We're celebrating the winning ways of female investors with a series of articles about what makes the fairer sex better at picking stocks.
I'll admit it: A long time ago, I invested like a boy.
This was back when Internet stocks were hot, disruptive technologies were cool, and words like "profits" and "balance sheets" were wiped from excited investors' financial vocabularies. Back when this time, unlike all the other similar times, things were totally different!
Back when I invested like a boy, the "story" part of a story stock was the only part that mattered. Hot stock tips were all the rage. eBay, Plug Power, Pets.com, Kozmo.com, Amazon.com
Granted, Amazon evolved out of the dot-com bubble mess to become what I'd call one of the most incredible companies ever created. Amazon dominates online retail hands down, and its shares have resulted in a total return of nearly 11,000% since its 1997 IPO. However, for every Amazonian-type success, there were multitudes of losers after the bubble burst.
Back when I invested like a boy, I didn't worry about whether or not a company was profitable, or even close. Euphoric media buzz and crazy pie-in-the-sky dreams, er, business strategies mattered most to me. What an adrenaline high!
Back when I invested like a boy, Wall Street analysts' share price target predictions in the hundreds (and even thousands) of dollars didn't seem insane. They just seemed exciting!
Price-to-earnings ratios that were completely disconnected from anything close to realistic performance or reasonable growth expectations didn't figure into my decision-making process. Actually, price-to-earnings ratios, debt-to-capital ratios, and, well, any kind of ratio sounded kinda boring. (After all, it was different this time!)
Back when I invested like a boy, the so-called "smart people's" opinions about stocks seemed like a great way to decide exactly which ones to buy.
I'll admit it: Investing like a boy led me to own shares of TiVo
And then there was (gulp) Enron. Remember the smartest guys in the room?
In short, my investing decisions had nearly everything to do with exciting stories, or stocks that "experts" talked to the skies.
Celebrate the feminine side of investing
I'm simply trying to say that back in those days, I did what a lot of male investors were doing. It all seemed so exciting, and not a bit difficult or complicated. Heck, as long as all stocks were skyrocketing, it felt great at the bubble's heights. Why worry about a company that's up to its ears in debt? So what if the company can't turn a profit, and may never turn a profit?
Like many investors, I took my share of lumps for these bad decisions. When the Internet bubble burst and I became just another layoff statistic, I sold my little stash of XM and TiVo shares for some extra cash. That was probably fortunate for me, since both companies sport negative stock price returns since 2000 or so. And I don't even need to explain what exactly happened to my couple of shares of Enron -- a painful and embarrassing experience.
These days, I try my best to seek out companies with a great outlook for long-term growth and profitability. I try to summon the will to be very, very, very patient, thinking in terms of years and years, instead of quarters. I try to foster the temperament to block out media buzz, noise, and short-term stock-price wackiness.
I love companies with stellar balance sheets, like Urban Outfitters
In other words, now that I'm older and wiser, I invest like a girl. I have very little interest in egocentric Wall Street boys' club attitudes, the quarter-to-quarter mentality, or "what everybody thinks." And my goodness, do I never, ever want to hear, "This time it's different!" again.
My Foolish colleague LouAnn Lofton has penned a book about why mastering the art of investing may require a certain degree of feminine sensitivity. (I like to call it "investrogen.") In Warren Buffett Invests Like a Girl, LouAnn offers up plenty of research and examples to support her argument that many female investing traits lead to strong, Warren-Buffett style methods for success.
Just for starters, females tend to be more patient, conduct more research, invest in what they understand, and temper their own overconfidence. Anybody who's ever heard their mom say, "If everybody else jumped off a bridge, would you?" might start to realize why this all makes perfect sense.
These days, I no longer want to be just like one of the boys. I'm totally happy being a girl, and investing like one, too. Really, gentlemen, maybe you should think about embracing your inner female and learn to invest like a girl. Or at least in this case, stop and ask for some directions.
What you can learn from women who rule:
- Value investing all-star Lisa Rapuano -- former analyst with Bill Miller at Legg Mason and now manager of her own firm, Lane Five Capital Management -- explains the four Cs of market-beating investing.
- As the great-niece of global investing legend Sir John Templeton, stock picking is in Lauren Templeton's genes. She reveals four ways that gurus think before they invest.
Want to learn more about how to invest like a girl? Warren Buffett Invests Like a Girl is available June 21, but you can get chapter one today for FREE.