subject: Mike Wazowski Talks About Putting Your Money Where Your Mouth Is [print this page] Mike Wazowski Talks About Putting Your Money Where Your Mouth Is
Since first appearing on the scene 20 years ago "Social Investing" has grown from a fringe liberal idea into a significant part of the financial mainstream. The notion is that socially and politically progressive investors should be putting more of their money where their mouths are, in terms of the policies of the businesses they support. Starting with about $690 billion in 1995, five years after the creation of the first Social Investing stock index, has grown to an estimated $2.7 trillion, about 11 percent of all private investment funds and, by percentage growth at least, outpacing the rest of the markets.
By and large the Social Investment mutual funds and indexes perform on a par with the larger market, with the FTSE KLD 400 (the first and longest lasting SR index) rising about 9.5 percent over its first 19 years, compared with 8.66 percent for the S&P 500 during the same period. OF course, not all companies and funds perform as well and, in the boilerplate words of the mutual fund commercials, past performance is not a guarantee of future results. Nor are all social investing strategies created equal.
In fact some of those aggregate numbers can be downright misleading. The Social Investment Forum is an association for professionals, firms, institutions and organizations engaged in socially responsible and sustainable investing in the U.S. that lists nearly 200 funds operated by its members. While the majority of them have not been in existence for 10 years, the track record over that time for the one that have (and the five year averages for a lot more) more often show growth rates in the range of 2-5 percent and, while some have made 15 percent or more in the last year, others - notably some that specialize in alternative energy stocks, have lost 20-24 percent of their value since 2008.
Then too, there is the question of just what constitutes and Socially Responsible investment. SRI provides this general definition of the criteria they employ:
"Buy lists may include enterprises with, for example, good employer-employee relations, strong environmental practices, products that are safe and useful, and operations that respect human rights around the world."
Google famously has the motto: "Don't be evil" but evil can be a slippery concept. Gmail, Google's immensely popular free email service is predicated on the company having implicit permission to scan the messages that go through their servers to target advertising to their users. A reasonable exchange by some standards - but also a part of the erosion of the expectation of privacy that long formed the basis of Americans' sense of personal freedom. Then, too, is the company's decision - widely reported and debated, to cooperate with the Communist Chinese government's monitoring of their citizens' web searches.
So being socially responsible is a matter left to the eye of the beholder. For some the traditional liberal-progressive model that SRI applies makes sense. For others, a more conservative-libertarian version of "doing good" that highlights personal responsibility and the freedom to do what you will with your own property and business feels right.
There is another way to approach to the whole matter of how investors can best support the kinds of social changes they support - what I call the Turner-Gates-Buffet model. Simply put, it means making a pile of money, then giving it away. Ted Turner became the world's most generous man in 1997 when he announced a $1 billion donation to the United Nations Foundation. Nine years later Warren Buffet, perennially listed as one of the world's richest men, trumped Turner, announcing he would contribute 85-90 percent of his fortune, estimated at the time at more than $44 billion to charity, the bulk of it going to the foundation established by his mega-rich close friend Bill Gates, who has also stated his intention to transfer almost all his considerable fortune to the foundation that bears his and his wife's names.
This approach doesn't depend on being a business genius or a superstar. Ordinary mortals like you and I can still make a difference with a reasonable portfolio of investments that yield enough money to provide for our families and out futures by being smart - and listening to those people who have made it their business to be even smarter. One of the people I recommend listening to is Daniel Frishberg, the Houston, Texas-based "Money Man" I have been tracking for the past few years.
One of the things I have found most interesting about Frishberg's approach is his willingness - one could almost say commitment - to defying the conventional wisdom. Most investors (and investment advisors, for that matter) tend to follow the herd. That is what the conventional wisdom is. It's a safety-in-numbers approach that works pretty well when the economy is humming along, or even in periods like the current one, where the economy as a whole is stuck in low gear but still moving forward. After all, in the last two years we've seen the Dow go from 7,500 to right around 11,000 with no clear sign that it is done going up. But we all know that what goes up can also come down, a fact that was made all too apparent when the Dow tumbled from its historic heights at the turn of the 21 century to reach that 7,500 level.
Not that Dan Frishberg is playing the contrarian - it's just that he looks beyond the horizon that most market watchers are focused on, using metrics that others ignore. In the past he has talked about watching for divergences in market movement - times when stocks, or the principle stock indexes, were reaching new highs while underlying factors such as the numbers of advancing issues versus decliners or upside volume were not. Now, he says, while these can still indicate the direction the markets are likely to move in, they are no longer predictors of immediate movement.
The Money Man cites a theory promulgated by technical market analyst Helene Meisler, who writes a daily column for TheStreet.com. Meisler's conclusion is that their reliably as crystal balls is being undercut because so much of the day-to-day activity on the major stock exchanges are the result of programmed trading. Programmed trades, as describes on a recent edition of "60 Minutes" are millisecond by millisecond transactions performed by supercomputers, based on algorithms that can sniff out small shifts in the stock prices. The computer programs are designed to take advantage of them to produce miniscule returns, multiplied by millions of shares, thousands of times in a trading day.
Still Frishberg advises. The very thing that makes the machines so successful at profiting from the mechanistic approach to stock trading makes it easy for real human beings to profit by focusing elsewhere.
What Dan Frishberg is suggesting nowadays is looking to opportunities in the global marketplace. Investing in Exchange Traded Funds in rapidly developing yet politically stable countries like Chile, Indonesia and Brazil, in Singapore and the Hang Sen stock exchange in Hong Kong. He is also very interested in plays involving basic industrial commodities like coal and iron pellets. Global growth, Frishberg argues, is strong these days because the trend toward building stable middle classes in what we once dismissed as the Third World is, in his opinion, an inexorable one.
So even if you're not rich yet, and you may never see your name on Fortune's list of the richest people in the world, there is still lots of opportunity to do some good by first doing well. By applying just some of the Money Man's insights in your own investment strategy, even if you never get to name a foundation after yourself, you can make yourself secure enough to make time to volunteer, to be able to afford to really put your money where your mouth is.
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