LouAnn Lofton has been proudly investing "like a girl" since she was young. After learning about the power of long-term investing she began her journey. That brought her to The Motley Fool in 2000, where she rose to the position of managing editor of Fool.com—an award-winning financial education website visited by more than five million visitors each month. "Warren Buffett Invests Like A Girl" is her first book—and the one that allowed her to finally meet her investment idol, Warren Buffett. She was an early, self-taught learner, with an inspirational story. Enjoy!
1. How did you start investing? What interested you?
I didn’t grow up investing or even learn about it as a kid. It wasn't something we talked about in my family. However, when I turned 21, I inherited some money from a life insurance policy that my father had. Unfortunately, he'd died suddenly when I was just 14. The money I received from that policy wasn't a ton, but it was enough that I worried about what to do with it, and frankly, didn't trust myself not to just spend it all. After doing some research, investing in the market seemed to be the way to go.
But that still left a huge gap in my actual knowledge of how to go about investing, so I read just about everything I could find. I explored day trading, momentum investing, the CANSLIM strategy from Investor's Business Daily, even commodities and futures. It all struck me as incredibly complicated.
Then, I came across a biography of this guy Warren Buffett. This was the early-mid 1990s, and while Buffett was well known in some financial circles, he wasn't quite the ubiquitous figure he is today. I'd never heard of him before reading that book and what I discovered opened my eyes to a way of investing that I believed I could both understand and succeed at.
Here was a guy who ignored the day-to-day movements of the market, who situated himself in his hometown of Omaha, far away from Wall Street's hubbub, and who professed that he invested in what he could understand, with a goal of holding onto it forever. He thought long-term, as opposed to the very short-term thinking I'd encountered in most other things I'd read.
Around that same time, I also read Peter Lynch's books, describing his own investing strategy, which meshed in some ways with Buffett's. Notably, from both Lynch and Buffett, I took to heart the idea of beginning my investing by focusing on companies that I knew well and could understand the financial prospects of.
I still think that is a valuable way for investors, especially novice ones, to approach things. Without a doubt you have to dig into a company's financials and do your due diligence overall, but starting that process with companies you know and love makes sense to me. I discovered some of my earliest investments, companies I still hold, this way.
2. What misconceptions surround investing and how does that prevent people (of all ages) to start?
I think the primary misconception that trips people up is that investing is just too complex for them to understand, unless they are some whiz kid with an advanced degree working on Wall Street. There are lots of incentives for investment professionals to make people feel this way, so no wonder it works.
It's a shame, because as we know, the earlier you get started investing, the better. Time is your most important asset here.
I think people also often don't realize how much of investing is not about picking the perfect stock at the perfect time, but is instead, about managing your own emotions. Having the optimal portfolio won't help if you get shaken out of your positions whenever the market hiccups. This is another lesson I took to heart from Buffett. Temperament matters, in a big way. Staying patient, controlling risk, and keeping the long-term view in mind go so far, much farther than lots of folks realize, in making you a successful investor. (In fact, temperament matters so much I wrote a whole book about it!)
That’s a good point. The timing is important, but learning to manage your emotions is a crucial skill. Many know the saying, “Buy low, sell high.” But how many actually do that? It is much easier to verbalize that action than it is to stop yourself from a panic attack during the ‘08 market crash.
3. Personally, Socially Responsible Investing (SRI) is hooking me right now, but do you have a certain sector of the market or focus that interests you?
I'd say SRI for me, too. SRI is fascinating and I think will be a big thing for a long, long time, especially as more young people get involved in investing. I also like that you can look at it through a lens of different industries and sectors, so if you don't feel confident about your circle of competence in, say, energy, you can find SRI companies in other areas that you do know more about.
4. What was the first company you invested in?
Nike. And I still own those shares more than 20 years later. Starbucks was another early one for me, and I still own those shares, too.
Over 20 years Starbucks (SBUX) has grown around 2,152% and Nike (NKE) has grown around 624%.
5. How has your investing style changed from when you started?
It honestly hasn't changed all that much. I developed, over the years, an ability to be a patient, long-term investor. That's not to say, at all, that that mindset is easy to maintain. But I've had two significant tests of it -- the market's down in 2000 and again in the fall of 2008/2009. I didn't panic and sell either time. I'm still learning, though. Being an investor is a lifelong pursuit.
6. If you went back and had to tell yourself one thing as advice as a learning investor what would it be?
Be braver about buying more shares of companies you believe in when the market offers them up at a discount. I'm good about not selling. I'm trying to get better about the flip side of that. (Or, in Buffett speak, I'm trying to learn to be greedier when others are fearful.)
Thank you, LouAnn, for speaking about your investing journey. She started out young and had to learn a lot on her own to get to the point that she is now. I picked out a few important points that I found incredibly important.
Throughout her thoughtful answers, she mentions emotional control. As an investor, that is a very important skill. How investors make their money is not from getting scared one day and selling. Investors make their money from self control. Buying at a low, and selling at a high. A better way to think about a downfall in the market is a sale at a store. Rather than paying $100 for new jeans, you are gifted the sale so you only have to pay $20. There could be a problematic reason that those jeans (or company) is on sale. Always do a background check. That’s the same with stocks.
Another point LouAnn mentioned is how much money it took for her to start investing. This is a misconception that some people have that you have to have a lot of money to start investing. Investing doesn't take a lot of money to start, the point is to save your money and make your money work for you. All you need is a seed to get started. Just like a job, it takes work, time, effort, and a little bit of money to apply for a job, so does investing. Investing is important for more than just making money. It helps you learn to manage your money in a way you feel comfortable.