Valuation-Informed Indexing #187
by Rob Bennett
As a general rule, men and women approach investing differently. There are of course many cases in which the approaches generally favored by men are employed by women and many cases in which the approaches generally favored by women are employed by men. Still, as a general rule, women and men do not employ the same perspective.
At this year's Sohn Investment Conference, Dan Sundheim, the founder and CIO of D1 Capital Partners, spoke with John Collison, the co-founder of Stripe. Q1 2021 hedge fund letters, conferences and more D1 manages $20 billion. Of this, $10 billion is invested in fast-growing private businesses such as Stripe. Stripe is currently valued at around Read More
Men are more concerned about obtaining the best possible return.
Women are more concerned about avoiding risk.
Men are more pro-stock. Men are more enthusiastic over Buy-and-Hold strategies.
Women are more skeptical of the claims of investing experts. Women are uneasy with mechanistic, numbers-oriented arguments. Unfortunately, women also tend to be deferential to those who make the numbers-oriented arguments they distrust. Women often keep their doubts to themselves because they don’t enjoy the investing game as much as men and so they don’t study investing as much and so they don’t feel they have as much of a right to speak out.
My views are more in tune with the views of the typical woman. Not surprisingly, my web site has attracted women to a greater extent than men since the day I put it up. The investing field is a largely male field. Buy-and-Hold is a largely male strategy (although, to be fair, Buy-and-Hold is less of a male strategy than any other strategy that I know of that has gotten a big push from Wall Street — Buy-and-Hold was very much a step in the right direction). Valuation-Informed Indexing retains the male-oriented elements of Buy-and-Hold that have stood the test of time. But it adds elements that appeal more to women and that turn off lots of numbers-oriented males.
It’s that valuations thing!
It might be that we shouldn’t even refer to “valuations.” Whenever we talk about valuations, what we are really talking about is investor emotions. Why do you think it is that most in this field would rather we talk about high P/E10 values and low P/E10 values rather than fear and greed and hope and love and shame and guilt, the emotions that cause P/E10 values to head upward or downward? It’s because most of the people working in this field are men! They don’t want to hear about that yucky emotional stuff. Turn it into a number or don’t come to the table! We crunch numbers here! We’re men!
That’s why the opportunity for advancement is so great. We’ve been tuning out discussions of investing emotions for decades without knowing that we were doing it. Men often do not even speak the same language as women. They kinda, sorta get the idea being advanced. But they don’t feel comfortable engaging over emotional stuff. They patronize people making points that very much need to be seriously considered.
Shiller himself is guilty of this. I laugh when I re-read his book because he tries so hard to reduce everything to numbers. He is always taking surveys to prove his points and looking at data and research and graphics and all this sort of thing. I understand why. He has noted that most in this field treat those who venture into the emotional realm as “unprofessional.”
Too bad, you know? The darn investors are unprofessional! They do things that don’t make sense for emotional reasons. If we want to understand investing, we need to understand the darn investors. And it just turns out that most of them are humans! Such a drag.
Shiller’s wife is a psychologist. He has noted in interviews that she played a big role in causing him to ask the questions he has asked that have changed the world of investing analysis in a very positive way. Perhaps she is the one who should have been given the Nobel prize!
I was at a picnic one time and I got to talking to a woman about investing. She showed interest, so I kept going deeper and deeper. Eventually, I was telling her about the crash that was coming and all this sort of thing (this was before the 2008 crash). Her tongue was just about hanging out as I quoted the numbers and the research from which they are derived and the reaction that I have seen from most Buy-and-Holders to the numbers. Eventually, we parted ways.
About an hour later I passed by her husband and he gave me this look. My guess is that there had been discussions about stocks in that family long before that picnic conversation took place. The wife had long been concerned about the price of stocks. But her husband told her not to worry about it, he was listening to what the experts said and all was going to be fine. She had been keeping her mouth shut in deference to the experts but now someone was telling her that she was right all along in her misgivings. The husband was not thrilled with this development. I was a trouble-maker.
It’s not my intent to upset happy homes. My concern, though, is that women’s intuition is a real thing. There are things that don’t come out in the numbers. There are things that we know on some deep level that we don’t know with sufficient clarity to explain well. We need to have discussions about those concerns to figure out what they are about and whether they are on the mark or not. In this area, we rarely have such discussions because they are just too darn threatening. We would rather ignore the unease than give serious consideration to the idea that we are making terrible mistakes with our retirement money.
I have seen studies showing that it is men who are on the mark. You have to take risks to earn the sorts of returns you need to finance a solid retirement. Those who worry too much about risk only hurt themselves.
But what if most of the losses come at one time, in a big crash? Then risk would look like it didn’t matter so much for a long period of time. Until the day came when it came to matter so much more than just about anybody expected. And it would take decades to recover from the hit.
Both men’s and women’s minds are strong at perceiving different important things. Women’s minds see the risk that doesn’t reveal itself in the numbers until its too late to do something about it. So sometimes we have to be open to hearing non-numbers-based arguments.
Rob Bennett has recorded a podcast titled The Stock Market — A Respectable Ponzi Scheme. His bio is here.