Transcript: Warren Buffett Invests Like A Girl

Published in Investing on 19 July 2011

David Kuo talks to LouAnn Lofton, author of the Fool's latest book.

You can listen to or download this podcast here.

 

David:

This is Money Talk, the weekly investing podcast from the Motley Fool.  I'm David Kuo, and to tell anyone, especially a man that they are doing something like a girl is not really advisable, that is unless you want to lose half your friends!  Just think about it, you don't tell a guy that he kicks a ball like a girl, nor do you tell him he throws a ball like a girl, or hits like a girl, you certainly don't do that.  So how did the world's greatest investor feel when he found out that the title of my guest's book is "Warren Buffett Invests Like A Girl?"  Let's find out from LouAnn Lofton, writer at the Motley Fool and author of "Warren Buffett invests like a girl" and she joins me all the way now from America.  Welcome to Money Talk LouAnn.

(Download a chapter of this book for free)

LouAnn:

Thank you David, thank you for having me.

David:

Well definitely, well I'm really looking forward to interviewing you today because talking to you gives me great pleasure, not only did you write a book about Warren Buffett, but you also met the great man, and this is probably about as close as I will ever get to Warren Buffett.  So, can you tell me, what did Warren Buffett think about your book?  This is the 81-year-old Warren Buffett, what did he think about your book?

LouAnn:

Well you know, when I was writing the book and people would hear the title they would always ask me, 'Does Warren Buffett know you've said this about him?  Does he know about this book?'  So, you know, I had a pretty good sense that he would know, that on one hand "investing like a girl" is a compliment, it's a very good thing and secondly, I know he has a great sense of humour about himself.  He's very self-deprecating; anyone that knows anything about Buffett can see that, so I felt like he'd take it well.  So, we sent him a copy of the book once it was done, and I even had a chance to ask him to his face out in Omaha at the Berkshire Hathaway annual meeting, 'Mr Buffett, do you think you invest like a girl?' and he said he'd probably plead guilty.

David:

So, how did you come about to meet Warren Buffet?  I mean how did that happen?  Did you buy that opportunity to have lunch with him?  Did you fork out that $1,000,000 to go and have lunch with Warren Buffett?  I'm sure you've made lots of money from your book so did that come from all the receipts that you got from your book sale?

LouAnn:

That would be amazing, but no, definitely not that exciting.  I was going to Omaha anyway for the Berkshire Hathaway annual meeting and when Buffett heard about the book, he invited me to a brunch and I had the chance to meet him there.  Then later that day, there was a press conference, this is the Saturday after the annual meeting, so that's where I had the opportunity to ask him in front of a roomful of reporters if he thought he invested like a girl.

David:

Can you remember what you had for lunch or just the opportunity to meet Warren Buffett was so awesome that you forgot what you were eating?

LouAnn:

Yeah, it really actually was.  I was so nervous.  I think I had some water maybe – I ate later.  I just decided I would just focus on Buffett and I would get my appetite together later in the day.

David:

Okay, now I'm glad to hear that Warren Buffett approves of your book, but what is it about Warren Buffett's style of investing that makes him girlish?

LouAnn:

Yeah, well with Buffett it's interesting.  I mean he really has a handle on his emotions and it sounds controversial to say that men are more emotional than women when it comes to investing, but I think the research is clear, they're driven by ego, they're driven by over-confidence, they take on too much risk.  They tend to trade too frequently.  One study I cite in the book found that men traded their accounts 45% more than women did and with Buffett what you see is really the opposite of that.  It's the opposite of what we really see out of Wall Street – I mean this frantic trading, very competitive, ego driven.  Buffett only invests in companies that he understands, he holds onto them forever, he's always said his favourite holding period is forever and he's risk adverse.  When he is investing in a company he does all his research, he makes sure he understands it and he holds onto it and these traits are ones that women investors tend to have.  They tend to be longer term and more patient.

David:

But the thing is, you're making it sound very easy to invest like a girl, but how do we control men's emotions?  I mean how do we turn impulsive traders into patient investors?

LouAnn:

Yeah I mean it's certainly not easy, I understand that for sure.  My first piece of advice would be to stop viewing investing as a game or as a gamble.  Stop seeing it as a way just to keep score and compete with your fellow man, or woman.  Secondly I would say, don't try it on hot stock tips, don't buy things because someone has just told you that this company is the next big thing, you just see some ticker symbol and you've no idea what it does.  Think about... again, we go back to Buffett and these companies he's invested in, Coca-Cola, GEICO, Washington Post, these are all things that are easily understood.  I think that's critical for investors to ask themselves before they hit that little buy button on their brokers website, or make that phone call, do I know what this company does?  Do I know how it makes money?  If you can't tell me those things then do not invest in it, just stop, become long-term, stop thinking short-term.

David:

Now, one word you mentioned earlier on in this podcast is over-confidence and you deem that to be bad in some ways, why is over-confidence bad?  Surely, people should be confident when they are buying shares.

LouAnn:

Well you know, it's interesting, the studies about how men kind of invest versus how women tend to invest, the word "over-confidence" just rears its head again and again.  Men tend to be more over-confident than women when it comes to investing.  I mean quite simply they think they know more than they actually do.  We always joke about men not wanting to stop and ask for directions when they're lost and actually, that is not a bad analogy when it comes to investing.  They're just less likely to want any help at all, or to believe that they need help, whereas a woman tends to be less confident in her investing prowess.  That definitely can sound like a bad thing, but what that does is it makes a female investor do more research, it makes her consider what she's doing, take it more seriously and consider it more fully and really make that commitment to when you're investing in a company and holding on.  There's a study I cite in the book from Vanguard that looked at the activity of almost three million IRA accounts during the market panic of 2008, we all remember what a scary time that was.  It found that men were more likely to panic and sell at the bottom than women were.  Women had this ability to hold on through thick and thin, and I think over-confidence is a part of that, that the men probably figured they knew what was going to happen in the market, they were thinking very short-term, and as a consequence, they made some bad decisions I would say.

David:

Is there any point in time when we turn from being confident to "over-confident"?  I mean can we map that point in time out so that people know that they've actually gone from being just a confident investor to somebody who is over-confident.

LouAnn:

Yeah, I mean it's tough to nail down, but I think one step would be ... again, like I said, make sure you really understand before you pull the trigger and buy stock.  Make sure you can explain what the company does.  Does it have a competitive advantage?  Is there a mode around the business?  Coca-Cola has an amazing brand, that's an example of a mode, right there.  How does the company stack up against its peers?  What's the competitive landscape for going forwards?  If you can't explain those things, if you can't give me the kind of elevator pitch about a company then why are you investing in it, that would be the question.  If you really want to buy something but you don't know why then I think you should start considering maybe this is a time where I've become over-confident and a little too risk, I'm trading a little too much, taking too much risk.

David:

You're almost describing my investing style LouAnn!  I jest; I don't invest like that at all.  The thing is, we've spent a bit of time bashing men over the head with a rolled up newspaper, so what can women learn from men?  Is there anything that women can learn from men to become better investors?

LouAnn:

Absolutely, I definitely think so.  I think women can learn to take action from men.  I mean what we see is that men take a lot of action in the stock market, too much in fact, but I think more women do need to be begin investing and begin learning about this.  Here in America, I'm not sure if it is so in the UK, but here we're not paid as much as men are over our working lifetimes, we tend to live longer, so women have this situation where they're making do with less money for a longer period of time.  It's really incumbent on them to take action, to start investing today, don't put it off.  Begin learning about this today and that's something men aren't scared to start doing that.  They'll just jump right in.  I mean I'm certainly not suggesting that female investors start kind of trading willy-nilly, but I think you do need to really become an investor, sooner rather than later, for your own financial wellbeing, security and independence down the road.

David:

And what is your feeling about competitiveness because men are ultra-competitive, whereas women I presume are less competitive than men.  So do you think competitiveness is a good trait or a bad trait to have?

LouAnn:

Yeah, it can lead to some bad things.  Honestly, I mean if you look at testosterone that's the male hormone and we have... As women, we have about 10% of what you all have and testosterone can make people aggressive, it can make them competitive.  When you look at what that does, particularly in groups of men, it's really interesting the environment affects testosterone and it makes it go up in groups, particularly of young men, because they are competitive with one another.  They're trying to outdo the next guy, you know, trying to out-trade them, out-compete them.  I think if you look at what happened, in some part what led up to happening in 2008 and 2009, you did see a lot of that behaviour, a lot of unnecessary risk taking.  A lot of that was driven by competitive nature.  I mean you do need to be somewhat competitive, obviously, to be an investor you need to have some of that, but I think too much of it and too much of it just completely unchecked can lead us to some pretty bad places.

David:

Yeah, and I think testosterone also makes men grow beards and moustaches, so it's quite reassuring to hear that women don't have a lot of testosterone, because to actually see women with a full beard is actually kind of off-putting at times.

LouAnn:

Yeah, but you'd have a career in the circus.

David:

The bearded lady!

LouAnn:

Open up a whole new world.

David:

Okay, I'm going to ask you a very difficult question, and that is as someone who has worked at The Fool and has written for The Fool, if you had to attach a gender to the Motley Fool would you say that the Motley Fool should be dressed in pink or blue?

LouAnn:

I love that question, that's hysterical!  I would say, I think I'm going to have to go pink here.  I mean if you look at what we stand for we are long-term investors, we believe in analysing companies.  We believe in buying quality companies.  We believe in understanding what it is you're buying.  We believe in being prudent, not taking a lot of risk and having your financial situation nice and secure, really taking those steps and thinking for the long-term, really having that outlook. Then to me, you know, that sounds a lot like Buffett and it also sounds a lot like how females tend to invest.

David:

Okay.  I'm going to ask you a slightly personal question, I hope you don't mind, but ...

LouAnn:

Sure!

David:

No, no, no, please don't step away from the telephone and the microphone – what I want to know is in 2008, investors were running around like headless chickens, following the banking collapse, what were you doing at that time?

LouAnn:

Right, we all look back and remember how it was so frightening, that September 2008, and I was doing what I think more investors should have been doing.  I was doing what Buffett was doing, which was I was buying stocks.  It was really difficult to kind of find that fortitude within myself to actually do that, but when the market ... I remember, Lehman filed for bankruptcy on Monday and on Tuesday, I placed my buy orders.  They were companies I already owned, it was Chipotle, Chesapeake Energy and Apple Computer, I already had shares of them and I knew I liked those companies and I understood them so I bought more shares.  When they inevitably tanked, what I could not have foreseen was that it was going to get a whole lot worse but I did not panic, I did not sell, I mean I bought my stocks – Buffett always said be fearful when others are greedy and greedy when others are fearful and that was a really fearful time.  I'm happy to say that, you know, I think I had the right temperament at that time and I did the right thing, which was to be out buying stocks and holding onto them.

David:

Did you not heed the warning at the time, everybody was saying, 'This time it's different.  This is not the same as any other banking collapse?'  So surely this should have sent alarm bells wailing really in everybody's head saying this time it's different and we know that it's different because three years on from that the world still hasn't recovered yet.

LouAnn:

It definitely ... I mean yeah, I absolutely believe that, but you know what I also think is that we're going to have great companies for the long-term you have to just have that point of view and really look at it from the bottoms up perspective.  People are going to be eating burritos, some people are going to be drinking Coca-cola and buying clothes, buying Apple products, iPhones, and computers and I believe that if you can find good companies with great economics these are the things to invest in, even when you're absolutely right, it's really scary.  I just tuned all that stuff out frankly, I went with what I knew, which is I know these companies well and I'd like to own more shares with them.  It's going to be a long road back, times are touch and you're right, we're still coming out of it, but I have that long-term mentality and that got me through it.

David:

So, what about now then LouAnn?  I mean is it right to be fearful now, given the debt chaos we have in Europe, the economic slowdown in America and the ranging inflating we have in the east?  There is nowhere that is safe – should we be greedy now or is it a time to fight or flight?

LouAnn:

Yeah, it is scary out there.  I mean every day, reading the headlines it seems like there's something new, but what's interesting is if you look back at Buffett's career he's often said that times of pessimism are the best times to invest.  Those are real opportunities for true value, for true long-term investors and I would just encourage that again, you know, keep a shopping list basically of the companies that you're watching, that you're interested in, that you want to invest in and when they go on sale, for whatever reason.  If you still believe in the company, I think that's the time to buy.  I don't believe in getting scared out of the market at all.  I think trying to time things like that is not smart for the long-term, you'll look back and you'll really kick yourself that that happened.  I mean I'm sure the people that got out, sold everything at the bottom, in the fall of 2008, now wish they hadn't.

David:

Yeah.  Well, I'd like to end today's podcast LouAnn with another personal question.

LouAnn:

Sure.

David:

Please step forwards towards the microphone.  I would like to know what is the biggest investing mistake you have ever made and what did you learn from that?

LouAnn:

I can give you two!

David:

Two?

LouAnn:

The first one ... I'll give you two, I'll fess up to two!

David:

Okay.

LouAnn:

The first one is buying Allied Irish Banks, which I'm sure you're familiar with.

David:

Yes, I'm familiar with that.

LouAnn:

Yeah, I bought that stock, I mean I did my research and I believed that was a stock that at the Motley Fool we were all talking about and it seemed that somehow what they were doing was different than what all the other banks were doing.  They weren't as susceptible to a lot of the pressures that were coming on and I bought it – I think I should have learnt more about it.  I felt like I had done my research, but looking back I don't think I fully understood international finance and banking and I will say, that's also a mistake that Warren Buffett himself made.  He actually bought the same stock and saw it drop 98% just like I did, and he sold, I sold, it wouldn't come out until later that Buffett had actually owned that stock, but I felt a little bit better.  I thought okay, well that was a very painful lesson and I felt like I wasn't alone in that.  The second mistake I would say, going back to what we were just talking about in the fall of 2008, I should have bought more stock, honestly I should have gone back in when the market dropped and bought more of those companies. That's something that as investors we have to learn to work on is really controlling our emotions, controlling our temperament, getting brave, getting greedy when people are fearful, so that's something I plan to address.  We'll have market panics again; they're not going away anytime soon so I hope to be able to do better next time.

David:

So when do you think the next collapse is going to be LouAnn?

LouAnn:

Oh gosh, don't ask me that, I don't know!

David:

Does your feminine intuition give us any inkling as to when the next collapse is going to be?

LouAnn:

No, gosh.  I think that's something I can't answer.  If anyone says that they can answer that I don't know that I would really give it that much weight.

David:

Yeah, that is a great answer and I want to thank you so much LouAnn for chatting with me today.  I wish you every success with the book, which by the way, will be available in the UK now.  There are just two things LouAnn I need to do before we end today's podcast.  The first is to give away a free chapter of your book – yes, a free chapter of your book.  All you need to do to get the free chapter is to go to fool.co.uk/girl

My second chore LouAnn, is to find a quote to sum up today's podcast, and today's quote, you may be familiar with this, it comes from Rita May Brown who said, "If the world was a logical place, men would ride side-saddle" I think that kind of makes sense doesn't it, I've never ridden a horse so I wouldn't know.

LouAnn:

That's funny, I like it.

David:

Well thank you very much LouAnn for joining me today.  I wish you, like I said, every success with the book and I'm sure you'll be doing loads and loads of interviews to promote your book.

LouAnn:

Thank you David, I appreciate it.

David:

OK, so this has been MoneyTalk, I have been David Kuo and my guest has been LouAnn Lufton, author of "Warren Buffett Invest Like A Girl".  If you have a comment about today's show, please post it on the Money Talk webpage, which you can find at fool.co.uk.  If you have a suggestion for future shows please email me at moneytalk@fool.co.uk.  Until next week, have a great week everyone.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

BarrenFluffit 19 Jul 2011 , 11:11am

So basically the idea is that WB is very different psychologically to most other investors and some of his success is down to the issues that behavioural finance talks about.

ScottishPound 19 Jul 2011 , 11:24am

Stay calm, make the right decisions and do nothing when doing nothing is the right decision.

i.e nothing to do with gender.

shinygoldcar 19 Jul 2011 , 12:02pm

He actually bought the same stock and saw it drop 98% just like I did, and he sold, I sold, it wouldn't come out until later that Buffett had actually owned that stock, but I felt a little bit batter.
I suppose if I had lost 98% on a share then I might be tempted with a trip to the chippy! :-)

atalbot9 19 Jul 2011 , 4:14pm

"he invested me to a brunch"

hehe investing on the brain...

shinygoldcar 19 Jul 2011 , 4:41pm

btw, I did enjoy the podcast, so thanks again. I'd agree that there is some truth in this, but it's not everything. If it was, shouldn't we have lots of girls amongst the most successful investors?

klndp 20 Jul 2011 , 10:39pm

@shinygoldcar -

"shouldn't we have lots of girls amongst the most successful investors?"
Maybe we do have, but lacking testosterone they don't shout about it ....!

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