Warren Buffett Invests Like a Girl
By LouAnn DiCosmo (TMF Bling) March 20, 2008
For as long as I can remember, adding the phrase "like a girl" to the end of whatever you were saying was a put-down, an insult, something to come to fisticuffs over. Little boys the world over hated being told that they, for example, "threw like a girl." I'm not defending the statement, and as a member of the fairer sex, I certainly don't agree with its intent, but hey, that's been the case from the playground on up.
When it comes to investing, though, you could do a whole lot worse than learning to "invest like a girl." And that's why I'd bet Warren Buffett, chairman of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), wouldn't get offended if I told him to his face that he invests like a girl. In fact, he'd probably thank me (and perhaps slip me a box of See's Candies). Hang on to see why -- and stay tuned for our soon-to-be published book on this very topic.
What makes Buffett Buffett
What is it that makes Warren Buffett such a consistently phenomenal investor? Is it that he's zigging and zagging along with the market's every move? Is he trading all the time, buying this and selling that, racking up taxes and commissions all the while?
No, no -- 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. He's patient and does thorough research. He waits for the right price to buy. He seeks to never sell the companies he invests in. He's the anti-trader, if you will.
Yep, you heard it here -- Warren Buffett invests like a girl. And that's a very good thing.
Women and investing
So how exactly do women invest? Check out these characteristics of female investors that distinguish them from their male counterparts.
* Women spend more time researching their investment choices than men do. This prevents them from chasing "hot" tips and trading on whims -- behavior that tends to weaken men's portfolios.
* 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 often, women get better returns and also save on transaction costs and capital gains taxes.
* A study by the University of California at Davis found that women's portfolios gained 1.4% more than men's portfolios did. What's more, single women did even better than single men, with 2.3% greater gains.
* Women tend to look at more than just numbers when deciding whether to invest in a company. They invest in companies they feel good about ethically and personally. And companies with good products, good services, and ethics tend to have better long-term prospects -- and face fewer lawsuits.
These are some of the traits that make female investors more like Buffett and less like frazzled, frenetic day traders, with their ties askew, hair on end, and eyes bleary. Patience and good decision-making help set women apart here.
Women also have a keen eye when it comes to identifying companies poised for greatness. They typically look beyond the shiniest, newest bio-techno-gadget and focus instead on retailers meeting their needs, on products that they can't live without, and on consumer goods they buy in their day-to-day lives. And that type of insight can pay off. Buffett's long-standing investments in Coca-Cola (NYSE: KO) and Gillette (now owned by Procter & Gamble (NYSE: PG)) meet this standard of easy-to-understand investments with competitive advantages.
Legendary fund manager Peter Lynch has famously credited his wife with discovering pantyhose maker Hanes, which at one point was Fidelity Magellan's largest holding. And he's also written about watching the shopping habits of his then-teenage daughters to discover investment ideas.
Shoot, even our own Bill Mann has told us that his wife shone the light on Swedish clothing phenom Hennes & Mauritz (OTC BB: HMRZF), better known as H&M, which went on to be a great performer for him.
Look at a company like recent Motley Fool Stock Advisor recommendation Coach (NYSE: COH), which started turning around several years ago thanks to fresh designs that drew customers in like moths to a flame. The stock's stumbled over the past year and remains beaten down today because of ongoing fears about the economy and the "strength of the consumer," but the fact remains that it's a solid, well-run business with desirable products and a growing market. I'll bet you could have talked to any number of female shoppers early on who could have clued you in that the company's products were much improved -- and that the financials couldn't be far behind.
So what if you're not a girl?
It's possible, dear reader, that you're of the male persuasion, but don't fret. By focusing on the traits that created superinvestor Warren Buffett -- patience, the willingness to dig deep, the ability to wait for the right price, and the desire to buy and hold instead of trade, trade, trade -- you can awaken the feminine side of your investment psyche. Consider it. Your portfolio will thank you for it.