How has Warren Buffett created the largest and greatest investment portfolio in human history?
By mastering his temperament and “trading like a girl.”
So argues Motley Fool writer and Mississippi native Louann Lofton in her new book “Warren Buffett Invests Like a Girl.”
In October 2008, when the Dow Jones Industrial Average began to nose dive shortly after the Lehman Brothers bankruptcy, investors panicked and began to trade. But not Warren Buffett. “He did what any rational person should have done in the face of so much fear. He took a deep breath, steadied himself and started buying stocks, putting $20 million to work in companies like Goldman Sachs and General Electric… (He) reminded investors that the best time to buy stocks was when everyone was fleeing the market, leaving bargains galore ready for the taking,” Lofton writes.
She quotes Buffett: “The most important quality for an investor is temperament, not intellect… You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
“Feminine” qualities like relationship building, patience and collaboration were absent during the market mania that kicked off the Great Recession.
Lofton cites various studies showing women have a different approach to investing — namely by thinking long-term and trading less. The University of California’s 2001 “Quarterly Journal of Economics” paper “Boys Will Be Boys,” for example, surveyed 35,000 discount brokerage accounts over a six-year period and found that men traded stocks 45 percent more than women did. Excessive flip-flopping reduced the men’s net returns by 2.65 percentage points, as compared to the women’s loss of 1.72 percentage points.
Additionally, when Hedge Fund Research Inc., a data source for the hedge fund industry, tracked the annualized performance of female-managed hedge funds from 2000 to 2009, it found that women-managed funds returned an average 9.06 percent, compared to the 5.82 percent weighted index of other hedge funds.
So how can you learn to trade like a girl? Trade less, shun risk, research extensively, ignore peer pressure, value people and relationships, question the masters and act fairly and ethically.
“You can be good and rich; one doesn’t preclude the other. It’s possible to find companies where employees, shareholders, and customers all win, and those can make for winning investments,” Lofton says.