The 'Battle Of The Sexes' Investment Debate Is Getting Old

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Photo: Alex E. Poimos via Flickr

The new season of Downton Abbey takes place at the start of the Roaring Twenties, but begins with the sort of stock market debacle that would seem better suited to an ominous October nine years on.After learning that the man of the house had just jeopardized the entire estate with a can’t-miss railway deal gone awry, its women were aghast.

“Why were you so heavily invested in one enterprise? Isn’t that foolish?” asked Lady Cora of her husband, the Sixth Earl of Grantham. “I cannot understand why so much money was put into one company,” seconded the indomitable Dowager Countess.

Even the wealthy American upstart played by Shirley MacLaine insisted, “I cannot touch the capital,” when implored for funds to ensure the grand manor wouldn’t go under.

Are such pop culture clichés accurate in portraying women as more careful and cautious investors than men? Certainly, some studies have found genuine differences between the genders in money matters.

Women are often more inclined to favour both bonds over stocks and mutual funds over specific equities, are invariably more attuned to how wealth accumulation will affect future family dynamics, and tend to enlist others in their social circle as opposed to the news media for frontline financial advice.

Above all, and maybe mindful that they must make lower average salaries stretch over a longer lifespan, there is evidence suggesting that women are indeed more risk averse in the way they approach the stock market.

Admittedly, one should stay away from easy stereotypes and generalizations, as exceptions abound. Muriel Siebert, founder of Siebert Financial Corp. and long lauded as “The First Lady of Finance” is an excellent example.

Her official website maintains: “One of [Muriel’s] favourite words is ‘risk,'”adding in the next paragraph that, “‘Risk’ could be her middle name.” The article goes on to mention “another daring risk” she undertook, and — just in case you might have missed the message – concludes with a “career move [that] turned out to involve risk-taking on a global scale.”

Helen Young Hayes, who found fame and fortune as a fund manager at Janus in the 1990s stock market boom, ran triathlons for fun while besting all-comers with an aggressive investment style over a storied 17-year career in which she controlled more than $40 billion in assets.

Across the Atlantic, her contemporary Nicola Horlick was a similarly successful Type A personality, dubbed ‘Superwoman’ by Britain’s financial press for an unerring ability to juggle stellar returns while bringing up six children. London’s current economic “It Girl,” mother of nine Helena Morrissey, has compiled an enviable track record as Chief Executive Officer of Newton Investment Management.

Yet Brad M. Barber and Terrance Odean of the University of California did unearth quantifiable differences between the sexes in a seminal February 2001 paper on the subject for the Quarterly Journal of Economics. “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment” synthesized discount brokerage account data for over 35,000 households from February 1991 to January 1997.

Among its findings were that men exhibited substantially greater self-assurance in their investment ability, even when the evidence failed to warrant such cockiness. (A subsequent study showed that, since 1978, there has only been one single month when women’s consumer confidence exceeded men’s, as measured by the University of Michigan Sentiment Index.

That was in March of 2000, which intriguingly enough was the precise point Nasdaq hit a high which it has not remotely approached since.)

The authors also demonstrated that men traded 45% more than their female counterparts, with single males being by far the worst offenders. Such churning served only to rack up commissions and reduce portfolio returns.

Perhaps some differences can be explained away by basic biology. John Coates, now a neuroscientist at the University of Cambridge but a Wall Street trader in his previous life, has recently published groundbreaking research on the role that sex hormones play in trading decisions. To hear him tell it, much of the blame for the financial crisis rests squarely on the testosterone-fuelled shoulders of Wall Street’s Masters of the Universe.

So who is better with money? LouAnn Lofton, author of the provocatively-titled Warren Buffet Invests Like a Girl   (HarperBusiness, 2011), is in no doubt. Women, less ego driven and more willing to admit when they don’t have all the answers, win hands down in her view.

They do more due diligence, yield less readily to peer pressure, and aren’t as easily swayed by the latest hot stock tip. Girl power proponents can also point to 2008 Vanguard survey of Individual Retirement Accounts that showed men were more prone to panic and sell at the market bottom, while women for the most part kept calm and carried on.

More recently, for all last week’s headline-hogging of alpha males like Icahn and Ackman, Rothstein Kass reported that female hedge fund managers actually outperform the opposite sex. (Albeit comprising a considerably smaller sample size, for men make up 97% of the sector. One can see why New York Times columnist Nicholas Kristof memorably remarked that Wall Street’s senior staff meetings still tend to resemble a “urologist’s waiting room.”)

Sticking up for us guys, it would be remiss of me not to redress some of the balance. Or at least the credit card balance, for it has been demonstrated that the distaff side is less responsible with plastic. And, to an admittedly overwhelmingly male rogue’s gallery from the Great Recession and its aftermath, we can safely add a fair few females.

The unfortunate Amy Woods Brinkley bore global responsibility for risk at Bank of America when it embarked upon a disastrous purchase of Countrywide Financial concurrent with the subprime calamity. Erin Callan was Chief Financial Officer at Lehman while it imploded.

Ina Drew, under whose watch JPMorgan’s “London Whale” scandal largely unfolded, built, in the words of one media outlet, a “30-year career embracing risk” with ultimately catastrophic consequences. And even those adorable group of grandmothers, the Beardstown Ladies, turned out not to be entirely above reproach.

“Battle of the Sexes” stories sell well, but ultimately a blend of both investment styles may be the best bet for financial success. Even Barber and Odean, leading authorities on the topic, are quick to point out that, “The differences among women and the differences among men are much greater than the differences between men and women.” Generational divides and those involving “Singletons” and “Smug Marrieds,” to quote not Dow Jones but Bridget Jones, also carry considerable weight.

Indeed four years ago at Davos, with the economic meltdown still uncomfortably fresh, several panelists wondered aloud if the same fate would have befallen our financial system had Lehman Brothers been Lehman Sisters. The majority view among the assembled moguls was that a combined sibling company would have fared best of all.

So much for “he says, she says” – now tell us what you say. Please feel free to send in your thoughts on the subject.

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