We know that the stock market can be intimidating.
It's a language of numbers and probability, full of codes and symbols. Women in the United States especially are socialized to view numbers as unfriendly, which only exacerbates the problem.
But what if the stock market were more ... personable? What if it had moods and feelings? Would we understand it better then?
In her book "Market Mind Games: A Radical Psychology of Investing, Trading and Risk," Denise Shull bridges the gap between cold numbers and warm emotions. "It’s easy to think numbers are some mystical or mysterious math game, but in reality, the numbers only reflect what other human beings are thinking," she says. "Generally, women have shied away from math, and the markets have been portrayed as a math game. The math is just a clue to reading the other players."
We spoke with Shull to learn more about the link between emotions and investing, and why women might just make the best investors of all.
The Qualities of Great Investors
Simply being women does not make us any more or less suited to invest. But the traits that traditionally come along with being female make a difference: namely, familiarity with emotions. It's well-documented that women are conditioned to consciously identify and manage their emotions, while men are taught to ignore or suppress them. So how does this affect our investing? Shull explains:
1. Mastery of Theory of Mind
Some investors do the exact opposite of what they need to do: They see a peak or drop in the market and react to those numbers, instead of taking the time to figure out why it's happening. By neglecting to predict the human motivations causing the changes, they may buy stock when it's expensive and sell when they won't make a profit, a cardinal rule of how not to invest.
But Shull says investors who use what psychologists call the "theory of mind"—the ability to theorize what's going on in someone else's head and predict his actions—can look at stock prices and "read between the numbers," as it were. In fact, research found a correlation between accurate predictions of market activity and theory of mind. "The big missing clue to buying and selling at advantageous times is to ask, 'Why will others be buying or selling at higher or lower prices?'" Shull explains.
Women, with their natural tendency toward reading others, could use that to the benefit of their investments. "In short, reading the numbers is in fact reading other people, but no one talks about that!" Shull says.
2. Knowing That Emotions Influence Perception
Emotions like panic, fear, anxiety or even elation (think natural disaster versus release of the new iPad) can lead an investor to make a trade to either offset or enhance her emotions. The problem is that many people who make these trades aren't recognizing their decisions are based on emotion or logic ... so they can lose a lot of money, says Shull. Because women are more in touch with their emotions, they know when they're not in the right mental state, making them less likely to make a trade or decision when upset, as well as less likely to invest as a way of gaining control in other areas of their lives.
3. The Need to Get It Right
Competitive investors can hustle to earn more money than their colleagues or peers, making rash or ill-advised trades just to beat others. The work of Deborah Tannen, who popularized difference theory, says that men see the world as a competitive place, while women see it as a network of connections. In the investing sphere, that makes men more likely to make trades and decisions with the motivation of "one-upping" a colleague, while women are (generally speaking) less inclined to do so.
"Some research would say [the need to win] is literally testosterone," Shull says, adding that women, on the other hand, prefer to make the right decision for them and their families over appearing as "the winner."
Sure, not every woman has each of these qualities (and not every man lacks them), and many of those who do have them also have a limited interest in the market. But just imagine: Could women actually be better in a field dominated by men?