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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About our bloggers

Liz Bolshaw

Liz Bolshaw is a business journalist and editor. She has been a successful book publisher, online editor, magazine editor and publisher.

She was launch editor of the Europe-wide online community Entrepreneur Country, has published magazines for PwC, 3i, dunhill and Bafta, and launched The Sharp Edge, a magazine for and about entrepreneurs, with Duncan Bannatyne. She is a regular contributor to Thomson Reuters’ Venture Capital Journal.

Her last project for the Financial Times was as editor of the paper’s Business Education magazine.

Rebecca Knight

Rebecca Knight is a freelance journalist based in Boston. She writes regularly for the FT on business education, entrepreneurship, and management.

Andrew Hill

Andrew Hill is an associate editor and the management editor of the FT. He was City editor of the FT and editor of the daily Lombard column on British business and finance from September 2006 to December 2010.

He was the FT’s financial editor from June 2005 to September 2006, with overall responsibility for coverage of companies and markets. Before becoming financial editor, he was the FT’s comment & analysis editor, in charge of the paper’s opinion and features pages.

From 1999 to 2003, he was the FT’s New York bureau chief. He joined the FT in 1988 and has also worked as foreign news editor, UK companies reporter and correspondent in Brussels and Milan.

Pino Bethencourt

Pino Bethencourt is a professor and leadership expert at IE Business School in Madrid. She is also an author and executive coach.

Lynda Gratton

Lynda Gratton is professor of management practice at London Business School.

Linda Tarr-Whelan

Linda Tarr-Whelan, former ambassador to the UN commission on the status of women, is a Demos distinguished senior fellow.