I review the 2011 Warren Buffett Invests Like A Girl book by LouAnn Lofton that talks about how Warren Buffett’s investing temperament is much like how women tend to invest. She goes into generalized gender traits and trends in support of this idea that Buffett has a feminine investing style.
Women, like Buffett, tend to invest for the long term, are risk aware, and don’t follow the crowd or allow themselves to be subjected to too much peer pressure. Written in the aftermath of the Great Recession, LouAnn’s book argues that had there been more women investors and women in positions of power/influence in financial firms, the recklessness leading up to the crash may have been less pronounced.
With Dr. Martin Luther King Jr. Day around the corner, and the fact that Warren Buffett was influenced by his late first wife, Susie and a MLK speech to be inspired to care about civil rights, I shared a few MLK quotes that I think provide us with wisdom as we move along our investing journeys.
One area of the book I’d like to challenge is this notion that risk is equal to volatility (beta in market jargon). I don’t agree that just because a stock’s price can range between significant highs or lows that this means that a company is more risky. LouAnn cites a 2001 gender investing study by Barber and Odean that also estimates investing in small companies is part of their risk definition. I disagree with this idea too. Their final point is that women tend to invest in less risky stocks based on a volatility and small company definition of risk, which is not like how Buffett and I think of risk as the potential to permanently lose money or capital.
If you invest for the long term, it shouldn’t matter what the everyday up and down (volatility) prices of a given stock are. If you hold a stock forever like Charlie Munger or Buffett do, the vicissitudes (fluctuations) of the market don’t matter. To me, it’s entirely possible all genders can equally choose risky stocks depending on if we buy a company’s stock at too expensive of a price, if we didn’t study the company, its management, and other pertinent investing factors.
The book talks about the notion that in theory, higher returns should come with higher risks that men may be taking, except they supposedly trade away any advantage, so women end up edging them out slightly in performance. I wouldn’t worry or dwell on these generalizations of frequent trading tendencies or confidence levels as the book discusses, I’d rather we focus our energies in emulating how Buffett and Munger apply their investing philosophy.
The book has many useful Buffett gems of wisdom, and two salient points I’d like to also mention include how 1) Buffett wasn’t able to predict where things were going in technology so that’s why he resisted investing in it until he committed to Apple (at nearly 48% of the Berkshire Hathaway portfolio!). And 2) for the most part, Buffett and Munger stay true to a concentrated portfolio allocation that differs from LouAnn Lofton and The Motley Fool’s position on allocation strategy, which values more diversification of 15-20 stocks and index funds.
I agree that approval is not the goal of investing and I like how the book includes opinions and lessons from several women investors. I believe we should strive to have the courage of our convictions when we have done the homework and done what it takes to be committed to an investment for a long time. In order to become a great investor like Buffett, we all need to better control our emotions (or not let our hormones mess with our decision making) in how we approach investing. Easier said than done but I think we can all channel our inner Buffett and Munger and then we’ll be well on our way.
The journey towards FIRE (Financial Independence, Retire Early) is one filled with much gratitude and enlightenment, and I look forward to making more investor friends.
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