Why Warren Buffett invests ‘like a girl’ – and you should too

A new book by LouAnn Lofton, provocatively entitled Warren Buffett Invests Like a Girl, argues that the strategies that have made the “Sage of Omaha” the most successful investor of our generation are typical of women’s approaches to investment.

Lofton, editor-in-chief of The Motley Fool, the investment website, makes the case that women tend to shun risk, make decisions based on research rather than emotion, and avoid short-term trades – all characteristics of Buffett’s highly successful investment approach.

Statistics support her premise. A recent study by Barclays Capital and Ledbury Research, the luxury market research company, suggests women make better investors than men mainly because they are more disciplined and not as overconfident – “in simple words, they trade less and earn more”, the study says.

An article published by Businessweek in 2009 quotes a study by Hedge Fund Research, the data provider, that found that over a nine-year period, women produced more than one-third better returns than men, averaging 9 per cent against the 5.82 per cent delivered by men. During the financial meltdown of 2008, funds managed by women lost 9.6 per cent compared with the 19 per cent attrition suffered by male-run funds.

One potential flaw in these figures is the small data set – only 6 per cent of the hedge funds in the study had women in leading positions.

Studies devoted to gender differences in approaches to risk are numerous. An article by Brad Barber and Terrance Odean published in the February 2001 edition of The Quarterly Journal of Economics is one of the most useful because it draws on a wide body of research from both behavioural psychologists and economists.

Titled “Boys will be boys: gender, overconfidence and common stock investment”, their article analyses investment returns from a range of data sources, and concludes:

“Models of investor overconfidence predict that, since men are more overconfident than women, men will trade more and perform worse than women … Men trade more than women and thereby reduce their returns more so than do women.”

So perhaps it is time to rehabilitate the phrase “like a girl” – at least where it is applied to investment decisions.

 

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