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16 December 2020
There’s an interesting story near the end of Rocket Boys, Homer Hickam’s 1998 memoir of his boyhood in 1950s West Virginia doing experimental rocketry. Hickam’s mother tells his father that she is leaving him, moving to another house that she is buying. The father asks where she got the money. The stock market, she says. ‘What, coal and steel stocks?’, he replies, incredulously. It turns out the mother has been talking to a broker in New York for years, cleverly investing in high growth companies, including, it would seem, Johnson & Johnson, because of Band-Aids. ‘I watched what worked with the boys and bought the stock’.
Two lessons to be learned
We like this story because it illustrates two important lessons of the investment game. Firstly, the importance of investing in what you know rather than in something you don’t really understand, something Peter Lynch stresses in his 1989 classic One Up on Wall Street. If you’ve tried the product and you like it, the stock might be for you, says Lynch. He found many, many great companies that way for the Magellan Fund.
The second lesson is that women can be great investors. Back when Elsie Hickam was building her portfolio, investing was more or less a man’s game. The New York Stock Exchange didn’t have a female seat holder until 1967 and that was only after its purchaser, the late and legendary Muriel Siebert (1928-2013), had to ask nine men before the tenth agreed to sponsor her.
Fewer trades and less risk-taking
It turns out that women are better investors than men. In 2017 the Boston-based fund manager Fidelity surveyed a large cross section of its client base – like, more than eight million accounts – and found that the female account holders not only saved more than men (9.0% of their income versus 8.6%), but their investments also earned more annually (6.4% versus 6.0%).
Why did women do better? They tended to trade less and therefore didn’t deplete their portfolio with transactions costs. And they tended to take less risk. Interestingly, it’s not just Fidelity that found an investing advantage for women. A 2001 study by researchers at the University of California, Berkeley headlined ‘Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment’ found more or less the same thing. As did a 2018 survey by researchers at Warwick Business School in the UK.
So how can women join the investor’s club and start to tap their superior talent?
The first step is to recognise that they can do it. At the moment we suspect some great future female investors may be lacking in confidence a little. The same 2017 survey from Fidelity we cited above found that fewer than 9% of respondents said they thought women were better investors than men.
The second step is to build your support network. Elsie Hickam had her broker in New York. You can get hold of quality research, like what we do at Stocks Down Under. And there are women-only investor clubs that you can join.
The third step is to set aside some time to learn. In their 1996 book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, Thomas Stanley and William Danko found that the time required wasn’t all that long – maybe an hour or two a week – but that it had to be consistent. Okay, most women these days are super-busy, but the returns can be more than worth the time. A typical Stocks Down Under article is a five-minute read and we’re pretty sure that can fit into your schedule.
The fourth step is to do your homework, Peter Lynch-style. There are some great stocks that women will understand a heck of a lot better than most men. Take Lovisa, the jewellery retailer (ASX: LOV) as a good example. Whenever one of us goes past a Lovisa store we notice it’s full of women and hardly any men. There have been times when this stock has been great buying and it would be women who would sense the change ahead of men by a long shot. We believe women would have spotted Afterpay (ASX: APT) sooner than men. Or Temple and Webster (ASX: TPW). Or Starpharma (ASX: SPL). And so on.
So, ladies, what’s holding you back? You know you can do it. Get started. Preferably with the help of the team at Stocks Down Under. We look forward to helping you on your investment journey!
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