Value Investing and Women: A must read for every investor!

value investing

The stock market is as elusive as the most beautiful woman to ever exist. Understanding women can be one of the biggest assets for you as a value investor.To make sense of markets using value investing principles you need to look at the world through the lens of a woman genetically blessed with true beauty as compared to a man.  Biologically a woman needs to find a suitable life partner to complete her biological goals to survive and replicate. This biological hunt poses her with two fundamental problems –

  1. How to find the most suitable guy who will take care of her and is the right match from the thousands of guys who will approach over the years?
  2. The cost of making the wrong choice can lead to a lifetime of unhappiness and may even be life-threatening to her and her future offspring.

Similarly, as an investor, it is your aim to first protect your capital and secondly get good returns as compared to the market. This hunt for investment opportunity possess two fundamental problems:

  1. How to pick the best stock which will continue to multiply over the years from the thousands of stocks available each day?
  2. The cost of making the wrong choice can lead to huge financial losses and lifetime of unhappiness.

A mathematician will tell you that the law of probability is working against a woman as there are fewer successful men as compared to unsuccessful ones and the successful ones. And also the probability of failure (making a mistake and ending up an incompatible partner) increases every time she meets a new person.
Similarly, the odds are always against a retail investor as stock prices fluctuate and external environment affecting business is constantly changing.

Limited Resources

Think hard about this and another realization will dawn upon you that the reason women of beauty are elusive is that they face a scarcity of 2 things:

1) Time – To evaluate if there is compatibility or if they each guy is her kind of partner,

2) Energy – Limited energy emotionally and physically to spend time knowing each of time.

Similarly, as an investor you too have scarcity in these two things:

1)      Time – It’s impossible to evaluate and track each stock listed on the stock exchange.

2)      Energy – It is impossible for an individual to have the mental effort to gain an understanding and analyze of each company listed on the stock exchange.

A beautiful puzzle which must have been faced by nature during the evolutionary process of a woman is also faced by investors every day in the stock market.

 

Scroll Right to see full table>>>

EntityLimited ResourceGoalProblem
WomenTime and EnergyFind the Perfect Companion from ManyToo many Unsuitable men and Odds stacked against them
InvestorTime and EnergyPick the Perfect Stock from ManyToo many Stocks to choose from, and Odds Stacked against them

Evolutionary Solution,Checklist, Rationality, and Emotions

So far so good…but things start to get rough.

The answer to this unique problem can be found in the evolution of women which have happened over thousand of years.The subconscious part of a woman’s brain has developed a unique set of tools to find the right partner for them from the hundreds of potential suitors.

The main tools a woman has at her disposal are 1) Intuition, 2) Behavioral tests and 3) Feelings.

The evolutionary process has given women the right set of tools to find a suitable partner. However the same is not true when it comes to investing in the stock market.

In Fact, the opposite is true when it comes to investing; you simply do not possess a natural set of tools to pick the correct stock from thousands of listed companies.

There never was a stock market or even the concept money thousands of years over which the evolution of man has happened.This is true regardless of you being a man or woman as an investor. You simply do not possess the natural composure to be a successful investor, in fact, your natural tendencies lead to mistakes.

The toolset you need to develop when practicing value investing :

  1. Self awareness: Being aware of these emotions like fear, greed, and envy which are part of our biological makeup and investor psychology can give you a tremendous advantage over other investors.
  2. Rationality and emotionless : Be as rational as possible and eliminate any emotions and biases from your stock analysis.
  3. Use Checklists: Use checklist to filter stocks and eliminate mistakes from the stock picking process.

For example one such virtue is patience!

Patience:

Women of beauty are blessed with a lot of patience when it comes to entering into a relationship. Patience is key to beating the numbers game as it is counterproductive and a larger waste of the limited resources ( Time and effort) if she were to be in a relationship for fear of not ending up alone.Often this patience is mistaken for stubbornness. In Fact the more I observe this trait in women the more it fascinates me , I have often observed that a girl would prefer to be single if the perfect guy hasn’t come along even though all of her friends are seeing someone ( social pressure ) , if her friends tell her friends to try to convince her about a guy she does not like but fits the bill as per society she will trust her instinct and wait it out not giving in to the herd mentality.

She will be single till prince charming arrives.

Wait let me correct that

She will be single till prince charming arrives in his shining armor.

 

Similarly, as Investor, it’s important to remember that

 

Good Investors invest in the right company when they are completely convinced after thorough analysis that it’s a prince charming

 

Wait let me correct that

 

Good Investors invest in the right company when they are completely convinced after thorough analysis that it’s a prince charming AT THE RIGHT PRICE.

Do you see any other parallels? Comment below

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