Maybe you've seen it, the ad campaign currently spreading via social media, that explores what it means to run and throw "like a girl." It's good stuff, and of course we support the idea of turning a silly, antiquated, supposed "insult" into an empowering statement.
In fact, we've been doing that very thing for years, because we've known that telling someone they invest "like a girl" is the ultimate compliment. Doing so will help you be more patient, trade less, make more, and ensure that your portfolio grows and your financial future shines.
Warren Buffett, female investor?
No less an authority on investing than Berkshire Hathaway's (NYSE: BRK-A ) (NYSE: BRK-B ) Warren Buffett agreed, when I asked him face-to-face in Omaha if he thought he invested like a girl. Buffett's no fool (though I like to think he's a Fool); he understands that many men tend to be overconfident, tend to trade too much, and just generally eschew actual investing.
Those are hardly the traits that have made Buffett the greatest investor and wealth-builder we've ever seen, piling up decade upon decade of market outperformance. Buffett has long championed temperament over intellect as the way to become an exceptional investor over the long run. In practice, this means controlling your emotions and not doing things that get other investors into trouble (like panicking and selling in an attempt to time the market or acting on a hot stock tip when you actually know nothing about the company).
Studies going back well over a decade show that for female investors, this ideal temperament often seems to come more naturally than for their male counterparts. Therefore, when I decided to title my June 2011 book, Warren Buffett Invests Like a Girl: And Why You Should, Too, I knew I was on to something. There are clear parallels between how women approach investing and how Buffett does. One might say he's a man in touch with his feminine side (I believe he'd actually like that!).
Hurrah for feminine investing traits
So, what exactly does it mean to invest like a girl? Studies show that female investors tend to be patient, rather than impulsive; realistic, rather than overconfident; prudent, rather than reckless. They tend to think longer term, take much less risk, and just generally view investing more as a means to an end (security for their families, for example) than a game or a way to keep score. Female investors also typically do more research, ask more questions, and trade less. In one study (called, fittingly, "Boys Will Be Boys"), men traded 45% more than women, with single men trading 67% more.
"Overconfidence," or believing that you know more than you do, is a concept that crops up again and again here. Female investors tend to suffer from overconfidence less than male investors do, notably so. In fact, while the idea of operating with a lack of confidence can seem like a negative thing, when it comes to investing, it can save you from yourself, and we see that with women, who are less likely to fall prey to confirmation bias and more likely to dig deep and ask hard questions.
Many male investors seem to believe that doing something is better than doing nothing, leading them to trade more, rather than patiently holding onto the companies they "invest" in. This can have disastrous results for your long-term financial health. For instance, Vanguard analyzed the individual retirement accounts of 2.7 million of its customers during the financial crisis in the fall of 2008 and beginning of 2009 to see how investors reacted to the increased volatility and market declines. This was a time, you most likely remember, when our emotions as investors were tested day in and day out.
What Vanguard found was interesting, but shouldn't be surprising given what else we know -- women were more likely than men to remain calm, not panic, and stay the course. Men, on the other hand, were more likely to react to the market's plummeting by selling their stocks at the worst possible time, locking in huge losses and ensuring that they'd miss out on any gains when the market eventually did turn around.
Having this ability to remain calm and tune out the noise is one key trait that will make you a great long-term investor. You've got to be able to stick with it, and even better if you can actually manage to enact Buffett's famous saying, "Be greedy when others are fearful, and fearful when others are greedy."
Let's hear it for the boys
It isn't all bad news for the guys, of course, and most of us as investors (whether male or female) can still learn lots about controlling our emotions and improving our temperaments. I believe this is lifelong work and just as important as analyzing companies to decide which ones you're going to buy or sell.
So, while men may be able to tap into their feminine sides like Buffett has, and adopt a calmer, steadier, more thoughtful approach to investing, so too can women learn a thing or two from men. In particular, I'm thinking here about taking action.
I mentioned earlier that men are more active investors and it's true that too much action and trading can hurt your returns, but that's better than taking none at all and not even bothering to invest. So, for women who aren't taking advantage of their company's 401(k)s, for instance, or who leave all the financial decision making up to their partners, I'd encourage them to embrace their excellent temperaments and start investing sooner rather than later. The earlier the better! You don't have to become a hotshot high-frequency day trader (actually, please don't!), but you should be in control of and planning for your own financial future.
I suspect most of us have heard the statistics about how dire the retirement outlook for women can be, thanks to women living longer and still making less money than men over their working lifetimes. Women typically reach retirement age with about half the money in their retirement accounts as men do. Roughly 80% of women will be the sole financial decision maker in the household at some point in their lives, regardless of the extent of their financial literacy.
This reality can seem intimidating, but I'd encourage women, instead, to embrace it as a challenge and start investing now -- today. Don't put it off any longer.
And for men reading this, think about the women you care about in your life, whether it's your wife, your daughter, your mom, or someone else you're close to. If they aren't already taking the first steps to learn about investing, consider sharing this article with them and encouraging them to do so. At the very least, start a conversation about it.
Investing like a girl for life
From my perspective, there's no better way to invest than like a girl. I've held several stocks for over 15 years now, including some big winners like Starbucks (NASDAQ: SBUX ) and Nike (NYSE: NKE ) . And when the markets were roiling in the fall of 2008 I was adding to my positions in companies like Chipotle (NYSE: CMG ) and Apple (NASDAQ: AAPL ) , which turned out very well. Heavens knows I'm not perfect, though, and my criticism for myself is that I should have been buying even more stocks back in 2008. We're all learning to improve our temperaments, always.
However, I remain confident that investing in quality companies and patiently holding them for the long term is the best way I can tackle the particular challenges that come with planning my financial future as a woman.
I remain confident that I'll invest like a girl forever.
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