Warren Buffett Invests like a Girl
This article may look sexist at first glance. One might ask: “What do you mean by “invests like a girl”? Are you trying to insult Warren Buffett or are you trying to insult females?”
According to a post on blackrockblog.com, gender does play a role in affecting one’s investment style and causes men and women to make different investment decisions.
With this in mind, we have interviewed Pauline Teo, Chief Executive Officer of 8I Education and the author of the book Value Investing for Women.
It is not a surprise that her personal investment habits fit well into the “feminine” investing style.
Here are the three main differences between how women and men invest, as suggested by BlackRock:
1. Women tend to take a longer-term approach
A 2010 Boston Consulting Group study examining women’s experiences with wealth management providers found that women tend to focus on longer-horizon planning.
In contrast, men tend to focus on the short-term track records of their portfolios as they tend to be more competitive and thrill-seeking by nature.
Value investing is typically seen as long-term investing, as value investors are essentially seeking undervalued stocks whose prices movements do not correspond with the company’s long-term fundamentals.
Investing-wise, Pauline is no thrill-seeker, so instead of monitoring a company’s stock price on a 24-7 basis and profiting from split second price movements, she looks at a company’s business model, sustainability and how sound its management is.
2. Women tend to be more cautious and meticulous when it comes to making investment-related decisions
Remember how our mums/aunts/grandmas compared one product across multiple stores before finally deciding on which one to buy from? Such a habit might actually be helpful when it comes to uncovering the most undervalued company.
Of course, not every female is a penny-pincher. For all we know, there are also ladies who go on wild shopping sprees driven by emotions, only to regret it right afterwards.
Stereo-typically, women are often seen as more “emotional” beings than men, but several studies, including a national survey by LPL Financial, have shown that men are actually more prone to market timing impulses.
It is also found that women tend to set aside more time to do their “homework”, i.e. research on investments in depth before making portfolio decisions.
Pauline also exercises caution in the way that she chooses to invest within her circle of competence. Her usual routine involves reading companies’ financial reports on weekend mornings when most of us are probably sleeping in.
3. Women are more likely to seek help from their advisors and peers
As shown from a 2012-2013 Prudential study on women investors, women are more receptive to financial research and advice than men.
Also, when it comes to gathering information, women often prefer group discussions to learning independently.
In Pauline’s case, she formed a study group where the members would meet up every month to discuss their findings of five companies.
Perhaps the social setting makes learning more enjoyable, or perhaps two (or more) heads are just better than one.
Now, in case you have not already known, there is a book titled Warren Buffett Invests Like a Girl: And Why You Should, Too. The funny thing is that Warren Buffett himself agreed with the author’s claim that he has a decidedly feminine investing style.
So how is Warren Buffett “girly” in his investing style then?
In short, he is known to be rather risk-averse, and instead of having unrealistic optimism towards the market, he backs his decisions with immense amounts of research.
He also thinks long-term, and he says that his favourite holding period is “forever”.
Regardless of whether you like his style, at the end of the day, “investing like a girl” does not make you any less manly (if you are a man), but it might make you richer.
This article first appeared on SharesInv.com.
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