The Secret to Warren Buffett's Investing Success

Last Updated Jul 13, 2011 3:12 PM EDT

Warren Buffett has been called a lot of things: a genius, a rock star, "The Oracle of Omaha," but probably never a girl -- until now. Louann Lofton's new book, Warren Buffett Invests Like a Girl: And Why You Should Too, levels just that charge at the legendary investor. However, unlike the taunts issued on elementary school playgrounds, Lofton means it as a compliment.

"Doing something like a girl should not be an insult," Lofton told CBS MoneyWatch Editor-at-Large Jill Schlesinger in a studio interview last week. "When it comes to investing, studies show that women are just better at it. We're better at controlling our emotions -- which I know sounds controversial -- but men actually tend to trade too much. They take too much risk. They get caught up in the game and gamble of investing."

While Lofton, who serves as the Managing Editor of Online Content at The Motley Fool, began writing her book before the recession, the instability that rocked markets in 2008 and 2009 only underscored her thesis. "Men panicked more than women and sold at the bottom of the market in the fall of 2008," she says. Conversely, "Women tend to be more realistic. We don't get caught up in all the hype and the hoopla and the optimism. Optimism is a great trait in many of aspects in your life, but when it comes to investing, it can make you not question what you are doing enough, accept what other people say, and trade and buy stocks you don't fully understand. I think women just tend to have a clearer eye -- as does Mr. Buffett -- when it comes to investing."

It is this temperament, Lofton argues, that sets elite investors apart. Buffett, who once famously said "be greedy when others are fearful, be fearful when others are greedy," sat on a $44 billion cash reserve before investing $20 billion of it in Goldman Sachs and GE near the bottom of the market in 2008. As Buffett's track record -- Berkshire-Hathaway averaged a 20.2 percent annual gain in per-share book value between 1965 and 2010 -- suggests, the ability to be patient, ignore peer pressure, and invest for the long-term -- all feminine traits, according to Lofton -- can be advantageous to your portfolio. The New York Times recently reported that the value of Buffett's personal stake in Berkshire-Hathaway grew more than 16 percent this year to $46.17 billion (a figure that eclipses the $33 billion stake in Microsoft Bill Gates held in 2003).

Gains like these are not reserved for Buffett alone. Women, who Lofton says naturally demonstrate the cool head Buffett is so famous for, have done quite well in spite of the recent economic downturn. Compared to an average decline of 19.03 percent during the downturn, female-run hedge funds declined just 9.61 percent, according to Chicago-based Hedge Fund Research (HFR). Indeed, over the last nine years, HFR found that female fund managers have outperformed their male counterparts by 55 percent, delivering an average annual return of 9.06 percent compared to an overall average of 5.82 percent. The sample size is rather small, however -- estimates are that only three percent of the money invested in hedge funds is managed by women.

This imbalance has consequences. "I really believe that if we had more women involved -- I'm not saying that we can eliminate booms and busts -- but I think things would have been muted," says Lofton, discussing the financial crisis. "I think that the presence of estrogen, believe it or not, would be good and would help tamp down some of the emotion that raging testosterone brought to the markets."

The number of women in business is getting larger each year, however. Though a noticeable gulf in MBA enrollment still exists (women made up 36 percent of the Harvard's 2011 MBA class), that gap is beginning to close. According to data from the Graduate Management Admissions Council, 105,900 women took the GMAT exam required to enter business school in 2010, up more than 30 percent since 2000. "I really feel that people are starting to come around to this point of view and realize that there is a real place, a real need, frankly, for what women bring to the table," says Lofton.

What, exactly, would gender parity look like? "It probably wouldn't be as exciting," Lofton says with an easy laugh, "But I think we would be a lot richer for it and we would have a lot less heartburn." Zantac users, take note.

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  • Claire Lambrecht

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