American politics has infected investing
economist.com
economist.com
The reality is ESG is just another gamed metric, if you want to do ethical investing that's probably not the best way.
Am in no way saying that a gas company should be included but the exclusion makes sense.
I think that's part of why people are disillusioned, because ESG lumps several incomparable verticals and quantitatively rank them.
A slightly flippant reading could be "How many kilo-tons of emitted CO2 is a 50/50 man to woman split in the workforce worth?" because that's pretty much how these are ranked.
It's not like they're all one thing.
> take precedence over the impact of the actual company
Either you think that social (and to a lesser extent governance) impact is impact or you don't and that will pretty much decide how you view ESGs. It's not as if Elon is ranting in a vacuum where those views don't manifest in real effects in the companies he owns and the wider political sphere. Regardless of how you feel about how S scores as they're currently measured and their worth as an ethical north star Musk companies don't get very many marks. And that's fine -- I think that's the point, it seems very purposeful. It seems that Elon only actually cared when that fact hurt his stock price, not on principle.
And I'm sure investing in 1789 Capital will skew the other direction and that's fine too. You won't hear me saying their indexes are illegitimate because they do what it says on the tin.
It's also not really American politics: concern for the global environment is a global movement. Most Western democracies have significant environmental planks in the platforms of whichever party is furthest left, and/or a whole Green Party.
Anti-environmentalism exists as more of a USA political movement, although it's starting to bleed into other countries (and into the financial world).
Happy Earth Day!
- ESG is overbroad and contradictory, and funds that select investments solely based on emissions criteria would serve investors better [0]
- ESG is ineffective because it is rife with greenwashing [1]
- ESG is fundamentally unable to accomplish meaningful progress on social goals because profit-seeking will always take precedence in corporations [2]
I don’t think every ESG-related piece they publish needs to include a lengthy disclaimer that the publication itself doesn’t love ESG, just as their critiques of ESG don’t need to include disclaimers about the downsides of boycotting firms that offer ESG products, as mentioned in the article:
> Taking a stand can be expensive. Researchers at the Federal Reserve and the University of Pennsylvania have found that anti-ESG boycotts raised the cost of borrowing for Texan municipalities by $300m-500m as banks with ESG policies withdrew from underwriting bond sales.
[0] https://www.economist.com/leaders/2022/07/21/esg-should-be-b...
[1] https://www.economist.com/leaders/2021/05/22/sustainable-fin...
[2] https://www.economist.com/leaders/2022/09/29/the-fundamental...
But just based on the beginning; our politics tell us something about how we expect the future to play out. How could that not influence investing strategies?
Politics has infected investing? Maybe we’ve been cured of the idea that financial plans can be made without regard to politics.
Edit:
In general, there’s a rhetorical game around putting things above or beyond politics. This is just “playing the refs.” The politics describes how we interact on the mass scale. Everything is part of it, including your and my hobby horses, no matter how much we’d rather have our special things be sacred.
Moreover, voluntarily internalizing externalities such CO2/environmental costs (beyond what is mandated by regulation) is likely to be a detriment to profitability, which is why the market can't solve that on its own in the first place.
This doesn't seem right to me at all. I want a lot of things I don't expect: abolition of the electoral college, a carbon tax which reasonably approximates the actual costs and damages caused by emissions, US single-payer healthcare, a really huge increase in home construction, elder-care nursing robots by the time my parents need them, etc etc.
It's a problem for big financiers who can't "sell to both sides without annoying either—a task that is becoming increasingly hard as new topics are dragged into the fray." That, in turn, means "smaller firms can indulge partisans."
Everyone wants after it because this is quintessentially dumb money and thus profitable to trade against, e.g. "anti-esg boycotts raised the cost of borrowing for Texan municipalities by $300m-500m as banks with esg policies withdrew from underwriting bond sales."
Politics and economy have always been intertwined. That isn't what this article is about. American politics is highly partisan. That partisanship is showing up in investing to an unusual, and potentially exploitable, degree. (It's also prominent in VC.)
I guess, sure, you'll experience some cost if you're trying to change other people's behavior. But perhaps for the political forces seeking to do this, whether or not you agree with them, one question is: are you better off experiencing those costs by boycotting investments you disapprove of, or by just paying for lobbyists or political ads to try to regulate to the system you want? Which gives you a better bang for your buck?
At the end of the day freedom of (non-)association is important and has only ever been regulated in a few ways that made it impractical for certain protected classes of people to live.
https://www.cnbc.com/2023/12/01/op-ed-war-is-a-good-time-for...
> "Continuing wars in Ukraine and Israel and Gaza, along with various simmering geopolitical hotspots around the world, could mean increased revenues for U.S. defense contractors, enhancing the allure of stocks in the aerospace and defense category."
However, the long-term problem in relying on military sales and LNG exports tu Europe for economic health is that these are not very productive activities, e.g. building a construction crane is going to have more positive downstream economic effects than building a tank will, as you can use it for infrastructure development, etc. This kind of behavior reflects investment capitalism's boom-bust cycle - a focus on short-term returns results in poor long-term planning, such as ending up in a permanent war situation out of economic necessity, which has never ended well in history.
Meanwhile, China's investment in high-speed rail and photovoltaics has made it the world leader in those sectors, so many countries will be turning to China for engineering & development work in the near future. Their state/private mixed socialism/capitalism model might also get new followers - it's demonstrably more stable and productive.
The change obviously being the politics and subsequent laws created to 'regulate' the market. But ultimately politics will taint it. Worse yet, it's clear that in the USA it has been corrupted since Clinton Era.
Clinton has a lofty goal of fixing the 'inner city ghettos' and how did it he do it? He repealed glass steagal. Which resulted in the 2009 financial crisis, but that was just the surface of that bad decision.
Something else rather unique to the USA is naked calls or even exercised options before strike date? Like the health of the US stock market via legislation and politics is so bad. This is in essence what the gamestop and wallstreetbets is making boatloads of money against; but is somewhat essential as the checks/balance to the US system.
> In a fair economy or well-run economy or political system, could Warren Buffett exist?
> No, I mean, right from the outset, he couldn't exist because the way in which he created his business is through creating an insurance conglomerate and using the payments for these large investments. And now he just makes money because he has money. When Warren Buffett goes into a stock, the stock moves and, following Buffett is a legit investment strategy that other people have. Buffett is largely untaxed on a lot of this stuff because he doesn't sell very often.
I've done IT work for people who literally do the monopoly thing. Buy 4 greenhouses, growing mainly tomatos and cukes. Later buy a hotel for where they wish to retire.
Ive done IT work for people who secretly own vertical businesses or for that matter an industry they've corners secretly. Even the top end managers in an individual business dont realize the owner has done this.
>No, I mean, right from the outset, he couldn't exist because the way in which he created his business is through creating an insurance conglomerate and using the payments for these large investments. And now he just makes money because he has money. When Warren Buffett goes into a stock, the stock moves and, following Buffett is a legit investment strategy that other people have. Buffett is largely untaxed on a lot of this stuff because he doesn't sell very often.
Like he's very public with his strategy. His big problem today is his scale.
Could someone today be an investor and become a lawful billionaire? Sure, lots of examples. fundamentally the trick is not try to 'get rich quick' or bet against something. It's to be optimistic betting that your investments bring legitimate value to the economy.
What buffet is essentially doing is being a high level manager of essential/important services/products.
I would even go further. Poor people invest in low/no risk bonds because they have a pessimistic world view which doesnt hold up to scrutiny. Whereas the rick invest in high risk stocks because they have an optimistic view.
My understanding is that this is where Buffett falls short. Or - probably a better way of putting it - this is where "value to the economy" takes on a different meaning to "for the good of society".
The main reason investers like Buffett look for monopolies is that they don't have to innovate or improve efficiency. If anything, the general tendency is for prices to go up while quality goes down. This is all done in the name of "good business". The result is that consumers lose out.
I guess it's pretty debatable. Insurance companies for example don't inherently do something and certainly have lots of controversy. So you could easily argue they arent good for society. But at the same time, they do exist and do very well and lots of people make use.
>The main reason investers like Buffett look for monopolies is that they don't have to innovate or improve efficiency. If anything, the general tendency is for prices to go up while quality goes down. This is all done in the name of "good business". The result is that consumers lose out.
https://www.cnbc.com/berkshire-hathaway-portfolio/
Looking at the top 11, where he holds 10% stake or more. None of these are monopolistic.
Looking at % of profile. He's obviously a huge apple fan, 40% of his portfolio, but apple isn't monopolistic. They have maybe 25% market share in any of their fields. They are very low amounts of vertical since they outsource manufacturing.
They pay out in case of loss...
> None of these are monopolistic
I researched the top few. Except for liberty media - which looks like a portfolio - they have all engaged in consolidating or anti-competitive behaviours. Perhaps not actual monopolies in the strictest sense, but I never claimed that he actually owned monopolies, and imo the only thing stopping them being actual monopolies is regulation.
- DaVita: "DaVita has a history of attempting to buy up competing dialysis clinics in an industry that is already highly concentrated, in large part due to the acquisition activity of DaVita and other large dialysis clinic chains" https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-imposes-strict-limits-davita-incs-future-mergers-following-proposed-acquisition-utah-dialysis
- Occidental: "Nearly 50 Democratic lawmakers in the US Congress have urged the Federal Trade Commission (FTC) to launch a comprehensive investigation into recent mergers and acquisitions by major energy corporations. The call for action comes on the heels of a significant uptick in consolidation within the sector, with oil and gas companies embarking on a $250 billion buying spree in 2023 alone. Leading players such as Exxon Mobil, Chevron Corp, and Occidental Petroleum executed acquisitions totaling $135 billion during the year, leveraging high stock prices to secure access to lower-cost reserves." https://www.pymnts.com/cpi-posts/democrats-call-for-ftc-probe-into-oil-and-gas-mergers-amid-monopoly-concerns/
- Kraft Heinz: "The merger between Kraft Foods and H.G. Heinz further consolidates the global food production into the hands of about a half dozen companies. These six multinational powerhouse corporations can exert enormous power over the retail grocery channel, and by extension control the dynamics of a necessary area for all people: the access to food. These corporations represent an emerging monopoly in an area where competition is needed, arguably, more than just about any other industry in the world." https://www.upi.com/Top_News/Opinion/2015/03/26/The-Kraft-Heinz-merger-the-monopoly-on-food/4591427324041/
A good summary, and explanation for why not to pay attention to this, except to note in passing another example of irrational, showy, self-defeating theatrics.
> 1) ESG investing is more active investing that will increase the probability of lower future returns. […] I won’t regurgitate Larry Swedroe and Cliff Asness’s excellent work on this subject so I’ll just a [leave link here] and [here in case] you want to see the financial cost of this investing strategy. The short version is, these strategies underperform in theory and in reality, as expected.
> 2) The secondary market is a bad place to enact change. The intelligent defense of ESG is “by reducing the demand for a stock we can increase its cost of capital and impact its operating performance.” This is true to some degree, but I think this is dramatically overstated. For instance, the firms in the S&P 500 are all large established firms that have more than enough capital to finance their operations. They aren’t using the secondary equity markets to fund their operations. In fact, most firms have so much capital that they’ve been net buyers of stock in the last 50 years. So, this puts the cart before the horse. The better way to think of public companies is to think of them like horse betting. We can bet on the horses, but secondary market purchases are just private exchanges, not cash issuance to firms. As a result, betting on the horses doesn’t change the outcome of the race. Similarly, our secondary market purchases and sales have a far smaller impact on the firm’s operations than we might think.¹
> 3) ESG investing puts more money in the hands of bad actors. […] This means that someone else is earning a higher return and potentially investing more of that money into the causes you don’t believe in. You are, in essence, choosing to earn a lower return thereby funding the very types of people you might disagree with.
> 4) No one knows what a “sin stock” really is. The only strict definition of a company that is “immoral” is something that is illegal. Aside from that, a company that operates a legal business is simply providing a service for someone who doesn’t view that business as morally contemptible. For instance, I have a very old truck that uses gas. I sometimes fill that truck up using XOM gasoline. Some people might find this morally contemptible. I do not.
* https://www.pragcap.com/my-view-on-esg-investing/
I find point (2) the most interesting from an 'enact change' point of view: voting with your wallet more directly encourages either certain types of products, or how they are made, whereas the (secondary) stock market does not as much unless you can get a voting block to enact company policies at shareholder meetings.
Ben Felix of PWL Capital has some videos as well (with links to the published research he cites):
* https://www.youtube.com/watch?v=c4AMFicXXqg
* https://www.youtube.com/watch?v=weVAN2HxXjk
A right-winger is better able to evaluate say parler vs truth social than a left-winger would be and thus able to invest with more confidence.
This is just insultingly dishonest the reality is that Infected, has infected wellbeing way way before politics infected investing.
Larry Fink and his sickly ilk have for too long affected working people.
I am pretty sure that the people he priced out of the housing market feel way different from the way the economist feels about this.
Even non essential things like videogames have seen themselves affected by this dishonest kind of investing. Backlash was just to be expected is insane that they want people to keep silent while everything they love is destroyed by New York financiers.