Heuristics: commonly known as “mental shortcuts” or “rules of thumb”, enable people to make decisions quickly, even though they may not lead to the optimal decision. In an effort to save time and energy people use educated guesses to enable them to make rapid fire, even complex, decisions. Far too often those guesses result in poor decision making.
Market Inefficiencies: poor decision making can lead market participants to make systematic errors. Over (and under) reactions to events are among the most commonly cited inefficiencies. Advances in decision making theory, also known as the Cognitive Sciences, suggest that market inefficiencies can be attributed to limited investor attention or overconfidence in one’s abilities.
Half of the world’s population are women, more than half of college graduates are women, yet the ladies only represent 2% of the leadership roles in finance.
Women Provide Diversification of Thought
No investment strategy provides good returns all of the time. Therefore, investors look for diversification that enables their portfolios to perform well in most economic environments.
You can select almost any topic in the world and solicit opinions among a group of men. The pros and cons offered about the topic, and even the consensus they reach, will probably not match the pros, cons and consensus reached by a comparable group of women. This difference is at the core of what investors are truly seeking; diversity of thought.
Investors with a portfolio of investment managers dominated by men may not be achieving the diversification they are seeking.
The pipeline of women we have all heard about is finally in a position to deliver that diversification benefit. These same ladies bring characteristics with them that can make a sustainable difference for your portfolio.
Women Are More Risk Averse
Women tend to be more risk averse, seeking portfolios with higher returns for the same level of risk.
Willingness to take on additional risk may be an honorable attribute for entrepreneurs, or CEOs, but in finance, the insatiable appetite for risk is not nearly as valuable.
The hesitancy women demonstrate with respect to risk can be a benefit in portfolio management. Many investors have come to learn that when their portfolio managers are averse to risk, they do not suffer the same magnitude of losses as they would have if their managers were risk takers.
Women Are Less Confident
There is no reason anyone would want a computer in their home.
- Ken Olson, Founder of DEC, 1977
Overconfidence can induce investors into speculative positions and increased portfolio turnover.
Studies show the lack of confidence displayed by women is another benefit ladies can bring to a portfolio. Lower levels of confidence can result in lower trading, better diversification, greater returns, and a decrease in volatility.
Rigorous analysis mapping sectors to economic activity.
Evaluate lending activity to determine small or large cap advantage.
Conduct unbiased, bottom-up fundamental analysis on companies. Emphasis on reducing downside risk.
* Performance figures represent past performance and are not necessarily indicative of future performance. The investment return and principal value of fund shares will fluctuate, so that an investor’s shares may be worth more or less than the original cost. The above results have not been audited and are based upon best available information at time of preparation.
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What is an accredited investor
To see the complete definition of accredited investor, please visit the SEC’s website.