The Psychology Behind Female Investors

One of the challenges facing stock exchanges worldwide is the under-representation of female equity investors.

Getting more women actively involved is a big growth opportunity for the exchanges. I recently spoke at separate events for the NASDAQ OMX in Helsinki and Stockholm on why there is this discrepancy between the genders.

My research work involves interviewing hundreds of smart women around the world, which allows me to make observations about their actions — and those actions matter: “Behaviour determines financial outcomes, regardless of socioeconomic status or knowledge level,” said Robert Holzmann, director of the RH Institute for Economic Policy Analysis in Vienna, Austria.  How do female investors differ:

1) Women are often perfectionists about investing. They feel they need to know absolutely everything about a company before making an investment. In the world of equity investment no one ever has perfect information, and needing to be perfect is a big barrier to taking the plunge into the market.

2) Women usually measure risk in a very detailed fashion — using emotion and intuition as well as fundamental analysis. They are not risk-averse but rather they are risk-aware. They need to have conviction before they invest.

3) Many women invest only if they are interested and if they perceive the investments are aligned with their values. According to my Rich Thinking survey last year, more than 25% of women said they are spending their resources on a business related to their passion.

4) Women prefer to learn from real-life stories and share information. In 2010, I commissioned an Angus Reid survey of 1,000 women across Canada. One of the questions asked was how they learned about money when they were growing up. Only 11% had learned via formal courses offered by educational institutions and 15% had taken advice from the investment industry, but more than 50% of women learned about money through informal instruction from role models.

5) The investment industry needs to do a better job of integrating feminine language, ideals and behaviour into the existing structure.

I believe we will have to borrow from outside skill sets to encourage greater female investment in the stock market. We need to draw on data mining, analytics and social media experts as well as savvy marketers who understand the power of storytelling and narratives to help women find investment opportunities that relate directly to what matters to them.

My bet? Make all investment analysis and communication meaningful to women and there will be a large opportunity to add some very loyal investors.

 This story appeared originally in The Toronto Sun.