“Men and women approach many things differently — investing is just one of them,” said Robert C. Doll Jr., president and chief investment officer of Merrill Lynch Investment Managers.

Doll was talking about an interesting report by Merrill Lynch. A research team surveyed 1,000 investors — 500 men and 500 women. They found that women made fewer investment mistakes:

“Men tend to make what we call the ‘glamorous’ mistakes, like riding winners down, holding onto losers, buying on a tip or putting too much money in a single investment,’ said Hannah Grove, chief marketing officer of Merrill Lynch Investment Managers. ‘These mistakes may make for interesting cocktail party conversation, but in the greater scheme of things, it’s the bigger, systemic failures, like ignoring their asset allocation, that do the greatest damage to investors’ portfolios.’”

Investing Quiz: It’s Not About Your Gender

I think temperament, not gender, defines investment success. But the findings are significant nevertheless. Here is what the survey found:

· Women are far less likely than men to hold a losing investment too long (35% of women reported having done so at least once, versus 47% of men) or wait too long to sell a winning investment (28% vs. 43%)

· Men are also more likely than women to allocate too much to one investment (32% vs. 23%), buy a hot investment without doing any research (24% vs. 13%) and trade securities too often (12% vs. 5%)

· Asked about the emotions that played a role in the investment mistakes they’d made, men are more likely than women to cite greed (32% of men vs. 16% of women), overconfidence (33% vs. 20%) and impatience (28% vs. 19%).

Now, let me point something out to you. The survey seems to say that women are better at investing than men. But if you think about it, what the survey results really show is that people who posses certain qualities are better at investing.

Investing Quiz: It’s About Being Smart and Patient

In other words…

The above shows that the following qualities are necessary for successful investing:

1) Knowing when to let go of a losing investment.

2) Not putting all your eggs in one basket (instead, diversifying).

3) Doing your due diligence before buying a stock.

4) Not letting greed and overconfidence take over.

5) Patience.

It doesn’t matter if you’re male or female: If you have these qualities, you are likely to be a successful investor.

The world’s greatest investor and second richest person, Warren Buffett, is a man. But he has all of the above five “female” qualities in abundance.

He has often said “forever” is his favorite holding period; he has held shares of Coca-Cola for over two decades. He has tremendous patience with his stocks, and that’s why he hasn’t sold Anheuser-Busch, even though the stock has tanked since he bought it.

Peter Lynch brought in windfall gains for investors of his Magellen Fund. The fund owned stocks of a pantyhose maker, a cosmetics company and a hairdresser. Not very “manly” picks, if you ask me.

To borrow our California governor’s terminology, “girly” investors seem to be more successful. In other words, investors who have the “feminine” qualities of patience, long-term investing and taking few risks are better than those who don’t.

As Bloomberg writer Matthew Lynn puts it, “Whether it’s men or women who are trading on too much testosterone doesn’t matter. It’s the values that count, not the sex of the person who embodies them.”

Investing Quiz: What Do You Do When Investing?

So what kind of investor are you? Take this quiz to find out. Write your answers on a sheet of paper and then scroll down for your score. There is no right or wrong answer, so just be honest.

1. At social gatherings you
a. Like to talk about your stocks and the market.
b. Listen with interest when others mention investing.
c. Don’t like discussing stocks at social gatherings.

2. New Drug Pharma Inc. is working on a cure for cancer. You hear rumors that the drug will be approved next week. What do you do?
a. Buy the stock immediately.
b. Ask around and research the company.
c. Ignore the stock — you don’t invest on rumors.

3. Think of your favorite stock. Ideally, what percentage of your portfolio would you like to devote to it?
a. More than 50%.
b. Less than 50%.
c. About the same percentage as the other stocks in your portfolio.

4. Day traders
a. Are so cool — they are your ultimate investing role models.
b. Are interesting, but you wouldn’t do what they do for a living.
c. Scare you.

5. You own shares of Zenron Corp. The stock is down 34% and you have come to realize the company has some shady accounting practices. What do you do?
a. Hold onto the stock, hoping it will turn around.
b. Read the recent financial statements before making a decision.
c. Sell the stock and move on.

6. Why do you invest in the stock market?
a. To experience the thrill of selling for a profit.
b. To put extra money to good use and have fun doing so.
c. For retirement.

7. What sort of investors do you admire the most?
a. Options traders, day traders and gurus like Jim Cramer.
b. Mutual fund managers like Bill Miller.
c. Buy-and-hold investors like Warren Buffett.

Investing Quiz: The Results

Now for your score: Give yourself 1 point for every a, 2 points for every b and 3 points for every c. Now add up your points:

7-11: You enjoy the roller coaster rides of the stock market. But sometimes, you let fear and greed drive your investing. You are not afraid to take risks.

Your custom small-cap pick: You will like the Westwood Mighty Mites Fund (WEMMX). As the name suggests, fund manager Mario Gabelli buys stocks in the microcap universe. Epoch Holding Corp. and Skyline are top holdings. This fund has returned a mighty 25.94% since 2003.

12-16: You are a research-oriented investor. You are cautious with your money, but not overly so. You will not take big risks while investing.

Your custom small-cap pick: Third Avenue Small-Cap Value Fund (TASCX) is the fund for you. Fund manager Curtis Jensen is a hard-core value guy, but at the same time takes mild risks with small-cap oil and tech stocks. Jensen mainly buys companies with a deep discount to net asset value. Whiting Petroleum, Brascan and Fording Canadian Coal Trust are the top holdings. This fund gained 39.8% since 2003.

17-21: You are the true “girly” investor. You are patient with your investments and don’t let emotions take over. You hate taking risks.

Your custom small-cap pick: You might like the Diamond Hill Small Cap Fund (DHSCX). This fund never takes risks and is not afraid to sit on cash if it can’t find stocks worthy of investing. The fund managers themselves own considerable stakes in Diamond Hill Funds. This fund recently closed to new investors but is worth keeping on your watch list should the fund open up again. Cimarex Energy and American Greetings are major holdings. Since 2003, the fund has returned 50.2%.

There you have it. And whether you are a “girly” investor or not, you can find professionally run funds that suit your personality.

In case you’re curious, I scored a 15.

Regards,

Sala Kannan
January 20, 2006

Investing Quiz: Are You a Girly Investor? was originally featured in the Penny Sleuth.