Did you know women are better investors than men?
It’s true! And here are a couple of the reasons women tend to outperform men with their investments:
- Women tend to trade less frequently than men. The investing confidence of men can prompt more frequent trading. And there is a negative correlation between returns and frequent trading. A classic study in the Journal of Finance, “Trading is Hazardous to Your Wealth,” by Brad M. Barber and Terrance Odean studied 66,465 households. The results showed that frequent traders accounts, on average returned 11.4%, while the market returned 17.9% during that same time. To be a better investor, trade less frequently.
- Women save more on average. Fidelity found that women typically saved 9% of their salary, compared with 8.6% saved by men. It stands to reason that if you save more and earn higher returns, like women, you’ll come out ahead with your investments.
- Women educate themselves about investing. Feeling more insecure about investing has a benefit for women who invest. Those women are more likely to learn about investing, and therefore will often make smarter decisions, leading to greater returns.
- Women allocate their portfolios more appropriately. Fidelity found that men over weighted their portfolios towards greater stock allocations, while women created more diversified and balanced portfolios.
- Women are willing to ask for help. Ultimately, women tend to educate themselves, plan and act deliberately when it comes to investing. The only disadvantage to this style is that women’s lack of investing confidence can cause them to avoid the stock market, one of the best long-term wealth building strategies available.
So let’s educate ourselves by looking at one of the most successful investors, Warren Buffet. But who exactly is Warren Buffett? Buffett is one of the wealthiest people in the world. He made his fortune in the stock market and, since 1970, he has been the largest shareholder of Berkshire Hathaway, a conglomerate holding company.
I adore Warren Buffet, his sage investing advice and philosophy. To quote him, “Successful investing takes time, discipline and patience. Price is what you pay. Value is what you get.”
Let’s take a look at his investment strategies and how to apply them today in this Pandemic-Induced Recession.
Undoubtedly one of the most-respected investors ever, Warren Buffett’s recipe for success is simple. It boils down to:
- Buy businesses, not stocks. In other words, think like a business owner, not someone who owns a piece of paper (or these days, a digital trade confirmation).
- Look for companies with sustainable competitive advantages, or moats. Firms that can successfully fend off competitors have a better chance of increasing intrinsic value over time.
- Focus on long-term intrinsic value, not short-term earnings. What matters is how much cash a company can generate for its owners in the future. Therefore, value companies using a discounted cash flow analysis.
- Demand a margin of safety. Future cash flows are, by their nature, uncertain. To compensate for that uncertainty, always buy companies for less than their intrinsic values.
- Be patient. Investing isn’t about instant gratification; it’s about long-term success.
Warren Buffett’s investment strategy consists of identifying undervalued stocks and holding them for the long-term. Buffett prefers the buy-and-hold strategy, a passive strategy that avoids being influenced by short-term oscillations. This may lead to a stable portfolio and can have a better value as the stocks are owned for the long-term.
Since the Coronavirus pandemic, stocks all around the world of several sectors and industries plunged. Considering Buffet’s recipe for success, this may be the best opportunity to implement his strategy of investing in undervalued stocks.
If you are seeking additional financial education, tune in for my Women Talk Finances Happy Hour.