Warren Buffett invests like a girl. What? Doesn’t everyone know that men are better investors than women?1
Not if they read. When you really examine what we know about how men and women do at investing, we find that women do just fine at investing, both for themselves and for others. Women, like men, bring some gender-linked qualities to investing that can actually help. So when someone says Warren Buffett invests like a girl, what they mean is that he invests calmly, does a lot of research, and exercises a lot of patience.2
Various studies of the styles of men and women investors have been done, and often find that while men are usually more confident in investing, women are more focused on goals and trade less.3 Every single one of those attributes can be a strength in moderation and a weakness in excess. Confidence is great, but too much of it isnt better; overconfident investors tend to trade too much. In one study, which looked at the investment behaviors of men—who are more likely to feel confident about investing—over a seven-year period, men traded 45% more than women.4 Trading reduced net returns for men by 2.65% per year, compared with womens trading costs of 1.72%. Thats a difference of 0.93% per year, and while that may not sound like much, thats a difference of almost 10% over a ten year period attributable just to trading. Patience—the quality that enables someone to buy a stock, or a fund, and hold it for a substantial period of time—is quite a virtue on stock markets. Patience and the discipline it takes to exercise it can be a significant source of performance in the long run, and women tend to have more of that when it comes to investing.5
When it comes to investing professionally, the idea that women don’t do it well is just as myth-like as it is for individual investors. A 2015 KPMG report noted that women-owned and -managed hedge funds have outperformed standard indices every year since 2007, when Hedge Fund Research Inc. started tracking performance by gender.6 Nevertheless, hedge funds run and managed by women have greater difficulty raising capital than male peers. A 2015 report from Morningstar showed that women-run mutual funds, while small in number, have comparable returns over 3, 5, and 10 years. Interestingly, Morningstar’s research showed that the mixed-gender teams outperformed those run by either men alone or women alone, which brings up another recurrent theme in the literature regarding gender: diversity is good.
Barbara Stewart’s article on the CFA Institutes blog site, Diversity in Finance: It Matters, points out that diversity matters in finance, as women are not so much risk averse and as they are risk aware, and ask different questions.7 Like many who have looked at the value of diversity, this article notes that diversity itself is a source of advantage and performance, not just in finance, but in any company. Diverse teams have higher collective intelligence than homogeneous ones, even when the homogeneous teams are made up of the best and brightest.8
Surprise! Not. Diversity, which is a source of resiliency and hybrid vigor in nature, can work in business as well. There are two genders, and both have useful qualities to bring to any endeavor.
The Pax Ellevate Global Womens Index Fund, managed by Pax Ellevate Management LLC, is the result of a partnership between Pax World Management LLC and Ellevate Asset Management LLC, whose principal is Sallie Krawcheck. Pax and Ellevate came together because they share the same vision about the critical role that gender diversity plays in business success over time, as well as the investment opportunity associated with investing in women. Pax has long been a recognized leader in investing in women and advocating for greater representation of women on boards. Ms. Krawcheck, one of the most powerful advocates for women in the financial services industry, is Chair of Pax Ellevate Management LLC and a trustee of the Fund.
1 Sallie Krawcheck, ”The Dated Myths That Keep Women from Investing,” LinkedIn, February 24, 2016.
2 Jenna Goudreau, “Warren Buffett Invests Like A Girl?” Forbes, June 27, 2011.
3 Georgette Jasen, “Male Investors vs. Female Investors,” The Wall Street Journal, May 3, 2015.
4 Brad M. Barber and Terrance Odean, ”Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment” The Quarterly Journal of Economics, February 2001.
5 Joachim Klement, ”Dumb Alpha: Dont Just Do Something, Sit There!” Enterprising Investor, October 4, 2016.
6 KPMG, ”Breaking away: The path forward for women in alternatives,” September 2015.
7 Barbara Stewart, “Diversity in Finance: It Matters,” Enterprising Investor, September 26, 2016.
8 Lauren Foster, ”Collective Intelligence: Three Factors for Building Smarter Teams,” October 4, 2016.