The idea’s expounded in Warren Buffett Invests Like a Girl (HarperBusiness) by LouAnn Lofton, managing editor of financial education website The Motley Fool (www.fool.com). She analyses the investing characteristics and strategy of Buffett, the world’s most successful investor and fourth-wealthiest individual
Women investors, it seems, have a lower ?appetite for risk. That’s often seen as a weakness, but it also means that before they commit, they look at the figures and fundamentals. Men are less risk-averse and tend to make ?decisions in the euphoria of a winning streak, when they’re bored with the nitpicking of research or simply when the markets are volatile, and they’re hit by Fomo (fear of missing out). Men know that a high-risk investment carries the ?opportunity of high reward, so they ride the wave of optimism. Women are more aware of the possibility of heavy loss, so they’re more studious, skeptical ?and realistic. Which is exactly how Buffett operates.
According to Lofton, the traits which put him in the girlie camp include:
* Women buy and sell at lower frequency than men (according to one study, 45 per cent less). Like them, Buffett buys and holds.
Men think they know more than they do, while women are very aware of their lack of knowledge.
* Women are less susceptible to peer pressure and tend to make decisions regardless of who’s watching. Not men: they show off.
* Women learn from their mistakes; men tend to be defiant about ?theirs. Another piece of research ?suggests that the male hormone testosterone might also be partly to blame ?for traders who turn into rogues or ?simply make costly investment misjudgments.
In a series of experiments conducted at the London Stock Exchange, John Coates and his colleagues from the ?University of Cambridge found that during a winning streak, the testosterone surge men experience increases their confidence (a necessary change in the caveman’s fight-or-flight response) and appetite for risk.
At some point in this upward spiral, overconfidence becomes a problem and the whole show can blow up. Which is why “investing like a girl” — and like Buffett — is the way to go.