Don’t Be a Caveman: A Brief Guide to Better Investing

By Adam O'Dell  |  January 21, 2020

The investment industry is notoriously male-dominated.

Fewer than 15% of traders at investment banks are women. According to Credit Suisse’s Women in Senior Management study, the percentage of women on the boards of publicly traded companies averages just 12.7% globally.

Yet, there’s mounting evidence to suggest women improve performance — both at the corporate level and on the trading floor.

  • MSCI’s Women on Boards study showed companies with strong female leadership generate stronger return on equity (ROE) — 10.1% versus 7.4% of their male-only counterparts.
  • Credit Suisse’s study showed that among large-cap stocks, investing in companies which have at least one woman on the board leads to outperformance by 5%.
  • Professors Brad Barber and Terrance Odean, in their 2001 paper titled Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment, showed men trade 45% more than women, leading to a 59% greater reduction in profitability compared to women.

Now, since you can’t argue women have access to better investment education or training than men, you have to wonder if their performance-evidenced advantages are innate. Are women born to be superior risk-takers?

I think so!

Generally speaking, women are more risk-averse than men.

And men are generally more overconfident than women.

This worked well for us in the days of cavemen — a story for another day. And over thousands of years, it’s remained a key, hardwired difference between the two sexes.

The good news: Even though men and women are hardwired in different ways, anyone can learn and implement the “lady-like” traits that improve investment success.

Here’s just a few:

Don’t Risk Too Much

Conservative position-sizing is key to avoiding what we call the “risk of ruin” — aka losing all your money.

If you invest everything you have in one trade and something goes wrong, you’ve lost it all.

But if you invest a more reasonable share of what you have — say, 10% — and the market throws you a curveball… you’re still in the game with the remaining 90% intact.

You’ve lived to fight another day.

Of course, finding the position size that’s right for you is a personal matter. But if you join my Cycle 9 Alert service, I’ll show you how you can get at that number.

Bottom line: If your position-sizing is too aggressive, you’re probably falling victim to your alpha-male tendency to underestimate risk and you probably won’t survive the long haul.

Learn to Take a Loss

Some people say men can’t admit when we’re wrong. (And I’ll never admit that it’s true.)

But all investors are better served by checking their egos at the door.

Taking a loss on a trade doesn’t mean you’re “wrong.” It doesn’t mean you’re “stupid,” or a “bad investor,” either.

It simply means you lost money on that particular trade. And if you follow the first rule, you didn’t lose all of your money.

“No one trade can make or break us,” is the unofficial mantra of systematic investing.

If you can handle the emotion trauma of taking a loss — whether you’re a man or a woman — you’ll be resilient enough to stick to your strategy. And that’s a must if you want to win in the end.

Follow the Rules

A proven, “rules-based” investment strategy is only valuable if you follow the rules.

That seems obvious, but you’d be surprised by how hard that is for folks who lack the psychological fortitude and discipline required to follow a systematic strategy. And there’s evidence to suggest that women are better at following rules than men.

One study monitored the trading activity of more than 700 junior investment bank traders. The participants were given specific “rules” that they were told not to break — essentially, times of the day when they were prohibited from making trades.

That study showed the men broke the rules two and a half times more frequently than women. The excessive rule-breaking led the men to underperform the women in net returns.

That doesn’t surprise me at all!

So, That’s the Deal, Ladies and Gentlemen…

As I see it, you certainly don’t need to be a woman to be successful at investing, although it may help.

More importantly, everyone can benefit from being aware of, and avoid, the most damaging “caveman” traits, like overconfidence and excessive risk-taking.

Every now and again, we all could use some guidance, especially when it comes to investing. With a systematic strategy like the one I created for Cycle 9 Alert, you’re sure to stay on track for some large wins — like a recent trade that managed a 116% return. And you can learn more about how you can start down the path to better investing by clicking here.

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Adam O'Dell

As Chief Investment Strategist for Dent Research, Adam O’Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with minimum risk. He achieves this with his perfect blend of technical and fundamental analysis.

Tactically, he does extensive back-testing and probability-based research. It’s the ultimate partner to the exhaustive research that Dent Research co-founders Harry Dent and Rodney Johnson do in the exciting realm of the new science of investing.

Adam is also the executive editor of our hugely successful trading services, Rich Investors Club, Cycle 9 Alert and 10X Profits.

He has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high-profit potential.

Aiming to find the best opportunities across all asset classes, Adam expanded into the commodities, equities and futures markets. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. MORE FROM AUTHOR