Today is International Women’s Day and it made me think of a very interesting article I came across from Bloomberg Gadfly titled “The Next Warren Buffett Will Be a Woman”. Some of the arguments include:
A 2010 study by Vanguard showed that men were more likely to panic and sell stocks in a financial crisis
A University of California study showed that men are more overconfident than women which leads to more trading activity and worse performance compared to women
A Boston Consulting Group study noted that “women are more intent on understanding the risk-return profiles of investments…” and “…are less likely to be distracted by short-term performance”
A 2017 research study found that higher testosterone levels reduced the ability to make cognitive decisions and were more likely to act on impulses
Buffett’s style of investing is synonymous with “patient”, “cautious” and “long-term” which are qualities considered consistent with most female investors. This isn’t to say that all men are irrational and quick-triggered investors, but we should pay more attention to how women invest and work to promote their representation in the investment industry. The harsh realities are that the number of women in this industry is too low and the playing field isn’t fair. About 90% of mutual fund managers are men and only 2.5% of all mutual fund assets are managed by women. According to Morningstar, women are more likely to manage passive index funds and fund-of-funds compared to an active fund, which offers less of an input on investment decisions. There was a study published last year that showed that women had a 9-10% higher chance of losing their co-manager job of a mutual fund compared to their male co-manager (and this wasn’t due to leaving work for child birth). Did you know that only 11% of the S&P 500 companies have at least 1/3rd of their board seats held by women?
Why has the investment industry been slow to gender inclusion?Changing societal norms can take time and the catalyst of the Women’s movement didn’t occur until the 1960’s. Consider how long it took for civil and LGBT rights to be recognized in this country. Growing up, the depiction of CEOs, bankers and investment managers were always clean-shaven men with nice suits with women in supporting roles. The image of Michael Douglas in Wall Street or Leonard DiCaprio in Wolf of Wall Street is what comes to mind. As women have moved up through the ranks and joined board rooms these images are changing rapidly. We serve an ever-increasing number of very successful women who run companies or founded businesses. These women are leading the change in societal expectations of gender roles. One client owns a product manufacturing company in a gritty part of Cleveland and at the age of 90 she is still creating new products and leading the company.
We have learned from the demands of Millennials and Gen X clients to place an emphasis on investing in companies that have good corporate governance practices and promote diversity. This trend will continue to increase over time and will soon be standard practice across all investment models.
Why is it important to have inclusion and diversity?Well for one, it is the right thing to do. We want the best possible candidates for any job position, but our industry has a long way to go. Women represent only 10% in the investment industry, which is low compared to law (36%) and medicine (33%). Greater inclusiveness is also good for business. A recent report from Bank of America showed that companies that had more diversity among its managers had lower share price volatility and lower earnings volatility, while having higher returns on equity. Having a diverse Board of Directors increases the odds of having “…diverse opinions and ideas, and better help the company compete and adapt to changes in the industry”. The ability to adapt and change to trends in society is so important for any business and the ability to do so is increased with broader diversity and inclusion.
I am happy to work for a company that employs women in positions and titles of Principal, Portfolio Manager and Financial Planner. Breaking the typical workplace mold is not easy and may be uncomfortable in certain industries, but I think we can start by encouraging, promoting and listening to women in the work place. The investment industry is a good place to start. Some of my best stock ideas were suggestions that my mother recommended to me. Maybe it was luck, but I am still a believer that “Mother knows best”.