To tell anyone, especially a man, that he is doing something like a girl is not really the done thing. Just think about it for a minute. You don’t go around telling a guy that he kicks a football like a girl. Nor would you tell him that he throws a cricket ball like a girl or that he hits like a girl. You just don’t do that, unless you want to end up without any friends. But it seems that when it comes to investing, being told that you handle money like a girl can be almost worn…
Just think about it for a minute. You don’t go around telling a guy that he kicks a football like a girl. Nor would you tell him that he throws a cricket ball like a girl or that he hits like a girl. You just don’t do that, unless you want to end up without any friends.
But it seems that when it comes to investing, being told that you handle money like a girl can be almost worn as a badge of honour. In fact, a book which claims that Warren Buffett invests like a girl has even been given the nod of approval by the Sage of Omaha himself.
So what is it that makes Warren Buffett so good at investing?
Those of us who are familiar with Buffett’s reputation will know that he is not just good in short bursts like some investors can be. Instead, he is consistently good over the long term.
So, why is Buffett good to the point of being great?
Is it that he can correctly predict the direction of the market? Or does he have some special insight into the next big thing? Could it be that he constantly trades to take advantage of small discrepancies in the market? In other words, is he darting in and out of the market in a testosterone-charged frenzy?
We can say many things about Warren Buffett but describing him as being frenzied is most definitely not one of them. If anything, he is the exact opposite.
He is patient, he carries out his research into each investment meticulously and he always avoids taking excessive risk. What’s more, his aim is to never sell a company once he has invested in it. He has a natural aversion to doing something for the sake of doing something. Or put another way, he invests like a girl.
So how exactly have these feminine investing traits turned Warren Buffett into one of the richest men in the world? What is it that makes Buffett tower over other investors?
In the main, women tend to spend more time researching their investment choices. They want to know what exactly they are investing in. Consequently, they avoid one of the most common investing mistakes, namely, investing in something they do not know anything about.
This prevents them from chasing the latest fad, which is the downfall of most men’s portfolios. Women are also more likely to ask probing and difficult questions that challenge their own assumptions, rather than hoping that what they read and hear will confirm what they already thought.
On a purely biological level, women have an advantage over men because they have less testosterone. They can’t help it but they just do. These lower levels of testosterone can be a decided asset. It helps them resist behaving in a herd-like manner in the financial markets. The upshot is they take less risk when investing.
Another downfall of male investors is that they tend to be too overconfident. This has been attributed to why men, on average, trade 45% more often than women do. By buying and selling shares more often, men reduce their net returns because they are incurring more costs. By trading less, women produce better returns simply because they are sitting on their hands and do nothing.
Knowing where you might be going wrong when investing is the first important step to improving your returns. The second important step is to learn from those who are doing things better than you. Or as Charlie Munger once said: “It never ceases to amaze me to see how much territory can be grasped if one merely masters and consistently uses all the obvious and easily learned principles.”
This article first appeared in a SIAS news letter.
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