Low-Impact Investing

Imagine you are paid to tell wealthy investors where to put their money.  Three years ago you believed in modern portfolio theory and the so-called efficient frontier.  But around the end of 2008 all asset classes started moving in unison – southward – and then governments started throwing around hundreds of billions of dollars to, well, er….  Anyway, markets recovered through the end of 2009, but now they look random and you have no idea what to tell your clients to expect for annual portfolio returns.  You have a problem.

Imagine you’re a wealthy client.  You’ve lost faith in your advisor, but you don’t know where else to go for good advice, since most of the honest ones are sitting in a corner, rocking back and forth like apes taken too soon from their mothers.  Maybe you’re even a little guilty about making a pile during the funny money years and then watching millions of your countrymen lose their homes.  Again, you have a problem.

Now imagine a miracle product that would satisfy both the investment advisor and his client.  It would let the advisor tell the client he was winning every quarter.  It would make the rich client feel like investment is still a noble enterprise, and it would make him feel smart for being able to post quarterly wins again.  How would you design such a product?

Well, the old definition of winning would have to be replaced, or at least supplemented, by a new standard, and the new standard would have to be vague enough to allow any reasonably smooth talker the chance to claim victory even when financial returns are sub-par.  Enter Impact Investing.

Impact Investing is a poorly-defined investment style (not really an asset class) that asserts a non-financial bottom line, specifically a social or environmental benefit that the investor should value as highly as they once did financial returns.  In practice, it is a filter: Impact investors will look for investment opportunities that have some plausible non-financial benefit, and will exclude those for which such benefits cannot be claimed.  (Of course, it will take most companies around 6 minutes to start publicizing phantom social responsibility achievements, so what will really matter is not objective social or environmental results, but how confidently and empathetically your advisor can relay company press releases.)

For the investment advisor, Impact Investing is a license to practice incompetence while distracting clients with dubious claims to success- “Sure, your portfolio performance hasn’t matched the old, unenlightened benchmarks, but you may have saved an Indri lemur or two.”  Impact Investing will generate new revenues and pacify rattled clients, so investment advisors are about as happy to offer it as obstetricians were to offer Thalidomide back in 1957.

For the client, Impact Investing means a clean conscience and the sort of predictable, every-child-gets-a-gold-star victories that let him hold his head up in polite and ignorant company.  Less thoughtful clients may even believe that Impact investments will deliver best available returns while still saving the world – they will watch their portfolios languish until they figure out that a few hot funds don’t outweigh an unlikely investment thesis.

Recommendations:

  • If you are a fund manager, start an Impact Investing fund immediately.  Investment advisors will flock to it, and you’ll breathe easier knowing that you’re playing tennis with the nets down.
  • If you’re an investment advisor, and can stomach treating your clients with such cynical bad faith, allocate 10-20% of your clients’ assets to this new style.  And call it an asset class.  Simpler that way.
  • If you’re a client, run like hell from anyone who claims to advise on Impact Investing, since they are charlatans who are admitting that they can’t stand on their measurable investment returns.

Mobile Trends for the Next 10 Years

Seen (linked to) on GigaOM this morning, here is an interesting collaborative presentation containing a wide range of projections for mobile communication and computing.

Some ideas (a backlash against constant connections) aren’t news, while others (huge data traffic from networked pets) are way out.

The ongoing backlash against living through the Internet (if you’re reading this you’re probably a target) should intensify quickly if connected tablet computers (Apple’s rumored ‘iPad’) take off.

I’d bet on:

  1. Bluetooth earpieces for all-day wear (not implantable, though)
  2. Augmented reality helping us rediscover our sense of physical place, and also history
  3. Social networking will move to making introductions (or at least recommendations) based on immediate proximity (a start…)
  4. Mobile medical monitoring for health (including psychological health) and spiritual pursuits.
  5. Mobile imaging will combine with cheap, custom 3D manufacturing for instant knock-offs of products people see while out and about.  Yes, that’s the bonus weird projection.

250,000 Units? Why Bother?

The Twittering classes are speculating about how many Nexus One phones Google will sell, after a guesstimate by Flurry that put first-week sales at around 20,000 units.  250,000 units in the first year seems to be most retweetable annual projection.

Let’s say the speculators are correct.  Why would Google spend over a year to launch a phone that would sell at a rate approximately 99% lower than the iPhone?

My guess?  Google wants consumers to pressure both carriers and phone manufacturers so that nothing comes between us and the full suite of Google applications and services.  They want the press and a couple hundred thousand owners to tell us what we’re missing on tens of millions of other phones.

Phone makers change their phone’s features for various reasons, including simple product differentiation, carrier demands and engineering pride.  The phones we see have garbage applications and weird interfaces to make us spend more money on services, to satisfy backroom marketing deals or just because a development team wanted to keep a few more paychecks coming.  Verizon designs their phones to create billable user mistakes, Apple and AT&T keep Google Voice out of iPhone’s App Store, and Motorola tries create a hip phone by designing their Blur interface around social networking services.  These designs get in the way of Google’s grand plan to organize the world’s information. 

Probably most consumers don’t know why their phones come with certain features and not with others.  With Nexus One Google is betting that we will see what we’re missing and then figure out why, and then we will start do demand more Google on every phone made. 

Google doesn’t need to make money on Nexus One.  They probably don’t want to compete with their licensees.  All they need is for 250,000 people to see what is possible, and for everyone to hear about it.

Wanted: The Best Judges Money Can’t Buy

According to this morning’s New York Times, the US Supreme Court ruled that judges must recuse themselves from cases involving major contributors to their election campaigns.

West Virginia state Supreme Court Justice Brent Benjamin had received $3 million in campaign contributions from the CEO of Massey Energy, and Judge Benjamin claimed he could remain impartial in Massey’s case against a local coal company. Incredibly, the Supreme Court’s decision in this matter gained only the minimum majority, with Roberts writing a dissenting opinion.

How about using judicial elections as a trial (sorry) for publicly funded elections? Not the opt-in system in place in North Carolina since 2002, but a system that provides public money to each candidate and limits private donations to $100 per company or person.

Fewer eligible candidates should make it comparatively easy to decide who qualifies for public funds. More important, public funding would eliminate the real conflicts that come from concentrated campaign contributions, often from a candidate’s former colleagues at a single law firm.

North Carolina’s decision to provide public money for judicial campaigns and limit private donations is credited with making their elections more fair, but it may not go far enough. And other states have made public financing proposals that might only make incumbents harder to dislodge.

We know that campaign contributions are a gateway drug for legislators. Let’s put judicial campaigns into rehab before more judges sink to this.

You Are Now Free to Move About the Internet

Microsoft’s Bing search engine may be a winner just for not being awful.

It’s generally fast and good-looking, and it returns useful results along with a helpful left-hand column of terms to help you refine your search.

After a few days of use it seems clear that it won’t win many converts from Google. It’s not so hot at displaying product prices. But it is good enough to keep lots of people from steering Internet Explorer away from a non-Google default search engine.

So now Microsoft can keep more of the users it has by default from Internet Explorer’s dominating (around 66%) share, along with more of the users it purchases through marketing programs.

From the long, monotonous “beeeeeeeeep” of a flatlined heart monitor to the cheery “bing!” of a second chance. Good luck, Redmond.

Roubini Clarifies His ‘Optimism’

The man referred to as ‘Dr. Doom’ has been sounding a little more optimistic in the last 6 weeks, but he explains in this piece why mistaken policy responses will drag out the effects of our current economic crisis for at least a decade.

In short, Roubini argues that we should have ‘delevered’ by converting corporate and consumer debt into equity, but instead we just moved this debt to the government’s balance sheet, increasing total Federal obligations from from 40% to 80% of GDP. The increased debt burden will impose a tax of 3% GDP (around $450 billion), reducing productive public spending and crowding out private investment (and that’s before factoring in the unfunded obligations of Social Security, Medicare and a deteriorating national infrastructure).

You don’t have to read all the way to his fears of a W-shaped recession to convince yourself that canned goods, ammunition and field dressings are still your best-performing assets.

You’re The Only Sane Person In the Room

There is no such thing as unconflicted financial advice. Which should come as no surprise. Too many trillions of dollars are out there bidding for attention, and regulators never seem to catch up.

You already know about some of the obvious conflicts – somehow the SEC still lets mutual funds pay your advisor 12b-1 fees to ‘help’ his analysis (“Keep it fair! Keep it fair!”) – but something as unmanageable as career risk can make it hard for your advisor to follow sound independent analysis when that analysis conflicts with the market’s herd mentality.


Think of how difficult it was for investment advisors to raise cash in early 2008. Market PEs were ridiculously high, and the mortgage industry was already admitting that private debt levels were unsustainable – the market was saying “get out!” but most advisors were telling their clients to stay put. They were following a herd of their peers, and with good reason.

Think of who leads your advisor’s herd – thousands of fund managers, analysts and others who earn their livings from keeping investors in the game. No surprise that most were saying through most of 2008, “I don’t think the heavy stuff’s gonna come down for quite a while”. These herd leaders generate the core market information that investment advisors and journalists rely on. These conflicted folks are your advisors’ plausible deniability when the stuff hits the fan.

Your advisor would have risked serious damage to his career by bucking the happy herd in early 2008. Imagine if he had sold half your holdings and then the market had recovered: His clients wouldn’t have cared about the soundness of his analysis; they would have seen a guy who lost their money by ignoring benchmark financial institutions in favor of a hunch. They would have deserted him in droves. He could have lost his job and his home. So he probably raised faint objections to cover himself, and let the money ride. When the market tanked later in the year, at least he was in good company. He probably didn’t lose many clients, even from those who saw investment values drop by 25% or more.

If your advisor had told you to sell everything in early 2008 would look like a hero today, but for how long? People would remember his courage and prescience for maybe 18 months. He would attract more assets, make more money, but then he would be looking at the same risky decision again – follow the herd and be safe, or risk big on another unsupported recommendation. Eventually the odds will catch up to him.


Keep your advisor’s incentives in mind as the herd leaders start broadcasting their forecasts for a rapid market recovery. His difficult position is part of why Don Putnam says that, these days, “Clients are the only sane people in the room.”

A New Computer for 31 Cents

My old ThinkPad X31 became new again last weekend. It took just over an hour, and a 31-cent recordable CD, but the one-step installation created a working computer with a full set of applications for everything from spreadsheets to Skype.

The old laptop had been leaning against a bookshelf for at least two years, useless. I could have rebuilt it one more time with Windows, but just putting Windows on it would have taken an hour. Then I would have had to re-install Office, Firefox, anti-virus software, a bunch of updates for each of them, rebooting maybe 10 times in all. At the end it would have been a painfully slow system soaking up anti-virus protection money. So it just sat there.

On Saturday afternoon I decided to give Ubuntu Linux a try. I had little to lose by then – If all went poorly I could reload Windows XP, or just lean it back against the bookshelf and avert my eyes. Ninety minutes later I was checking email, making Skype calls, rebooting just to see what a 75-second start looked like (if only my Windows systems would do this).

Why would you want to try this?

  • For a new system for kids, houseguests or yourself.
  • For insurance against the Great Windows Plague of 20xx
  • Because it is much easier than you’ve imagined
  • For hundreds of free applications, many of them better than what you are using now
  • For fun, including the ton of games that come with Ubuntu
  • Because it might surprise your friends







After reading Linux
horror stories I was ready for a system designed to embarrass non-technical folk like me, so it was a shock to learn how easy it is to use Ubuntu.

  • The desktop (see screenshot) looks roughly like a Windows desktop, only it’s much easier to find all your applications, files and system tools. No strangeness at all there.
  • Adding a network printer took about a minute, requiring no wizards or CD. Ubuntu found the available printer (a 5-year-old Brother) and the next thing I knew I was printing.
  • Adding applications is a matter of a couple of clicks to find a menu of around 100 free apps, then a couple more clicks to decide what you want and install them. Wow.
  • All the cool ThinkPad features still worked. (probably because they are controlled by the BIOS, not by the operating system)

There were a couple of hiccups. Burning the Ubuntu installation CD required adjusting the burner software’s write speed (not hard, see this article). The system boots quickly, but applications do run a bit slowly. And I had to consult Ubuntu’s confusing Help menus to make the speakers work for Skype (took 5 minutes to set speaker output to ‘Pulse’). But ease of use in other areas has generally more than compensated for any effort required to learn the new system.

You probably don’t want to try this for a business system. Eventually, you’ll figure out that the documents you write on an open-source word processor won’t work perfectly in the Microsoft world.

But it’s great for web browsing, email, working with Skype and playing lots of included games. Some of Ubuntu’s bundled applications (Gimp photo editing, for example) are more powerful than most of what is available in Windows, so you might find yourself firing up your new Ubuntu system yourself to get certain things done.

HOW TO DO IT:

  1. Make sure your old PC has at least a 1 GHZ processor and 512 MB of RAM. Here’s how.
  2. Transfer all your important information (files, contact lists, email, etc.) from your old computer to a CD, another system or an external drive. Check to make sure your data survived the trip intact.
  3. Download the Ubuntu package from here. (note: you can also buy the CD from the publisher if you’d rather – in that case, bypass steps – )
  4. Download and install Infrarecorder on a system with a working CD burner.
  5. Burn the Ubuntu installation disk. Here’s how. Remember to set the recorder to burn at 4x or 8x speed.
  6. Confirm that the CD is correctly burned – put it into an optical (CD or DVD) drive, open up Windows Explorer and look for the Ubuntu logo on your optical drive.
  7. Set up the PC you want to install Ubuntu on so that it boots from its optical drive. Here’s how.
  8. Reboot the PC to be reconfigured, with the Ubuntu disk in the optical drive.
  9. Follow installation instructions. For help with this, go here.
  10. After you’re all done, re-set your computer to boot from its hard drive again.
  11. Have fun!