Warren Buffett invests like a girl

March 8 is International Women’s Day. We don’t have enough female investing role models, but research suggests women have the investing edge

a woman

Today, March 8, is International Women’s Day. It’s a great opportunity to reflect on the great strides made by our society to redress the gender imbalances, and to recommit ourselves to removing those that still exist.

There’s one gaping hole. Among the pantheon of investing greats there are unfortunately no female investors.

That’s not to say there are no successful women in finance and business. Gail Kelly, CEO of Westpac Banking Corporation (ASX: WBC), is often held up as a leader in the field. We have a female Governor-General and Prime Minister, and the Premiers of Queensland, Tasmania and the Chief Minister of the ACT are all women.

Part of the reason there are no female investing greats has much to do not only with the barriers that still exist for women in the workplace, but also because really rising to the top of the investing heap takes time, while compounding does its work. Those we hold up as investing exemplars started their investing careers 40 or 50 years ago, when women were dramatically under-represented in the finance industry.

In fact, research suggests that women are likely to achieve better investing results than men – they research more, trade less and are less prone to herd-like behaviour.

What makes Buffett, Buffett

The Fool’s LouAnn Lofton compared that research with Warren Buffett’s successful investing style. She wrote:

“…what makes Warren Buffett the investor whom every investor wants to be like is that he approaches investing differently from the way most men do. Buffett has famously said that temperament is more important when it comes to investing success than is intellect. And his temperament tends to be more feminine than masculine.

“He’s patient and does thorough research. He doesn’t buy the latest whiz-bang technology company that he can’t understand. He doesn’t take excessive risks. His goal is to never sell the companies he invests in. He doesn’t do something just to do something. He’s the anti-trader, if you will.

Women and investing

So how exactly do women invest? Check out just a few of the characteristics of female investors that distinguish them from their male counterparts.

  • Women spend more time researching their investment choices and tend to take less risk than men do. This prevents them from chasing “hot” tips and trading on whims – behavior that tends to weaken men’s portfolios. Women are also more likely to seek out information that challenges their assumptions, rather than only relying on data that confirms what they already thought.
  • One study found that men trade 45% more often than women do, and although men are more confident investors, they tend to be overconfident. By trading more often – and without enough research — men reduce their net returns. But by trading less, women produce better returns and also save on transaction costs and capital gains taxes.
  • Women have less testosterone than men do (not a surprise, we know). New and continually unfolding science points to the possibility that testosterone is responsible for herd-like risk-taking behaviour from men in the financial markets. That makes a lack of it a decided asset.

That’s right, Buffett invests like a girl. His response: “You’ll have to read her book to see the criteria she used, but I’d say I probably plead guilty.”

Foolish take-away

Buffett clearly isn’t female, and we’re poorer for having fewer female investing role models. Women should have investing role models to follow, and the investment community would be stronger with more diversity of opinion, experience and perspective. We look forward to adding the first woman to the investing pantheon.

The investing community is still overwhelmingly male. Ladies, why not be the first female investing great? Take up the cudgels, and don’t be put off by the lack of high profile trail-blazers. Gents, encourage the women in your life to take a more active interest in investing, and remember the lessons we can learn from the research on female investors.

Here’s to the day we can celebrate investing equality – and when ‘investing like a girl’ is the compliment it should be.

The Motley Fool’s LouAnn Lofton turned some of these findings into a best-selling book of the same name.

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Scott Phillips is a Motley Fool investment analyst. Scott owns shares in Berkshire Hathaway. You can follow him on Twitter @TMFGilla. The Motley Fool’s purpose is to educate, amuse and enrich investors.This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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