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HEY GUYS, DO YOU carry a rifle like Clint Eastwood when you invest—or are you a vulnerable romantic like Hugh Grant? My contention: Most of us lean toward a traditionally masculine or feminine orientation when building our portfolio, similar to how we handle many other life choices, from career to sports preferences.
This gender orientation is, I believe, a pervasive bias when buying and selling mutual funds and exchange-traded funds (ETFs), not unlike the behavioral-finance biases you’ve likely read about, such as recency bias and hindsight bias. But gender-influenced investing tends to be more nuanced—it’s personal and specific to you and me.
What follows is how I developed into a sensitive, neurotic investor, reflecting my inner Dustin Hoffman. Perhaps my story will help you identify your own value inclinations when evaluating an investment’s merits—and perhaps allow you to correct the resulting distortions in your portfolio.
My first encounter with my family’s sex-role dynamics came when I was a crafty three-year-old. For the first time, my mother didn’t hang out with me as I fell asleep. Mortified and outraged, I let out a wail, demanding this indignity be rectified. But I had underestimated my father’s determination to shout down my attempt to cling to my guardian. “Fay, don’t go back upstairs to his room. I want Stevie to be a man, not a wimp.”
The messages here were undeniable. Danger lurked everywhere and could pounce at any time. Women more than men would be my ally. I was destined for a scaredy-cat existence.
My experience learning how to ride a two-wheel bike only reinforced these impressions. After promising to steady my start-off by holding on to the back of the seat, my father quickly withdrew his support. I fell hard on the concrete sidewalk and scraped my knee. My mother, watching intently from the front door, screamed at my father and soon put a band-aid across the wound.
Hey, I’m no dummy. As I navigated a threatening world, the feminine stereotype would be my ally. At age five, I was well on my way to becoming a timid and risk-averse investor.
How does my unheroic streak translate into my fund transactions? Take defense stocks. What do Boeing’s planes do? They crash and prolong wars. No surprise, I’ve never sought out defense stocks.
Another twist: As a nice Jewish boy, I’ve never handled a gun and never even seen one up close. All I remember is the Lone Ranger ponying up with his Indian sidekick Tonto, his revolver safely tucked into his holster. Give me one of those socially responsible funds, not because I have good intentions, but because their goals are less terrifying.
Another flashback: My father started out as a TV repairman. He could reach back behind a boxy RCA set, replace the bad tubes and, voila, the picture would turn from snowy to clear. To an impressionable kid, this was the unattainable height of masculine power—and this, too, influenced my investing.
As I’ve mentioned before on HumbleDollar, technology stocks have been my nemesis. I’ve been chronically underinvested in the sector, even skimping on tech-heavy broad market index funds, including the current S&P 500 with its 30% tech weighting. Despite my interest and self-declared expertise in the shenanigans of the stock market, I’ve only partly participated in the technology revolution of the past 50 years.
That brings me to a telling investment adventure. When I discovered no-load mutual funds in the 1960s, I predictably gravitated toward those that hedged relatively volatile common stocks by also including an allocation to bonds. This strategy protected my downside but limited my upside. Then, during a bull run, I noticed the ascent of 44 Wall Street Fund. In my Daily Graphs glossy, the fund showed an eye-popping rise from the chart’s lower left-hand corner to the upper right-hand corner. Misconstruing a bull run with market savvy, I couldn’t resist taking the plunge.
I tracked 44 Wall Street’s performance in The Wall Street Journal almost daily. One morning, maybe a few months after my purchase, I let out a shriek. The fund had lost 12%, even though the market was flat on the day. I was drenched in emotional sweat. The world was indeed treacherous, and I needed to take refuge in a balanced fund.
Chapter 11 sounds like a verse from the Bible. But for my father, filing for bankruptcy, no matter how strategic, was the purgatory for fallen investors. “Stevie, Stevie, never go that route. It would be a shanda on us.” I was, it seemed, destined to be the family shanda—its source of shame.
A few days later, I received the best letter I’d opened since I was notified that I’d passed my driver’s test. It was a transaction statement from 44 Wall Street. It showed a reinvestment of a 12% capital gains distribution, whose proceeds were used to buy additional shares. Minus the unavoidable taxes, the whole fiasco was a wash.
Where do investors like me tend to hide? You’ll find us in the maternal domains of the fund universe. The satellite sector funds adorning my broad market foundations are often health care-related, like Vanguard Health Care ETF (symbol: VHT), and home products-related, like Vanguard Consumer Staples ETF (VDC). As you may have guessed, I’m a genius in bear markets and an oaf when the bulls run.
You might want to explore the family origins of your own personal investment values—which might be political rather than sex-role related—with an eye toward correcting any unintentional portfolio tilts. Liberal investors, for example, may shun oil stocks, possibly unaware they’re compromising their portfolio’s diversification.
Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve’s earlier articles.
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After working for 10 years in a massively male dominated industry, I knew I would NEVER be paid on par with my colleagues. It was up to me alone, so I went very aggressive in the stock market and with the ensuing mostly bull market, I notched great returns. I know if I had stayed in the industry, I would have been a more conservative investor and not have realized my gains.
Interesting piece. For me, the useful message to look at one’s self for biases, was drowned out in the shock and surprise of seeing stereotypes, even if they were part of professional practice. Also I tend to keep things simple with a few low cost index funds without looking at specific sectors or single stocks. One bias I am aware of, and try to manage, is home country bias, which has not necessarily paid off recently but we will see going forward.
There is evidence that, on average, women tend to be more conservative investors.
Unfortunately, while I know it wasn’t your intention, some of what your wrote could be viewed as having a sexist tone.
What follows is how I developed into a sensitive, neurotic investor,
Women more than men would be my ally. I was destined for a scaredy-cat existence.
Where do investors like me tend to hide? You’ll find us in the maternal domains of the fund universe.
Note that your descriptions of your feminine investing approach include neurotic, scaredy-cat, and tend to hide.
Yes, that’s how I read it, too.
That’s a really perceptive comment. And you’re so right about what you say about women having been demonstrated to be more conservative investors than men. I really wanted to emphasize the negative impact of the female stereotype itself (“scaredy-cat”) on investing rather than the more neutral “conservative. Most of us would agree that it is more desirable if women have a free choice to be conservative rather than be “coerced”” into it by the residue of the social stereotypes to which they may be falling prey. But I stand corrected. I wasn’t clear enough in separating the effects of the stereotypes from women’s true potential.
A timid investor is the one who prevails in the end irrespective of their gender. The goal is to be prudent and not lose money so it’s there for retirement.
The investors who anthropomorphize their investing strategies are typically on the losing side of the median market returns.
Sure, the goal is to weed those
Whoops, my error above. Sure, the goal is to weed out the biases, but some have more difficulty doing that than others. Renowned economist Daniel Kahneman won the Nobel Memorial Prize in 2002 for demonstrating the pervasive of cognitive biases. My hope in writing the article was to raise awareness they exist so we can fight them off.
Steve, interesting article, but I simply don’t buy your premise. Certainly we all have innate biases that can impact life choices, including investments, but I don’t believe for a moment that the more masculine or feminine sides of a person’s character are influential on — let alone distortive of — the construction of most people’s financial portfolio.
I don’t find your theory at all sexist, just unconvincing.
Fair enough, but I don’t buy yours either! See note about Daniel Kahneman’s Nobel Prize for his work on cognitive biases, which have been demonstrated in studies of investing behavior many times over. I just believe our society’s unfortunate casting of sex-roles are one such potential bias. If so influenced in childhood, we may carry forward these irrational beliefs, which may persist unless we take active internal steps to correct them. Of course, I may be wrong, but that’s my position!
Steve, You are a “kibitzer” who always has interesting perspectives to share. In my mind, that is no “shanda” because it takes courage to share those thoughts with us. Rather, it makes you a “mensch”.
Thank you….but could you please send a copy to my mother?
Good article. IMO we’re subject to all sorts of bias whether we like it or not. Much has been written about bias confirmation, especially as it relates to politics; we tend to seek out sources that reinforce what we already believe. Again IMO, understanding how bias effects thinking enables a person to make more informed and less emotional choices about a plethora things, including investments.
How could it be otherwise? If we’re not informed and aware, how can we ever change, in investment and in life.
Please keep your sexist stereotypes to yourself.
Knowing that the readership of this site skews older male, I expected my comment to get down-voted. However, I am an older female, and I have been dealing with sexism for decades (interestingly, more of it in the US than the UK) and I’m sick of it. As slope points out above, the piece is full of negative images of the “feminine” and the “maternal”. But if the author is a Freudian, with an overbearing father, perhaps it’s to be expected.
Or you can scroll on by. I enjoy everyone’s point of view here, where we all were told at one point in our childhood “to play nice.”
With respect, Stacey, I usually interpret “scroll on by” to refer to comments sections, not the main post itself. Isn’t the purpose of a comments section to discuss the content of the post? Yes, it’s best to be constructive and respectful in so doing, but I wouldn’t want to silence someone’s honest opinion of a piece. And in the case of Kathy, she’s more than earned the right to speak by virtue of her active participation in this site, which includes contributing her own articles.
I love Steve’s work, but I agree with Kathy’s and slope’s takes on this piece. I’m guessing Steve didn’t mean to amplify sexist tropes (his responses in the comments make it clear that he’s dismayed by these reactions), but it definitely can be read that way, as others have outlined.
That was the polite version of my reaction.
Did not mean to imply in any way that I subscribe to or support those stereotypes, only that they unfortunately exist and have their effects on investing behavior.
Your article held no hint that you disapprove of these stereotypes. You wrote “Most of us lean toward a traditionally masculine or feminine orientation when building our portfolio” and proceeded to reproduce the oldest and tiredest tropes of sexism as if they were immutable.
And if it was supposed to be amusing I suggest you consider how you would react to a similar article about ageism.
Still thinking (and reeling) over your impression of my personal beliefs. Let me just say that as an academic researcher my reputation was as the guy who put the role of sex biases in making psychiatric diagnoses in the forefront of professional concern.
I don’t know where all this leaves me, I just invested in mutual funds because I liked the words describing them, but I haven’t bought anything new in over 20 years.
About those planes, I think you missed the key word – “defense”. I think a lot of people in Europe may disagree they prolong war.
I am in total agreement with you. My people and my family.wouldn’t be here now if it weren’t for Boeing and D-Day. I am only talking about how the residues of childhood can distort our beliefs as adultsl and surely not that those beliefs are accurate.
As a British citizen born shortly after WWII, I certainly owe a big debt of gratitude to the RAF.
Please see my response above. Britain fought the war single-handily for far too long. I know that rationally as an adult, but not all our investment choices are free of the subtle biases inflicted by our youth.
Steve, interesting perspective on investing biases. I’m wondering if you consider yourself a Freudian-school psychologist?
Yes, I am a psychoanalytically-oriented clinical psychologist.
From https://www.verywellmind.com/psychology-schools-of-thought-2795247#
The Psychoanalytic School of Psychology
Psychoanalysis is a school of psychology founded by Sigmund Freud. This school of thought emphasized the influence of the unconscious mind on behavior. Other major psychoanalytic thinkers included Anna Freud and Otto Rank and neo-Freudians such as Erik Erikson, Alfred Adler, and Karen Horney.
Freud believed that the human mind was composed of three elements: the id, ego, and superego.
The id consists of primal urges.
The ego is the component of personality charged with dealing with reality.
The superego is the part of the personality that holds all the ideals and values we internalize from our parents and culture.
Freud believed that the interaction of these three elements was what led to all of the complex human behaviors.
Other important theories within the psychoanalytic school included the idea of the conscious and unconscious, Freud’s psychosexual approach to personality development, and the concept of life and death instincts.
Freud’s work also played an important role in the development of talk therapy as an approach to treating mental illness. Many traditional Freudian approaches to treatment are no longer in favor, but modern psychoanalytic therapy continues to play an important role in psychology today. Research has shown that using self-examination can play an important role in emotional growth.
Recap
Freud’s school of thought was enormously influential, but also generated considerable debate. This controversy existed not only in his time but also in modern discussions of Freud’s theories.