When Meredith Jones, a finance professional specializing in alternative investments, started out in the industry in 1998, she rarely came across other female portfolio managers in the field. “I met my first female portfolio manager almost nine years after starting,” she says. She soon began researching women-led funds, eventually creating hedge fund and private equity indexes to measure their performance.
Earlier this year, she published her book, “Women of the Street: Why Female Money Managers Generate Higher Returns (And How You Can Too),” which explains why she found that women tend to outperform men when managing portfolios. One of the driving factors, she says, is simple biology.
“It has to do with hormones and brain structures. There are subtle differences between men and women, and all of that combines to make men and women interact with the market differently,” Jones says. Those differences include the fact that men tend to trade more frequently than women do, and women are more likely to ride out dips in the market (and then see gains when the market rebounds).
“Because women are less overconfident than men, they tend to trade less, and we know that over-trading can significantly erode returns over time,” she says. Women, Jones adds, also tend to be very disciplined investors, meaning they stick to their chosen strategy, even when the market is turbulent.
“They also have the tendency to look outside the heard, not at what’s hot, but at what’s sustainable for long-term investments,” Jones says. Some women managers featured in her book held onto the same investments for as long as 15 years. “You’re not chasing trends, and that can really reduce some of the volatility in portfolios,” she says.
Other research on gender differences in investing have turned up similar findings. A white paper published by Fidelity in 2013 found that women investors tend to hold more balanced portfolios than men, and that while men and women tend to earn similar rates of return over time, women do so while taking on less risk.
“You often hear that women are risk-averse,” Jones says. That’s a trait that can be positive if it means you avoid betting on a losing stock, but it can also be negative if it means you miss out on potential big returns. Jones has found that women investors do a better job of matching return expectations with results. “As a result of that, some new research suggests that if there were more women in the market, there would be fewer market bubbles, because women don’t tend to have those wild expectations,” she says.
As for why the industry is still largely dominated by men despite women’s skills in the area, Jones says potential reasons include everything from glass ceilings to the number of women in MBA programs to work-life balance issues. She hopes her book helps show people that the industry is losing money because there are not more women managers. “The thing that will change this is the realization that there is a serious economic opportunity that’s being missed,” she says. “There is an economic incentive for increasing diversity in the industry.”
Men, Jones says, can also learn from women’s investing strategies, especially when it comes to discipline. Men, she says, could adopt a set of rules that they stick to, such as not having more than a certain percentage of an investment in a portfolio at any one time, or waiting to sell until an investment declines by a certain amount. “That forces me to take a moment and clear my head. Those kind of rules and discipline can be applied by either gender to mitigate some of the emotional triggers that encourage people to make bad decisions,” she says.
Women who are not currently handling their investments can also learn from Jones’ findings, and perhaps be inspired to embrace a more active money management role. “It’s important for women to have confidence in the tact that the way they approach investing is not wrong,” Jones says.
When Jones explains what her book is about to women outside of the finance industry, she says they often respond that they should take a closer look at that their investments, given women’s proclivity with them. “When I say women might have some innate talent and be better than men [with investing], they pause and say, ‘Maybe I should look at what my husband is doing or be more active in my investments as opposed to giving them to my broker,'” she says.
Sometimes, Jones adds, women just need a confidence boost to encourage them to take over the investing reins. “For a lot of the women who have read the book, this opened their eyes to the fact that this is something they should be thinking about more seriously,” she says.
As for the industry, Jones is optimistic that more women will be entering the field soon. “When you look at the way wealth is expected to be distributed going forward, with women controlling more of the wealth, in some ways this has to shift. We’ll see a demand for more diversity driven by economic reasons,” she says.
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What Men Can Learn From Women Investors originally appeared on usnews.com
