2020 Summer Update
2020 is shaping up to be a historical year. It was only four months ago that everyone’s lives were completely upended by COVID-19. And just two months later, we all witnessed the murder of George Floyd, which led to massive demonstrations and protests in the streets.
Fighting Racism through Sustainable Investing
Mass incarceration, economic suppression, employer discrimination, unequal education and more. Systemic racism is a major problem in our society, and we collectively witnessed a major wakeup call. Watching the horrifying George Floyd video was a stark reminder of the unjust cruelty Black people face in our nation.
How can we move forward as a society in tackling racism and inequality? There are no easy solutions to such a complex problem, but one area that can contribute is sustainable investing. I believe anything that helps take action and moves the conversation forward is worth trying and exploring.
One of the most powerful ways to create change is to vote with your wallet. This is at the crux of sustainable investment strategies. Sustainable investing is a three-pronged approach that incorporates SRI, ESG and impact investing.
What is ESG investing? ESG utilizes ratings from third-party organizations that score companies on their commitment to environmental (E), social (S) and governance (G) factors.
The social (S) factor rates companies on how diverse their workforce is and how their products and services affect the local communities. It also rates companies on their charitable giving and culture of volunteerism.
Source: https://www.csrhub.com/CSR
Impact Fiduciary uses CSRHub – which pulls data from 691 sources – and, all else being equal, will invest in the companies that have the best-in-class ESG scores.
Investing in companies with a commitment to diversity in the workplace and a culture of community engagement is an important step forward in providing economic empowerment to minorities.
I believe this is a crucial piece of the puzzle that needs to be solved in order to move toward a better society. Of course, this is only one angle, but it’s still very important.
Social Media and the News Hijack Our Brains
At the heart of sustainable investing lies the question, “Do the goods and services a company provides make the world a better place?” Every company, good or bad, is trying to maximize shareholder value.
Money invested in sustainable companies can really make a difference by providing liquidity and financial support to speeding up their endeavors and making them more widespread.
In this context, I believe it’s more important now than ever to question how the news and information is disseminated. There is a powerful incentive for news and social media companies to have people click on their headlines in order to maximize ad revenue and stay engaged on their websites.
The best way to do this is to take advantage of the limbic system in our brains. The amygdala is the fear center of the limbic system that provides a micro dose of adrenaline when reading a scary headline.
I first read about this in Abundance: The Future Is Better Than You Think, by Peter Diamandis, which I highly recommend, and recently in Brain Wash by David Perlmutter MD.
Our brains have evolved over hundreds of thousands of years to pay close attention to any perceived threat. This creates a feedback system so that the scarier the news is, the more clicks it will receive and the more money the news organization will make.
The reason I bring this is up is twofold. 1) Buyer, beware of the news you consume. (By the way, if something is “free” on the web, then you are the product being monetized.) 2) Impact Fiduciary has taken steps to divest from social media with misaligned incentives.
If It Bleeds, It Leads
The financial news media is just as guilty of peddling fear. They had extremely scary headlines during the steep downturn in March. This caused some investors to panic and sell at the worst time possible.
Selling your stocks in March was extremely regrettable because it marked the bottom of the bear market and April was one of the best months of all time. This also could have potentially made the losses from March permanent.
Misinformation surrounding COVID-19 has been widespread. Depending on your news source, there are two main narratives: the pandemic is going to doom us all or the government is trying to take away all of our rights. This is not helpful on either front.
Impact Divests
Social media companies profit from this because they peddle the scariest news based on conspiracy theories that mix opinions with unsourced claims. This creates the most user engagement, which leads to more ad revenue.
Impact Fiduciary has divested from these types of social media companies over the past six months. It has become clear that their incentives are misaligned and at odds with a more harmonious society.
Delete = Happier
If you find yourself constantly checking your phone or spending too much time on social media then you may want to consider deleting the apps.
A University of Pennsylvania study shows that spending little or no time on social media actually makes people feel less lonely and depressed.
So how do you stay informed? I believe there are some things you can do to keep up with the current events while not necessarily being misinformed.
You can ask yourself a couple of questions when reading a news article or watching news on TV. What’s the author or news organization angle or narrative that they are trying to reinforce? How are they making the article salacious or scary to get more clicks?
Source: Fidelity Investments
Impact Fiduciary Portfolios
I’m proud to report that all of Impact Fiduciary’s portfolios have continued to outperform and are positive year-to-date while the market is flat to negative.
This is partly due to having no exposure to the fossil fuel energy sector and instead having exposure to companies and industries actively trying to solve climate change.
The Invesco Solar Index ETF (TAN) is up over 42% (the green line in the graph above), while the fossil fuel energy sector is down 37% year-to-date (the dark blue line above). This is a whopping 79% difference!
I’ll end this post on a lighter note. If you are looking for some laughs and a little escape from these challenging times, I recommend checking out a podcast that was recently re-aired from This American Life called 129 Cars which takes a behind the scenes look at a Long Island car dealership.
Enjoy the rest of the summer!
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Patrick Dinan, and all rights are reserved.