Peterson, whose research involves personality testing, has found that men tend to have much greater lifetime declines in asset value than women; men take more risk so they suffer more on the downside.
Women, by contrast, tend to take fewer risks than men — which can mean smaller losses. By listening to their emotions instead of repressing them, Peterson says, women can actually use their feelings effectively in investing decisions. Because women are more aware of the impulses triggered by the emotion of greed, they're more likely to resist the impulse to overreact by trading too much on new information. Instead of being driven to sell quickly by inner fears, women are more likely to stop and examine these fears. So they are less likely to succumb to internal pressure to sell during market panics or to jump on the bandwagon during rallies.
And by listening more closely to their feelings, they are better able to harness them to enable fruitful intuition. Investors who fail to do so may miss out on market gains because they didn't bring enough emotion — of the right kind and in the right measure — to their decisions.
Peterson points out that the tendency of women to be more emotionally attuned is not a matter of mystery, but of biological science: Women have higher levels of oxytocin, a hormone linked with empathy. They also have a thicker corpus callosum—the band of white fibers connecting the two halves of the cerebrum—than men. This may make women more self-aware and may equip them better for multitasking.
Short of taking oxytocin injections, how can men enhance their emotional sensitivity to get a handle on feelings that may be dominating their decisions?
Peterson advises both genders to chronicle their investing decisions and related emotions by keeping a journal and documenting the process, including their feelings at the time. When you buy a stock, for example, record the reasons why and the emotions you feel at the time. Later, go back and review these decisions and try to evaluate the role of emotion versus other factors.
Getting more in touch with investment-related emotions can be part of a broader process that leads to greater emotional self-awareness in all aspects of life. Understanding how emotions drive your behavior is a key to understanding how you feel about yourself and relate to others. Thus, you can strive to be happier as well as wealthier.
Ted Schwartz, a Certified Financial Planner®, is president and chief investment officer of Capstone Investment Financial Group. http://capstoneinvest.net. He advises individual investors and endowments, and serves as the advisor to CIFG Funds. Because Schwartz has a background in psychology and counseling, he brings insights into personal motivation when advising clients on achieving their wealth management goals. Schwartz holds a B.A. from Duke University and an M.A. from Oregon State University. He can be reached at firstname.lastname@example.org. .