According to The Economist, a recent study has apparently found that hedge funds managed by women performed better than those managed by men. The women, it turned out, delivered a gain of 9.8% in 2013, against an average of 6.1% for both sexes.
Such claims aren’t new. And in the hedge fund market, it seems that the same result has been seen in earlier years. But is there anything in it?
LouAnn Lofton — author of Warren Buffett Invests Like a Girl: And Why You Should, Too — clearly thinks so. According to Lofton — a contributor to the American arm of The Motley Fool — women spend more time on research, trade less and take fewer risks.
Over-trading saps wealth
But do such traits make a difference? Here, we’re on firmer ground.
American researchers Brad Barber and Terry Odean analysed the trading records of 10,000 brokerage accounts of individual investors spanning a seven‑year period.
And their findings — pithily entitled Trading is Hazardous to Your Wealth — make fascinating reading. Those investors who traded the most, it transpired, earned an annual return of 11.4%, in a period in which the market returned 17.9%. A shocking degree of underperformance, in short.
“It is difficult to reconcile the volume of trading observed in equity markets with the trading needs of rational investors,” sardonically observe Barber and Odean. “Rational investors make periodic contributions and withdrawals from their investment portfolios, rebalance their portfolios, and trade to minimize their taxes.”
Irrational investors, on the other hand, pursue the latest investment fads, splurge on a share tip picked up at the golf club, and speculatively buy and sell in the hope of making a quick profit.
Buy high, sell low
And even here, in buying and selling to make a quick gain, they get it wrong.
Just ask Nobel prizewinner Daniel Kahneman, who with his colleague Amos Tversky laid the bedrock on which a lot of behavioural economics is based.
In his recent best-seller Thinking, Fast and Slow, Kahneman has this to say of Barber and Odean’s analysis of how the shares that investors sold performed versus the shares that they subsequently bought with the proceeds.
“On average, the shares that individual traders sold did better than those they bought, by a very substantial margin: 3.2 percentage points per year, above and beyond the significant costs of executing the trades… It is clear that for the large majority of individual investors, taking a shower and doing nothing would have been a better policy than implementing the ideas that came to their minds.”
Misplaced confidence
So all those over-trading, speculative types tend to get inferior returns. But are those over-trading, speculative types necessarily male?
Apparently so, suggest researchers. Because such behaviour is associated with overconfidence — and misplaced confidence — and these are male traits.
Women, goes the argument, are less confident, and so not only do more research to begin with, but aren’t subsequently tempted to chop and change.
Which helpfully has a ‘double whammy’ positive impact, of course: not only are they backing well-researched winners, they aren’t incurring the wealth-sapping costs of trading commissions and stamp duty.
Whew! Put away the dress
It all sounds plausible to me. The trouble is, as a man, I’m not attracted to the prospect of a gender-change operation. And I suspect I’m not alone.
Thankfully, LouAnn Lofton doesn’t say that we have to be girls — just invest like girls.