Before we flip our calendars to 2011, we'd like to take a moment to fondly reminisce about the investing year that’s now coming to an end. Umm …
OK, well, unemployment continued at high levels. The housing market continued to cause problems. There was the whole BP and friends thing, gushing nearly 5 million barrels of oil into the Gulf of Mexico. And all that arguing -- about inflation vs. deflation, economic policy, the death of the individual investor, QE2, and skyrocketing debt and deficits. Oops, almost forgot about sovereign debt concerns and the “flash crash.”
So maybe being an investor in 2010 wasn’t all that fun. But even if 2011 delivers more of the same, there are some things you can do to make it your best investing year ever. How? Invest more like us women!
Boy investors vs. girl investors: We win!
A little skeptical, are you? Well, does an extra 3% on top of your returns make the idea more enticing? Because that’s the kind of competitive advantage women bring to the table.
A study from Bloomberg and the National Council for Research on Women showed that from 2000 to mid-2009, women-run hedge funds’ performance averaged 9% annually, versus less than 6% among funds run by men.
That’s some serious girl power at work, and why we think that all investors -- regardless of gender -- would do well to inject a bit of estrogen into their stock-picking strategy. Here are three tips to help you do that.
1. Don’t fall for just any pretty face
We all love hot stock tips, but always temper your enthusiasm with a bit of common sense. Digging deep into a company’s history can help you ascertain whether a stock’s hot for the long term, or just the latest fad.
For example, Abercrombie & Fitch (NYSE: ANF ) shares have increased 68% in the last year, but is this company really doing that great? Any perceived outperformance now is because it’s been doing badly for years on end, so it’s got easy comparisons. The last time it reported an annual increase in same-store sales was the year ended February 2007, and that was a mere 2% increase.
On the other hand, our Chick pick Urban Outfitters (Nasdaq: URBN ) has been a far more consistent performer over time, with annual sales and earnings regularly growing at significant percentages over that time frame.
So before you introduce a stock to the rest of your portfolio, make sure you really know her. Do your due diligence and look at her history. Which leads us naturally to our next chick tip …
2. Practice your listening skills
Women are better at absorbing and integrating different points of view; in other words, females are very good listeners, and aren’t as likely to blow up when somebody disagrees with them. This could also be interpreted as an enhanced ability to understand.
The ability to listen thoughtfully is a trait that comes in handy when assessing risk. When everyone else is screaming “buy” or “sell,” you’ve got to read more than just the headlines to make a sound investing decision.
For example, we busted on Avon (NYSE: AVP ) after speculators started bidding on it on rumors it might be acquired by L’Oreal. Instead, we decided Estee Lauder (NYSE: EL ) was a far more stable bet for long-term investors’ portfolios, with real fundamental strengths as opposed to speculative rumors artificially propping up the stock price.
If you find it hard to see what’s wrong with your investment thesis, actively look for opposing views. Make it part of your research to try to change your own mind about an investment. Then listen to your own voice to decide your ultimate action.
3. Stand by your stocks
We all know the cliche that women are less afraid of commitment than men. Well, we do agree -- at least in the investing realm. Studies show men make 45% more stock trades than women do, and this trigger-happy, excessive trading habit reduced men’s net returns by 2.65 percentage points per year, as opposed to 1.72 percentage points for women.
Count to 10 before succumbing to your impulse to frenetically trade on emotion. Folks who left stocks like Starbucks (Nasdaq: SBUX ) and Whole Foods Market (Nasdaq: WFMI ) for dead in the darkest moments of 2008 not only likely sold their shares at a loss, but missed out on great returns since.
People who bought Starbucks at its lows in 2008 are sitting on a return of more than 300%; same goes for Whole Foods Market, a stock we highlighted on a previous episode, which has returned more than 500% in just two years.
Vow to add girl power to your portfolio in 2011
Committing, listening, and doing your own due diligence are all essential parts of being a part-owner who will enjoy returns over time. They also happen to be traits that come naturally to female investors.
We’re also good at sharing, which is what we’re going to continue to do when we come back in January to find more solid stock picks, talk smack, and shamelessly objectify our male co-workers. See you in 2011!