The greatest investor in the world is a man and, according to one theory, he invests like a woman. Or rather, a girl.
Which may seem an odd thing to do, given that investing largely remains a man's world, with women (and girls) only slowly coming to the fore. Does he know something we don't?
Given that the man in question is US billionaire Warren Buffett, we have to assume he does.
Mr Buffett, 93, is the world's eighth-richest person with a net worth of $136 billion and has been smashing the stock market for seven decades.
Yet, he did not build his wealth by behaving like your stereotypical trader, chasing hot tips and punching the air when his latest wild hunch pays off.
Mr Buffett, the chairman of Berkshire Hathaway, did it by junking all that nonsense and listening to his “feminine side”. At least, that's the theory put forward by LouAnn Lofton in her book Warren Buffett Invests Like a Girl: And Why You Should, Too.
This states that “Warren Buffett and all of the women of the world have one thing in common: They are better investors than the average man”.
Which is a bold claim, but is it true? And if it is, then why are more women not exercising their innate skills and smashing the market, too?
Here is the theory. Women are better investors because they spend more time researching their stock and fund picks.
Men trade on whims, women use their brains. Men also buy and sell more often, which backfires as they rack up higher transaction costs and pay more capital gains tax, which eats into returns.
Also, women look at more than just numbers when deciding which company to invest in, taking products, services and, yes, ethics into account. This means their stock picks tend to have better long-term prospects and face fewer expensive lawsuits.
While men are brash, compulsive and overly daring, women tend to be more studious, sceptical and reasonable, Ms Lofton’s theory goes.
If anybody embodies the feminine virtues of “patience and good decision-making”, Mr Buffett does. Even if he is a man.
He shuns passing fads in favour of buying solid companies with loyal customers, strong brands and steady revenue, which have been overlooked by the short-termist investors. Then he buys and holds for the long-term, giving them time to recover their lost value.
Think Coca-Cola. American Express. Kraft-Heinz. Apple.
Since 1956, his holding company Berkshire Hathaway has beaten the broader stock market in 39 out of 58 years, according to The Motley Fool.
In that time, the S&P 500 Index would have turned $10,000 into $2.4 million. Berkshire Hathaway delivered $355 million.
If Mr Buffett really has done this by investing like a girl, why are women not beating the stock market, too?
Actually, they are. Quietly.
A study by the University of California found that single female investors not only beat single men, but by an impressive 2.3 per cent a year.
Over time, that apparently marginal difference compounds. Let's say a single man invested $10,000, and it grew at 5 per cent a year after charges. After 30 years, he would have $43,291. A woman delivering 7.3 per cent would have $82,793. About twice as much.
This is not a one-off. Fund manager Fidelity International found that its women customers outperformed by approximately 0.4 per cent every year. Hargreaves Lansdown research put female outperformance at 0.81 per cent a year. Warwick Business School found 1.8 per cent.
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Danni Hewson, head of financial analysis at AJ Bell, says the gender wealth and investment gap is real, and it starts with incomes.
“On average, women have to work for a whopping 19 additional years to retire with the same pension as their male counterparts.”
Yet, the picture is not altogether straightforward, she adds. “Women do have money, but tend to favour cash over stocks and shares.”
There is still some truth in the old saying that women save and men invest, says business journalist, author and presenter Jasmine Birtles.
“A key reason is that they still earn less than men and, therefore, feel they have more to lose.”
Another reason is that they tend to invest with a family-centred goal in mind, says Sophie Lund-Yates, lead equity analyst at investment platform Hargreaves Lansdown. “This leads to more rational, better informed decision making.”
To many men, investing is a game. Or a challenge. As a result, men tend to make bigger losses than women, which would not impress a certain Mr Buffett, who famously said: “The first rule of an investment is don’t lose money. And the second rule is don't forget the first rule. And that's all the rules there are.”
Ms Lund-Yates says buying solid, dividend-paying blue-chip stocks rather than shooting for the moon, pays off over time – thanks to the magic of compounding. “The snowball effect is what you should be after, rather than chasing shortcuts by investing in hot stocks that all too often disappoint.”
The gender investment gap may be narrowing, according to research from Interactive Investor.
When asked what type of investor they were, 12 per cent of men chose the highest risk category of “adventurous”, against 9 per cent of women, while 51 per cent of men ticked “moderately adventurous”, against 43 per cent of women. There is still a difference, but not as huge as the stereotypes suggest.
Interactive Investor’s data also suggested that 33 per cent of men said “worrying about making the wrong decision” was a barrier to investing, against just 30 per cent of women. Men feel the fear, too. But they do it anyway.
It does not help that the investment industry is still dominated by men, who tend to squeeze women out, says Zoe Burt, a financial content specialist at Female Invest. “Many feel deliberately excluded from investment conversations and marketing. All too often, even financial professionals defer to the man in the room.”
Tony Hallside, chief executive at Dubai broker STP Partners, says while research confirms that women make better investors, generalising is dangerous. “Investment success is determined by various factors, including knowledge, strategy and discipline, which are not inherently tied to gender.”
Patience, risk awareness and long-term thinking can benefit every investor regardless of gender, he adds.
The key is to get women investing, which involves “encouraging inclusivity in financial education and fostering diverse perspectives within investment circles”, Mr Hallside says. “This can enrich decision-making processes and, ultimately, lead to better outcomes for all.”
It is best not to take the “invest like a girl” theory too seriously. Some boys are quite good at investing, too. Even if they will never be Warren Buffett.
Five tips to 'invest like a girl'
- Start small: To remove some of the fear of losing money.
- Start early: The longer your money is invested, the more time it has to compound and grow.
- Leave it: Do not keep checking in to see how your investments perform. Wait six months at least. Investments need years, so don’t rush to sell.
- Stick with it: Even if it is just a small amount every month. You need to be financially independent when you retire.
- Use any tax breaks: Max out any company pension, tax-free allowances and, of course, your state pension.
Source: Jasmine Birtles
