The secret to Warren Buffett’s success? He invests like a woman
Readers talk back
In her book Warren Buffett Invests Like a Girl - And Why You Should Too, Louann Lofton, says that temperament is the key to sound investment performance and that temperament gives women an edge over men.
Warren Buffett is probably the most respected investor in the world today with his net worth hovering just north of $US60 billion. He is second to none in his ability to pick stocks and invest in companies that profit and endure. According to Lofton, however, what really defines Buffett and sets him apart from the herd is his remarkable temperament. This is what enables him to invest "like a girl" and be so successful.
Lofton describes seven characteristics that most women have in common with Buffett, making them better investors than most men.
- Women trade less often than men
They tend to take a longer term view, rather than frequently buying and selling stocks.
- They are less overconfident
Women are more willing to admit what they don't know and are more aware of their sphere of competence.
- Women are more risk-averse
They prefer greater margins of safety, and avoid high levels of debt.
- They are less optimistic
This makes women more realistic investors. As Buffett says "When investing, pessimism is your friend, euphoria the enemy."
- They research more
They put more time and effort into examining potential investments and consider alternative points of view.
- Women are less susceptible to peer pressure
Women are less willing to follow the herd. They are more comfortable to be contrarian investors than men.
- They learn from their mistakes
Having made a mistake, women are more likely to admit it and learn from it.
The end result is that women investors tend to produce better and more consistent outcomes. According to the USA research Lofton refers to, female-managed hedge funds have delivered an average annual return of 9% over many years, compared to less than 6% by male-managed funds. Research also shows that during the financial crisis of 2008, women-led funds dropped by less than 10% while the male-led funds fell by 19%.
Of course, there is much more to Warren Buffett and his success than temperament alone. Lofton, however, makes her point well. Being risk averse, learning from mistakes, investing in and holding good companies rather than trading, are likely to be advantageous to most investors – personal and professional.
Warren Buffett Invests Like a Girl - And Why You Should Too is a thought-provoking read and a book that female investors, and potential investors, will enjoy and learn from.