerland….

They had an interesting debate around a hypothetical question: had Lehman Brothers (one bank that crashed and burned during the crisis) been Lehman Sisters, would it still have failed as it did?

The consensus opinion among the bankers was that Lehman Sisters would not have made quite so much money as Lehman Brothers did during the boom times, but that Lehman Sisters would still be in business today….

We’ll never know for sure what would have happened in that scenario, but evidence we have to hand does tend to support the consensus opinion reached by the bankers….

Women have different attitudes to risk than men do. And they are better investors for it. And there’s a clear lesson to be taken forward from this in 2020….

In more difficult market conditions than we’ve seen for the last 10-years, the smart move might be to trust to girl power….

If you’re a girl, great. If you’re a man managing his own money, consider consulting the wife. If you use a male broker to help you with your investment decisions, consider replacing him with a female alternative. You might be glad you did….

  • No joke….

I‘m quite sure there will be people reading this and thinking I am being frivolous and just writing a bit of nonsense rather than proffering any serious advice….

Well, you can take it however you want to. But the facts speak for themselves….

Men dominate fund management. The bosses of the big banks are male by and large. And women are in the minority when it comes to being regulated to give financial advice. Yet women make better investors than men….

Professor Neil Stewart of Warwick Business School did some research that involved studying the habits of male and female investors who use the Barclays’ Smart Investor service to trade in stocks and funds….

The results of the study – entitled Are Women Better Investors Than Men? – were published in June last year. What the study found was that in the markets the women were doing more things right and less things wrong than the men….

The annual return made by the male investors amounted to just 0.14% above the performance of the FTSE 100 over the same period….

The performance of the women weighed in at 1.94% better than the FTSE 100 return….

  • A big difference over time….

It might not sound like a big difference in the greater scheme of things….

But compound the difference over the long term and it would make a huge difference to overall returns….

Basically, the men wouldn’t see the women for dust….

Of course, it’s just one study. One study focused on a limited number of subjects over a limited period of time – the study focused on the action of 2800 investors over a 3-year period….

I understand all that. And we mustn’t generalize. But my feeling is that these results would be replicated in additional studies and across the board….

Why? Because men and women are fundamentally different in the way they think, respond, decide and act….

And in the markets, the way women do all those things gives them a clear and permanent performance edge over the men….

  • Women – better in key three areas….

Men are more likely to take ill-considered risks with their investment capital than women….

The Warwick Business School study clearly demonstrated  that men are more likely to get excited about highly-speculative investments that appear cheap but hold the seductive promise of potentially spectacular gains….

Think penny shares. Such investments frequently fail to pay off and male performance is diminished as a result. Women are generally more conservative, play safer and prosper more as a consequence….

Women are better too when it comes to cutting losses….

The study makes the point that men have a problem when it comes to accepting the situation when things go wrong….

Men are more likely than women to hang on to stocks or other instruments that have fallen in value in the hope they will rebound and soar higher still – a hope that frequently turns out to be forlorn….

Women assess and accept the situation quicker. And they tend to get out quicker than men – avoiding having to watch their investments fall in value further still….

Men were also found to be more emotionally reactive to women when it comes to news events. They were found to be more likely to buy and sell investments based on what they were seeing, hearing and reading in the news….

One upshot of this was an increase in transactional costs for men. And this diminished returns….

Whilst women traded an average of nine times each year, men traded an average of 13 times. More trades equate to more costs which equates in turn to lower returns. The way the women did things – taking a longer-term view on their holdings – worked out better….

  • The smart move? Get one onside….

Men are drawn to speculative stocks, whilst women are more likely to focus on conservative stocks with a track record….

When things go wrong, men hang in there hoping for a recovery whilst women are swift to cut losses and move on….

And when it comes to ‘events’, women take a long-term view and trade much less frequently than their male counterparts….

What the women do works way better than what the men do. They out-perform men by 1.8% –  a figure that compounds into a huge difference in overall returns over time….

After a 10-year bull run built on low-interest rates and central-bank money printing, picking winners in the market just got harder….

Since 2008 winning in the stock market has been a simple case of invest in a buy-it-all index tracker, sit back and watch your net worth grow. During that time, even complete fools did well….

Going forward, it might take a little more skill, acumen and investment savvy. The Warwick Business School report says women are equipped with more of that good stuff than men….

Getting a woman onside might be the really smart move in the markets over the next 12-months….

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths