August 2014 - Speed Bumps

I find speed bumps to be particularly annoying. In India they put them on major highways in a fruitless attempt to control speeding. Try hitting one of those at 50+ miles per hour in an old Indian manufactured jeep-like vehicle with bad shock absorbers and no seat belts. It is the closest I have ever come, orwill ever come, to bungee jumping.

Now, I know why the ones in the US exist and with fifteen grandchildren, I do not want cars speeding through their residential neighborhoods, but I still find them annoying. They turn up in some of the most unusual locations and all too frequently, the signage isn’t far enough in advance to avoid getting jarred and risking damage to the undercarriage of my car.

So, what does this have to do with what this newsletter is supposed to convey? The answer is the world of investing is rife with speed bumps. The smaller ones are called “corrections” and the larger ones are called “bear markets.” Just as traffic speed bumps are there to cause drivers to slow down, the economic speed bumps slow down the economy and the financial markets. The speed bump could be a small one such as the mid-January to mid-March decline of 3.5+% or they can be like the highway ones in India (i.e. 60+% decline in 2008-2009).

As investors, we all need to recognize that they exist. We also need to recognize that we can’t be sure when they will appear, nor do we know how small or large the bump will be, but we do need to know that they are out there and we are eventually going to encounter them.

I can only think of three ways to deal with traffic related speed bumps. One: Stay home and do not drive anywhere. Two: When driving, do what I can to avoid them even it requires going out of my way. Three: Go ahead with my life and keep driving while staying alert to their existence and proceeding cautiously when I encounter them.

It’s pretty much the same for investors. We can avoid the economic speed bumps by staying out of the financial markets and sit around counting our cash. Another choice would be to venture timidly into the financial markets constantly looking for the first signs of an approaching speed bump. The third, and I believe the only rational choice if you are going to be an investor, is to have a roadmap (i.e.financial plan), follow the plan and deal with the speed bumps as they are encountered.

Any investor who believes that they can enjoy the upside good of the financial market place without having to deal with some speed bumps along the way probably also believes that there really is a Land of Oz. However, remember even Dorothy had to deal with scary flying monkeys.



August 2014

Impact Investing – What is it?

A fairly new concept in the world of investing is impact investing. Impact investments are those which are made with the intention of generating measurable social and environmental impact while realizing an appropriate financial return.

Conscience investments and mutual funds have been around for a long time. The idea is to avoid investing in so called “sin” stocks (such as tobacco, gambling, alcohol, etc.) The objective is to avoid aiding, associating with or profiting from the potential human misery resulting from these industries.

Impact investing is the opposite of conscience investing. The objective is not to avoid doing anything bad but to deliberately do something good.

In the past twelve months, Morgan Stanley, UBS AG, Goldman Sachs and JP Morgan Chase have all announced plans to establish activities in the realm of impact investing. These major firms are responding to what they recognize to be a desire of many of their clients to do good by not only making contributions but by using their capital in the form of investments as well.

In the eighteenth and nineteenth centuries social change and support systems were fueled by religious and non-profit organizations. In the twentieth, and twenty-first century to date, government has mainly assumed that responsibility. Based on current and foreseeable future circumstances, it appears that government cannot continue to sustain the social support levels that currently exist let alone any new initiatives.

There are pundits who believe that impact investing, and the capital that it could bring to bear in helping to finance and support companies that seek to address social and environmental issues, will be the next source of solutions to the problems that affect our society.

Stay tuned. I’ll try to keep you up to date as impact investing goes mainstream.