In this excerpt from Warren Buffett Invests Like A Girl, And Why You Should Too, writer LouAnn Lofton talks about the leadup to the recent U.S. financial crisis. Her book looks at why women investors — and Warren Buffett — outperform the good ol' boys of Wall Street.
It must be said that the majority of traders on Wall Street, the majority of board members at financial companies, and the majority of executives at investment banks share one very notable quality–a Y chromosome. Wall Street, at least at the top, at least when it comes to decision making and the power to affect things, is still a boys' club. And while homebuyers, both male and female, share the blame for the financial crisis, it was primarily men running the big money on Wall Street who exported the problem and made the situation exponentially worse.
Sure, there were a handful of women to be found on Wall Street in positions of power. Erin Callan, chief financial officer at Lehman Brothers in the heady summer of 2008, comes to mind (although it must be pointed out that she came into that position in September 2007, well after a big chunk of the leverage at the firm had been piled on). But by and large, it was, and it remains, a man's world.
So-called "feminine" qualities like relationship building, patience, and collaboration were markedly absent during the most recent market mania. Had there been more of that temperament around Wall Street, and indeed more women on the trading floors and in the boardrooms, it's possible things wouldn't have turned out as they did. And if things hadn't turned out as they did, we would all have larger portfolios and fewer sleepless nights by this point.
Men, you've got some 'splainin' to do.
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.
Luckily for all of us, we have an outstanding model to guide us in the search for the desired investing temperament: 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. His temperament, that which defines him and makes him the master investor he is, is more feminine, if you will, than masculine.
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. Buffett'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.
Excerpted from Warren Buffett Invests Like A Girl, And Why You Should Too: 8 Essential Principles Every Investor Needs To Create A Profitable Portfolio, by LouAnn Lofton. Copyright 2011 by HarperBusiness, an imprint of HarperCollins Publishers.