“Lululemon? Really? Because the pants make our asses look cute?” I responded, through tight teeth. “And that’s the extent to which you believe a woman can comprehend investing in the stock market?”
You see, I run a business where I teach women to invest. Inasmuch, many men for whom I am loosely acquainted have opinions about my work. In this particular scenario, the perpetrator was a friend’s boyfriend, at a cocktail party. Because I’ve become profoundly less fun at parties as I age, the above was my prickled response to his suggestion for my work: “Oh, you should tell them to buy Lululemon stock!”
Women are served up a version of the investing equation that’s basically a Dairy Queen vanilla soft serve dipped in a candy shell: it’s coated in pink, it’s saccharine and smooth, and it lacks substance.
I’ve done this work long enough to know that some men—and women, often implicitly—believe that women cannot meaningfully process the whole, somewhat messy truth about investing. Instead, they suggest women are served up a version of the investing equation that’s basically a Dairy Queen vanilla soft serve dipped in a candy shell: it’s coated in pink, it’s saccharine and smooth, and it lacks substance.
To be fair to him, “buy what you know” is standard stock-buying advice. But the implication here, is what? That women only “know” yoga pants? And maybe like, Starbucks Refreshers and French bulldog puppies? If a man were to tell me that he worked as an investing educator, I would never assume he instructs his pupils to invest in only John Deere and Budweiser. Instead, I would assume he supplied a curriculum on investment theory that guided his students into a well-rounded strategy.
If a man were to tell me that he worked as an investing educator, I would never assume he instructs his pupils to invest in only John Deere and Budweiser.
But even beyond its obviously infantilizing and sexist undertones, this is bad advice. Let’s explore because honestly, another thing that makes my teeth itch is that while there’s plenty of chatter about the hurdles women face with investing—“women invest X% less than men!”—there’s very little relevant education aimed at alleviating the problem. (Worse is when the investment gap is used as a branding tool for corporate feminism and fodder for cutesy pastel Instagram infographics, sans any subsequent action.)
Just because a brand is expensive doesn’t mean it’s profitable.
The Lululemon anecdote is not an isolated one. A friend of mine recently attended an event that suggested women buy Louis Vuitton stock if they like Louis Vuitton purses.
First, buying one stock is not an investment strategy. It’s a gamble. Whether it’s L’Oreal or Buffalo Wild Wings, whether you did 100 hours of research or bought it on a whim, you still have just one stock. It’s fine if you’re dinking around with some splash money but then evolve quickly into a more diversified strategy.
Back to Louis Vuitton. Just because a company sells rent-check-expensive bags does not necessarily mean it’s a well-run business. (I’m not saying it is or it isn’t—this is simply a critical thinking exercise.) Widely recognizable purses give us an interesting place to begin, sure, but there’s so much more to owning a company than that. What about its profitability, leadership, R&D, and dividend payout? What about its ability to stay relevant in the notoriously fickle, competitive, and unpredictable fashion industry?
You can’t predict the future, sorry.
If you were so good at investing—and so rich—you wouldn’t be arguing with me about SeaWorld stock on Twitter right now.
It gets worse. You could learn all the above-mentioned stuff about a company and still make the wrong bet. That’s because it is exceptionally difficult to predict what a company (and stock) will do in the future. Why? Simple: We cannot know the future. I, for one, ain’t no soothsayer. We can only know the past, and try to extrapolate that knowledge into the future. Finance Bro Montanas across the whole internet are going to fight me on this, but: picking great stocks has more to do with luck than it does with skill.
How do I know I’m right? If picking a rip-roaring stock was so easy as analyzing available information, then anyone could be a huge winner. Sorry, Stock Nostradamus (Brostadamus?), if you were so good at investing—and so rich—you wouldn’t be arguing with me about SeaWorld stock on Twitter right now.
Next, someone in the comments will surely point out that Lululemon stock has performed quite well this year. Sure! This is true! But to capitalize on this exceptional performance, you had to predict that stretchy pants were going to be 2020’s hottest ticket item before COVID-19 struck. What’s done is now done, and instead of being wooed by the performance of the past, stock-pickers must rev up their crystal balls and attempt to determine what comes next. (And to reiterate, even one banger of a stock does not a diversified investment strategy make. This outperformance could indeed be temporary—we just can’t know.)
The stats are in: Stock picking doesn’t work.
Think of it this way—there is less risk that the entire economy fails than an individual company fails. Company failure happens a lot.
This is what’s so important to understand: Very few stocks end up wildly successful.
In the world of investing, we compare the performance of a single investment (a stock) to the average performance of that overall market (the stock market). We do this with an index, which is nothing more than a measuring stick. The S&P 500 is the most popular example and measures the performance of 500 leading American companies. Nowadays, it is very easy to achieve whatever is the stock market’s average by buying an index fund, which is like buying a big bundle of stocks that span the entire stock market.
Historically, buying an index fund has been significantly more successful—and easier—than trying to pick individual stocks. There is also significantly less risk of failure. (Think of it this way—there is less risk that the entire economy fails than an individual company fails. Company failure happens a lot.)
According to one study, only one in five stocks perform much better than the average. Three out of five stocks perform worse than the average. How can that be!? Shouldn’t the average be—an average? Wherein half of stocks perform better, and half perform worse? Nope! The average is generally buoyed by a small number of exemplary stocks. They are the star players that hold up the otherwise ragtag squad.
These are the discussions I want women to be having with one another.
How Those Stock Bros Actually Get Rich
Over time, about 90% of active managers perform worse than the simple index average. That is a stunning rate of failure for a multi-trillion-dollar industry that thrives on the fees they charge us for this very service.
Here’s a dirty little secret about the money management industry: Picking exceptional stocks is not how these guys get Ferrari-and-Ferragamo rich. They get rich by charging us fees. It has little to do with picking good investments. They might advertise a “secret formula,” but the only real “secret formula” is this: Charge a management fee for our services, get paid whether or not we actually do a good job.
Don’t get me wrong, there are some reasons you might hire a financial advisor, but managing an investment portfolio in order to “beat the market” is not really one of them. Regular folks like us can’t beat the market, and honestly, neither can professionals. It’s just so damn difficult to do.
Every single year, without fail, “active” money managers fail to beat the simple market average. Over time, about 90% of active managers perform worse than the simple index average. That is a stunning rate of failure for a multi-trillion-dollar industry that thrives on the fees they charge us for this very service.
Without financial education, women leave themselves vulnerable to manipulation. At the very least, you need to know whether your advisor is, ahem, full of shit. Unfortunately, this is an industry where credibility and honesty vary widely among providers. You have to know enough to sniff out the B.S.
And with the right education, you may not actually need to pay someone to tell you what to do!
Investing can feel overwhelming, but it doesn’t need to be. There are ways to do it that are both effective and easy. Learning to invest is absolutely within your capacity—and I’d love to be your teacher.
Check out my Invested Development video course — it’s pure online entertainment, you only need to bring some popcorn and your greasy topknot. In addition to 15 fun, digestible, and substantial lessons on investing, there are monthly office hours with me for any and all Q&A. I’m running a special deal with TFD: $50 off the original cost of $249. My students walk away truly confident in their ability to navigate investing decisions and build a plan towards financial freedom. Perhaps best of all, they are ready to lay an academic smackdown on anyone that presents them with misleading and sexist investing advice.
Disclaimer: This article is written for general informational and educational purposes only and not meant to offer specific investment recommendations. You must invest at your own risk.
Amanda Holden is an award-winning money writer, speaker, and educator. Through her business, Invested Development, she educates women about investing and other money topics. Find her over at The Dumpster Dog Blog or on Instagram, where she’s always cooking up free, fun investing education (and showing off her best #TRASHION outfits).