How the Good Investors are moving the needle

I’m hooked on a 7-season show called The Good Wife. That gave me the idea for my blog title! The post essentially reproduces from CNN Money

They don't just want to grow their money: They want to achieve social and environmental goals through their investments. It's called "impact investing".

"Impact investing is hitting the mainstream," says Jackie VanderBrug, investment strategist at U.S. Trust, a division of Bank of America. "We're hitting a tipping point." She and her team recently surveyed 684 individuals with investable assets worth $3 million or more. Among the millionaires, dozens were Millennials between the ages of 18 and 35.

The overwhelming majority of Millennials surveyed -- 93% -- believe that a company's social and environmental impact is key to their investing decisions. That's up from 74% two years ago, according to the study.

In some ways, it's not new. Students have long protested at universities to end investments in coal or against governments like South Africa during the apartheid era. Last year, the universities of Columbia and Southern California both dumped their investments in prison stocks after student protests.

Now the impact investors want to see companies make an impact in a positive way.

Yaay! Now their older peers also agree. This year, 51% of Baby Boomer investors believe impact investing is key to where they park their cash, up from 46%. Former Vice President Al Gore is one impact investor. His investing firm, Generation, manages $12 billion and says, "sustainability values should be completely integrated in the investing process".

Experts admit there are challenges:

1. Defining "impact investing" is a challenge. It includes a wide swath of subjects, from gender equality and renewable energy to affordable housing and environmental policies. So they don't all appeal to the same people.

2. How it benefits investors is sometimes hard to measure. Fixing abstract problems like gender inequality through private investment don't have easy yardsticks for success.

3. Impact investing is often confused or conflated with philanthropy -- many investors don't want to blend the two, either for moral reasons or tax purposes (you can write off philanthropic donations when you file your taxes)

Still, companies are becoming more transparent, experts say. Last year, over 7,000 companies issued corporate responsibility reports, which are audited by a third party. That's up from only 27 such reports in 1992. And some people are trying to tackle the challenges facing impact investors. Christina Alfonso is the CEO of Madeira Global, a firm based in New York that specializes in data analytics that pertain to ESG -- environmental, social and governance.

Her firm focuses on scoring private equity companies on a framework that has a scale of 0 to 100.

One often-cited socially responsible company is Starbucks. It seeks to buy coffee grown in an ethical manner. It also helps employees pay for college, among other initiatives.

"We've seen that non-financial factors can play a significant role in a company's financial performance as consumers and investors increasingly support businesses that consider social impact as well as profitability," says Alfonso.

Choosing a career: J. K. Rowling or baker

 

A profession that is scalable is one in which you are not paid by the hour and thus subject to the limitations of the amount of your labor. It is a very simple way to differentiate among professions. Some professions, such as dentists or massage professionals, cannot be scaled: there is a cap on the number of patients or clients you can see in a given period of time. You work by the hour and are (generally) paid by the hour. .Furthermore your presence is necessary for the service you provide.  Your revenue, no matter how highly paid you are, depends on your continuous efforts. Moreover, this kind of work is largely predictable: it will vary, but not to the point of making the income of a single day more significant than the rest of your life

 

Other professions allow you to add zeroes to your output (and your income), if you do well, at little or no extra effort. This is an idea person who sells an intellectual product in the form of a transaction or a piece of work and the former is a labor person who sells you his or her work. On Wall Street, a trader does the same amount of work while buying hundred or a million shares. J.K. Rowling does not have to write each Harry Potter book every time someone wants to read it, while a baker needs to bake every single piece of bread to satisfy each additional customer

 

The idea person’s job sounds like a better choice than the labor person’s job but is there a downside. Most dentists, massage professionals and bakers (labor types) can do reasonably well, or even very well, over a thirty years career. They will never get rich in a single day. Hard to find a dentist who is consistently without patients. It’s a totally different story (pun intended!) with the ideas types like authors. For every J.K. Rowling, selling millions of books, thousands upon thousands of wannabe writers have tried and failed.

 

This is not to discourage bold choices but to know the odds. About twenty five years ago, my two kids were in their teens and we were living in India. They were both in school and getting good grades. They were also were good at their favorite sport, tennis.  Good enough to play in India’s junior national circuit. I dreamt that I would find the resources so that, someday, one of them would hold the trophy on center court Wimbledon! Then one summer, I took my wife and kids to Mumbai for our summer vacation. There, we visited an outlier friend. He had quit school to become an entrepreneur and became so successful that his brother and he are extraordinarily wealthy. Conversation turned to plans for my kids and I expected him to encourage me to go all out to support my kids becoming the next Federer or Serena.  After all he did not get to where he was getting paid by the hour! Instead, he said “Consider the odds of their becoming the champions you are hoping for. They are very good students so focus on their studies.” I took that advice, we migrated to America, and today they pursue successful careers in computer design and medicine.

 

Do dream and pursue those dreams. Just be smart about it. How about having your cake and eating it too! Pivot to being an idea person writing a book, after securing yourself financially by working as a labor person?

This post was mostly an idea from Nassim Nicholas Taleb's book The Black Swan

66,800 people in 65 nations, What They Think

 

TIME recently reported the results of a Gallup International poll. The following were the top five concerns

1.      Corruption Not surprising, since most of the countries surveyed have weak democratic institutions, rule of law and civil societies   

2.      Rich Poor Gap Dominates current political conversation in America. This concern is top of agenda for President Obama, Pope Francis, Warren Buffett. The divide is very visible in America and India, countries I live in and travel to. Some wealth distribution and reduction of inequality is needed to buffer the next few years of job destruction and evolution. 95% of all new wealth created in the US recently has gone to only to 1% of the population

3.      Unemployment Technology and population growth drive this concern. We’re in a race between computers and people – and we need to make sure the people win quoting Google’s Eric Schmidt. 230 million white collar jobs will be transformed or eliminated in the next ten years

4.      Environmental issues  Reached a crisis and yet there are uninformed but influential opposing forces. In a recent interview, the Dalai Lama when asked to name what issue the US could be paying more attention to he named climate change

5.      And finally Religious Fundamentalism Shia-Sunni in the Middle East,  Muslim- Christian in Africa, to name just two, resulting in millions of refugees

It’s worth waiting for the second cookie

Here is a simple puzzle. Do not try to solve it but listen to your intuition. A bat and a ball cost $1.10. The bat costs one dollar more than the ball. How much does the ball cost? The answer that comes to mind is 10 cents. Intuitive, appealing, and wrong. The correct answer is 5 cents. Many thousands of university students have answered this puzzle and the results are surprising. More than 50% of students at Harvard, MIT, and Princeton gave the intuitive wrong answer! And at less selective universities the wrong answer was in excess of 80%. Many place too much faith in their intuitions and avoid cognitive effort

Now let’s move from university students to four-year-olds. In one of the most famous experiments in the history of psychology, Walter Mischel and his students gave these children a choice between one cookie which they could have at any time or two cookies for which they had to wait 15 minutes. They were to remain alone in a room facing a desk with only two objects: a single cookie and a bell that the child could ring at any time to call in the experimenter and receive the one cookie. The children’s behavior observed through a one way mirror had the audience roaring with laughter. About half the children managed waiting for 15 minutes and picked up two cookies. Ten or fifteen years later a large gap had opened up between those who had resisted temptation and those who had not. The resisters were better at cognitive tasks, less likely to take drugs and scored higher on tests of intelligence.

Genes, parenting or other influences could possible explain the differential cognitive effort in these students and children.  Both are examples of the better outcomes from delayed gratification, avoiding impulsive decisions. A college freshman’s choice of more difficult courses (science, technology, engineering or math) could land a better job after graduation. A more secure retirement results from the discipline of savings taken out of every pay check

Adapted from Thinking, Fast and Slow a 2011 book by Nobel Memorial Prize winner in Economics Daniel Kahneman

Just seven minutes a day to health bliss!

The following are highlights of an exciting fitness regimen I read on pages, 72-73, in India Today, Aug 11, 2014

Journal of the American College of Cardiology’s simple new guideline: run at slow speed for just 7 minutes a day and cut down on your health risks. Scientists studied over 55,000 adults over a 15-year period. Runners had a 30% lower risk of death from all causes and a 45% lower risk of death from heart disease or stroke. They lived, on average three years longer compared to non-runners.

The article discusses how running benefits the brain (beta endorphins release creates high), lungs (more oxygen with each breath), arteries (keeps open preventing heart attacks), stomach (immunity boost by improving blood flow), calories (pushes up peptide YY, appetite suppressants), bones (strengthens, enhances stability, delays arthritis) and blood (arteries elastic, lowers sugar level).

The American College of Sports Medicine also recommends a 7 minutes set of high-intensity workouts-with just body weight, a chair and a wall. The article lists twelve 30 seconds exercises performed in rapid succession with 10-second rests in between

To make you feel guilty for not doing this, you can buy a snazzy wristband that gives you a mild electric shock if you slack off at the appointed workout time. Check out this new technology from Mahesh Sethi’s start up Pavlok

Guess which among a 2014 Accenture survey of 6 countries-Australia, Canada, India, S. Africa, UK and US had the highest (80%) number of consumers who desired to buy fitness monitors? Surprise: India

Have a healthy productive day

·       We’re in a race between computers and people – and we need to make sure the people win quoting Eric Schmidt Google at Davos, Switzerland

·       The forces of globalization and technology  tend to wipe out middle-income jobs

·       230 million white collar jobs will be transformed or eliminated in the next ten years

·       Nobel laureate Michael Spence has shown that when the American economy opens itself to free trade net job creation is basically nil

·       What’s threatened are not Ph.Ds or burger flippers but the jobs in between … middle class jobs

·       It’s been fifteen years since the American family got a raise

·       This is not just a wallet issue. It makes us feel bad too. Behavioral economics tells us that our sense of well-being isn’t absolute but rather is pegged to how the Joneses are doing

·       Majority of the jobs created in the next ten years will require at least two years of college if not more

·       Most importantly, some wealth distribution and reduction of inequality is needed to buffer the next few years of job destruction and evolution

·       95% of all new wealth created in the US recently has gone to only to 1% of the population

 

Above is summary of a commentary by Rana Foroohar, economist

How Morningstar ***** Rates Stocks

Morningstar star ratings for stocks are based on the stock’s price/fair value ratio and fair value uncertainty rating. To earn a 5-star rating, a low-uncertainty stock needs to trade at a 20% discount to MS fair value estimate, while the same stock would earn a 1-star rating if it traded at a 25% premium to fair value. These discounts and premiums widen as the uncertainty rating increases. A 3-star rating reflects our view that a stock is more or less fairly valued, while 2- and 4-star ratings reflect moderate levels of overvalu- ation or undervaluation, respectively.