Why women are smarter investors

Professor Ashe teaches a course

The beliefs, biases and bizarre behaviours that lurk within even the most rational investor, and how to overcome them, are the focus of short courses run by the Applied Finance Centre at Macquarie University.

Professor Frank Ashe, who runs Behavioural Finance for Investment Professionals, says that as individual investors, women out-perform men. Men choose riskier alternatives, but do not achieve better performance.

“You could put this down to over-confidence,” says Ashe. “Men tend to trade more and hold riskier positions.”

Married women out-perform married men, and single female investors are the best of all.

The one-day courses

Among the participants attracted to the first course Ashe ran were fund managers, analysts, the head of research at an investment bank, and trustees of superannuation funds. 

The course covers why people behave irrationally; the advantages of taking risks and being confident, as well as their limitations; noise traders versus arbitrageurs; and the insights of a new science, neuro-economics. 

During the day, participants did exercises demonstrating cognitive illusions. They showed that sometimes we don’t perceive changes going on in the economic world, and get caught out. Ashe believes that we need to stop and think more intelligently.

“We need to sit down and ask what could go wrong with any company in which we’re thinking of investing,” he says. “We need to come up with one or two examples of what could happen.”

Kinds of behaviour

Fear and a sense of fun are also part of the behavioural mix.

“If people have lost money, they will tend not to repeat that pattern for a while,” says Ashe. “But those who have won will forge on to take more risks.”

He warns, however, against treating investment like gambling. “That’s a fun activity. You shouldn’t invest to get high,” he says.

All investors in fact tend to be risk-averse when thinking about gains. If there’s a probability of winning or being given $75,000, or a 75 per cent chance of winning $100,000, most will opt for $75,000 in the hand.

In the case of loss, however, if there is a sure loss of $75,000 or a 75 per cent chance of losing $100,000 and a 25 per cent chance of losing nothing, “they’ll go for the gamble”.

There is also a disproportionate dislike of small possibilities of losses, much more than is rational. As soon as people see a negative number on, for example, a superannuation annual report, “they feel bad,” Ashe says. “But a small negative return on a long-term investment is nothing to worry about.”  

Future courses

There are plans to hold similar courses from February next year, both in Australian cities and in Asia in Singapore, Beijing, Hong Kong and Tokyo. There has also been interest from investment banks and fund management companies for in-house courses.

For more information, contact Professor Ashe at frank.ashe@mq.edu.au

The Applied Finance Centre website is at www.mafc.mq.edu.au

More Business and Law stories here