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August 8, 2011

Staff Picks: Invest Like a Girl

By: Dylan Schleicher @ 7:27 PM – Filed under: Management & Workplace Culture

634 points. That is quite a dramatic drop. How should we react? How can we react? LouAnn Lofton has some sound advice: Invest like a girl. In the first chapter of her book, she recalls the panic that swirled around the 2008 financial crisis and one man's reaction to it—a reaction that provides a good lesson for us today (and for when markets open tomorrow):
Through it all, a man sat far removed from the hubbub of New York City and Washington, D.C., in the Midwest, in quiet, placid Omaha, Nebraska. He watched, as he'd watched so many times before, as the world was seemingly coming to an end. He heard the shrill voices on the TV and even he probably couldn't escape the daily, even hourly, deluge of photographs of Wall Street traders looking horrified, frazzled, or just plain resigned to it all.

Then, 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 billion to work in companies like Goldman Sachs and General Electric. It took courage, fortitude, and an ability to look past the current crisis to the eventual recovery of American business and the world economy.

It took the right temperament. Warren Buffett, our man in Omaha ... didn't panic and sell. He remained calm, and he assessed the situation. And when he did, he acted from a place of certitude, backed up by years of experience. He encouraged others to do the same, reminding them that we'd been through tough times before and we'd come out ahead each time. He also reminded investors that the best time to buy stocks was when everyone was fleeing the market, leaving bargains galore ready for the taking. [...]

The only thing I disagree with her on is the crazy idea that Omaha, Nebraska is in the Midwest. (I believe Meghann Marco settled this matter in 2006 when she penned her classic States I Refuse To Acknowledge As Midwestern.) Lofton's Warren Buffet Invests Like a Girl: And Why You Should, Too tells the story of the Sage of Omaha, and stresses that the right temperament is crucial for investing success. And she makes the case that the right temperament is one that is far less testosterone-fueled than the one so prevalent on Wall Street. And, after making the case that the more traditionally macho temperament of Wall Street is largely to blame for many of the problems our markets face today, and is not good for the long term stability of individual portfolios, she delves into the research on investing patterns and tendencies.

Studies have shown that women have a different approach to investing than men do. They think long-term and don't trade as much. They eschew risk more than men do. They're better able to think for themselves and not bend to peer pressure. And they have much less testosterone, which affects markets in ways we are still discovering, thanks to new developments in the field of neuroeconomics. The way that women tend to approach investing is healthier and calmer, and it's the way we should all approach investing, both men and women alike.

Lucky for all of us, we have an outstanding model to guide us ... Warren Buffett. When compared to the research on men's and women's investing styles, and the differences between them, Buffett's investment style looks very similar to those strategies employed by women. [...]

And if there's any doubt as to the validity of this style and temperament versus something a bit more, say, macho, allow me to point you in the direction of his returns versus those of the investment houses on Wall Street in 2008 and beyond. Buffett's been Buffett for decades, building his wealth over time, while the boys on Wall Street destroyed theirs—and ours, too!—in just several short months. Buffet's compounded annual book value gain has been more than double the return of the S&P 500 for more than forty years, while they dashed our 401(k)s and sent the economy into a spiral.

There can be no question as to which is the more sustainable path, which is the smartest way to create wealth over the long term, which is the best way for us—for all of us—to invest for a bright future. It's time for a change. It's time to embrace the feminine.

It's time, quite simply, for all of us to invest like girls, right alongside the greatest investor of all time, Warren Buffett.

With the markets as jittery as they are right now, the best thing we can do as individuals to counter the panic is to remain calm—act as investors rather than speculators. Lofton lays out eight essential principles that research shows are tendencies of women investors that can help help us all accomplish that.

About Dylan Schleicher


Dylan Schleicher has been a part of the 800-CEO-READ claque since 2003. Even though he's stayed on at the company, he has not stayed put. After beginning in shipping & receiving, he joined customer service and accounting before moving into his current, highly elliptical orbit of duties overseeing the ChangeThis and In the Books websites, the company's annual review of books and in-house design. He lives with his wife and two children in the Washington Heights neighborhood on Milwaukee's West Side.