019: Wisdom, Please

Wisdom, Please

Table of Contents

1. Investing “Wisely”
2. Global Village of Money
3. Mission Terminology
4. Bits and Pieces from Wise Investors
5. Let’s Get Practical

1. Investing “Wisely”

Simply to be potentially considered an “impact” or “ESG” company, companies fill out forms reporting on their practices and impacts. They self-report. And if they don’t report, they don’t get added to the list of “responsible” companies for a given “responsible” index fund.

Isn’t that wild? Think of unintended consequences of this system.

For one major example, Warren Buffett and Charlie Munger mentioned at the last Berkshire Hathaway annual meeting that Berkshire Hathaway does not fill out the form. It just…doesn’t fill out the form. Which means that it’s not in any of the lists of socially responsible companies.

There’s no notification to any of us that Berkshire has not submitted itself for consideration. It just doesn’t show up. Which, of course, makes it look like it is NOT an “impact” or “ESG” company. When really it could be the greatest one of them all; but it just didn’t fill out the form.

Which makes me wonder: what other companies do not show up? What is left out? What else am I missing?

I’ve been pondering all of this Mission-oriented criteria lately. In April this year, I had the honor of speaking on a panel at the Horasis Global Meeting about “how to invest wisely.” In the roughly six months since then, I’ve been thinking through that phrase “wise investing” regularly. It keeps coming to mind when I think about my longer-term goals for my investing practice.

Wisdom is having perspective, and learning from experience. Just as when I found out there are companies not considered for the list of ESG companies because they didn’t fill out the form, wise investing requires knowing what else is not showing up. What is left out? What else am I missing? Wisdom is knowing what is not there.

Well, for many, wise investing doesn’t consider Mission at all. Which, to my mind, misses a huge part of what protects a company from competitors.

I keep hearing terms kicked around about Mission-oriented companies. ESG. Impact investing. SRI. What does each one mean, exactly? I want to know what I’m missing. I went to find out. (If you want to skip directly to the terminology, go to Part 3.)

2. Global Village of Money

The Horasis conference, where I spoke about investing wisely, posits that globalization is beneficial, it is under threat, and we must work to keep globalization. I argued in my talk at the conference that regardless of how one thinks about the benefits of drawbacks of country borders or culture wars or populism, globalization is irreparably here to stay because of the internet. The internet is global. We are globalized online through our money.

Online there seem to be no borders, but there are, in fact, heavy online borders: language, censorship, organizational. Having different languages is an obvious divider – one that is much easier to get around these days, but still a border. Censorship – think China or Saudi Arabia – is real and it’s hard to know how much those who live within the censorship know about its existence. Finally, organizational borders through online platforms – think Twitter’s acceptable use policy and how Jack Dorsey may adjust it in the future. Language, censorship, and organizational platforms are actually huge borders to cross, and there are certainly bridges over them, but those bridges can be difficult to find.

Except in money. Money, online, is the great equalizer. In our physical societies, money is the great divider with huge problems showing up now from the massive inequality and loss of the middle class; but online, money crosses borders, crosses languages, even crosses censorship.

In this global village where money is the method of communication, it becomes a vote. Money is our vote. It is often a stronger vote than our actual votes in our actual countries. So with money as our vote, in this global village, we for the first time in history have unprecedented access to each other, to information, and frankly, to power.

Truly investing, not speculating, means choosing what to support with my money.

To me, investing wisely at this early point in my investing career means wielding that vote consciously. With knowledge that a choice of investment means a lot more than me hopefully making money from it. It means supporting the stakeholders who will benefit from that money and equally, NOT choosing to support potential investments and stakeholders I do not want to support. Wielding it wisely.

So: HOW?

Mission-oriented institutionalized investing has a bad name in some circles (like in my head) because, to some, it automatically means that investors accept lower returns than they otherwise would, in order to support good Missions.

I think accepting lower returns is completely ridiculous. For one, it steals credibility from companies with a strong Mission and assumes they must not be competitive, and for two, a company that strives to treat its employees well, treat animals well, not hurt the environment, etc. will do better for its shareholders than a company that exploits employees, hurts animals, cuts corners, and holds low standards of integrity.

Let’s look at the reality of some of these investing options. What is wise investing, and how can I make sure I’m leaning in the direction of wisdom? That’s the next level that the great investors have, and I want it. So, step one today: I learned about the terminology of Mission-oriented investing.

3. Mission Terminology

Knowing the terminology is important because, most of the time, people use these various terms interchangeably – but sometimes they use them purposefully to mean a certain type of thing. I looked them up for myself.

OK, here’s what I found for straight-up information, and check out this Investopedia article for more (good lord I love Investopedia!):

“ESG Investing”: ESG stands for Environmental, Social, and Governance. These three factors are said to measure the sustainability and ethical impact of a business. Financial returns are still goal #1, while the ESG criteria is meant to be used to determine whether or not the company has risks in the ESG areas. Paraphrased from the MSCI ESG description:

I like those three lists. Nothing objectionable. Nothing controversial…at all, really. Maybe my mindset is so Mission-oriented already that I just can’t understand investing in a company that violates human rights intentionally? Pollutes? But I suppose people still do. And then you start getting into those pesky gray areas; for a classic example, Amazon’s unhappy warehouse workers who are under a huge amount of pressure to be efficient with few breaks during the workday. They do get paid pretty well for those jobs, though. Is that a human rights issue? An employee rights and safety issue? I don’t personally think so, but you might come down on a different side of that gray area.

So, that’s ESG. Filled with vague, good-sounding watchwords, which don’t much add up to any particular viewpoint.

I’ve talked to quite a few in-the-know investors about my impression that “ESG” doesn’t really mean anything more than signaling good intentions, and so far they’ve entirely agreed. So it’s not just me.

“Socially responsible (SRI) investing”: Socially responsible investing is sustainable, socially conscious investing. It follows the rule “do not harm.” To that end, an SRI investor would actively eliminate potential investments that do harm, such as gun companies, tobacco companies, or companies that damage the environment. Financial returns are said to take a little more of a backseat in SRI investing because of eliminating potentially lucrative investments, but I don’t completely buy that explanation. Sure someone is an “ESG” investor is also eliminating potentially lucrative investments that don’t meet that particular (vague) criteria?

These terms are a bit frustrating…to many, by the way, not just me.

“Impact investing”: Impact investing is about making a major impact to “do good” and resolve a specific social or environmental problem. Financial returns are secondary to the impact goal. The point of these investments are to help the world, and possibly make some money as a nice side benefit. I wish the foregoing were NOT what impact investing stood for because I think it’s a great phrase and I used to often call what I do impact investing – before I found out what it now stands for.

There’s also “triple bottom line” companies that consider stakeholders, shareholders, and the planet. Pretty much the same concept as ESG.

ESG, SRI, and impact investing have become massively mainstream lately, but still are so vague that it’s just sort of a rough indicator of what a fund or index might offer.

That’s why I don’t pay a lot of attention to these lists of socially responsible companies, but I would LIKE to use them if I thought they were actually good sources. Really, this comes down to my conclusion: a wise investor would choose companies herself, that she understands and knows what she knows and she doesn’t know.

4. Bits and Pieces from Wise Investors

Which is what Buffett does. When I start thinking about wise investors, you know where I have to go. We recently celebrated Warren Buffett’s August 30th birthday on the InvestED podcast, and when we talked about his special qualities that differentiate him from other great investors, I realized it’s his choice to marry investing with ethics and communicate that that makes him unique.

He and Charlie Munger both talk about investing and life like it’s one whole. Which, of course, IT IS. The ethical choices and moral dilemmas one confronts in life are also confronted in investing, and vice versa. Quite a different message from that “it’s just business, it’s not personal” mantra. I can’t stand when people say that – as though it excuses treating people poorly! In reality, usually it’s said to excuse lying or hide the truth.

All business is personal. It’s between persons. That’s how Buffett and Munger treat their business. Not say they don’t drive for a good deal or don’t let someone go whose job isn’t working out, but they do so with honesty, candor, and respect at all times. What you see is what you get.

By behaving in such a simple way, the words of Buffett and Munger have become trustworthy and reliable. They have become the wise elder statesmen of the investing world. They are wise. Their wisdom, I’m starting to think, is their real differentiating factor.

Add to all this “rah rah yay supporting impactful companies and becoming wise investors” stuff with some real-life scary stuff that’s been stuck in my head. Here are Michael Burry’s comments on the bubble being created by index funds and ETFs, which we talked about extensively on the current InvestED Podcast episode #232.

Here are Carl Icahn’s comments on the same topic.
Four years ago, in 2015
A year and a half ago, in 2018

Yikes, guys. Yikes. Face the danger, we must, and to face the danger we have to know where it is. I’m starting to be convinced that ETFs are indeed a real danger to the market as a whole.

As a wise investor, I must choose Individual companies that will become stronger – are antifragile! – from a crash that puts all the overvalued companies back to below where their prices should be. Here is the author of Antifragile himself, Nassim Nicholas Taleb, speaking about being antifragile and where it comes from. Looking for the decision-makers being the ones who are harmed is vital to incentive them to make antifragile choices. Being a wise investor means, to me, that I solve for every risk factor I can find to create antifragility and resilience. And I think companies with no real Mission or purpose are less resilient than those that do.

There is a LOT more to say on this subject of categorizing companies, and I have a lot of original research to do and collect. It’s exciting to see it become more mainstream, but I hope it doesn’t strangle companies into greenwashing – making it LOOK like they’re doing things impact-style without making any actual impact – and only make things worse.

I’ll close with what I think is one of the most well-put and concise Mission statements from any investor, from Guy Spier’s 2018 Aquamarine letter. I have quoted this before, and always learning something when I read it over again.

“But our priority is to invest in durable businesses that deliver things that people will need even in a changing world. It’s revealing that Buffett has focused so heavily on companies that meet many basic human needs, such as building materials, carpets, paints, furniture, and energy.Meanwhile, I avoid companies that may be enormously profitable but cause social harm, such as tobacco companies and casinos. Sooner or later, as happened with the tobacco firms, society might make them and their shareholders pay for this harm. Owning businesses that are part of the solution, not part of the problem, has enormous benefits in terms of reducing risk and sailing our ship through whatever storms might arise over the next 21 years. But I don’t consider myself an “impact investor” or a “social investor.” They are often willing to overlook lower (or non-existent) returns while focusing on the social good that their investment is creating. Personally, I find that laudable. But it’s often the case that such investors are fabulously rich or are investing on behalf of someone who is fabulously rich. I believe that my role is to deliver the best long-term investment results I can achieve, instead of trying to achieve non-measurable “social returns.” If I do my job properly, then Aquamarine’s partners can have a tremendous social impact by sharing their wealth with others in all sorts of wonderful ways.”



Take a few minutes and think about what investing wisely means to you.

Does it include Mission?

If it does include Mission, how does your own vision of your Mission fit into one of the standard definitions set forth above? Do those definitions help, hinder, or are they pretty neutral?

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