Recently Warren Buffett released his legendary annual letter to shareholders. Yet again it contains a number of gems on the importance of taking a long-term approach to your investments.
I particularly liked the following bullet points he made:
Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so.
Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.
Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)
The last point really resonated with me. A common topic of conversation among people in the financial industry is “where do you think the market is headed?”. Now often this is just friendly conversation, just like people talking about baseball or football. And that’s fine. But it also demonstrates how the culture in many investment firms is one of speculation, not investment. As Warren suggests we would all do better to spend less time betting on the fluctuations of gold and oil, or Facebook and Bitcoins, and more time finding solid, long-term investments that match up with our own expertise.
Thus I also wholeheartedly agree with Buffett’s recommendation for most investors to make investments in funds that track broad market indices like the S&P 500. Being a bit more of a global citizen than Mr. Buffett though (not that I would bet against the USA), I would suggest considering global index investments, or spreading your portfolio among the leading indices around the world.
But while passive index funds are a great way to sensibly invest your money, many investors today also want their money to help make an active difference in the world by supporting companies that are making the world a better place for us all. Wouldn’t it be great if there was an index fund in which you could safely invest your money, while knowing that the intrinsic power of your investments was being used to encourage the world’s biggest companies to clean up their act? And I’m not just talking about excluding unethical companies from your investment, I mean actually meaningfully compelling the world’s top CEOs to improve their companies behaviours using the power of your investments. Such a fund may soon be a reality, but more on this later…
It’s a clear example of long bottom line thinking: ”Tobacco products have no place in a setting where healthcare is delivered,” said CVS CEO Larry Merlo, ”when we asked ourselves where we expect to be in the future as a healthcare company, it became clear that removing tobacco products from our stores is the right thing to do.”
It’s estimated that removing tobacco products from their stores will cost CVS a 1.5% drop in revenue.
But hopefully the free publicity and the endorsement of the move by the Whitehouse helps make up for that lost revenue.
I’m feeling very grateful today as it seems like the internet is looking upon me favourably this January 27th. My sustainable clothing brand, Two Birds Apparel, was just featured on the Vancouver Is Awesome blog, where we talked about our experience growing a sustainable company from the ground up. I also just had my first guest post as a blogger published on Up Knorth, a visually-stunning blog about going back to basics and the great outdoors. You can read the entire post here.
A couple of years ago someone shared this video with me. Bea Johnson and her family took on the impressive goal of creating a Zero Waste Home, and have done an amazing job minimizing their waste to almost nothing. Reducing waste was my latest topic on the Two Birds Apparel lifestyle blog. See my full post here: http://bit.ly/1azxP1s.
With 2014 around the corner, many people are are committing to doing things differently next year. Maybe you want to develop a new habit, eat better, get in shape or see your finances grow. I just wrote a 2014 sustainable New Years resolution guide to help you find ways to achieve your new (or old) goals in a sustainable way. What sustainable New Years resolutions do you have for 2014?
PS – Click the link at the top of this post to see the blog post
The Prince of Wales recently lent his support to the first conference on True Cost Accounting in Food and Farming, which was held in London last week. As we all settle down for an enjoyable holiday season filled with wonderful food, it is good to pause for a moment and reflect with the Prince on how the system that generates our food needs to be improved.
As the Prince emphasises accounting for our use of natural capital is not just about making “the polluter pay”, but it can actually lead to real improvements and job creation:
“Could the principle of ‘the polluter paying’ actually inspire innovation that leads to economic benefits and generally propagate the practice of a more responsible approach?”
One of the main reasons my wife and I started Two Birds Apparel was to offer consumers a better alternative, both ethically and environmentally. In our latest blog post on the Two Birds Apparel Blog we provide some reasons why … Continue reading →
This past summer I saw a number of people post messages on facebook about an innovative design concept for mobile phones called Phonebloks. My favourite explanation of the concept is that it is the Lego of cell phones. The idea is that a global standard for mobile phones is created with removable components, or bloks, that can be upgraded individually or changed out if a component stops working. The original concept video does a great job explaining the design:
This concept has huge implications for electronic waste (e-waste). Imagine the next time your iPhone processor becomes too slow to handle the new operating system you could just buy a new processor blok and swap out the old one instead of scrapping the whole phone. Not to mention the savings from preventing a purchase of another $700 device or signing your life away to your wireless service provider. The Phonebloks website also suggests additional e-waste prevention possibilities that include biodegradable bloks, locally manufactured bloks (e.g., produced within 100km from your home), or second hand bloks.
Phonebloks used a technique they call “crowd speaking” to leverage the power of social media to gain attention from the giant telecom companies who have the size, balance sheets and technological know-how to make this idea a reality. I find it incredibly impressive how much this duo from the Netherlands has managed to achieve based on their concept video and leverage of their fans’ social networks. The company has successfully developed a partnership with (now Google-owned) Motorola – a former leader in mobile phone devices that has been trying to win back market share from Apple and Samsung. As a Google company, new and innovative approaches to technology are welcomed. Phonebloks created a second video to document their plans for future prototyping and information regarding their partnership with Motorola:
While this is an interesting concept, it is certainly not without its challenges. Mobile device companies would need to agree on a standard and might give up revenues due to fewer whole device sales. This also is not the only design concept for a modular phone (see this article on Eco-Mobius) – perhaps several mobile device companies will come out with their own version of the Phoneblok to keep device components proprietary to their brand. On the flip side, a global, open-source standard would allow companies to focus on their strongest areas, which could do great things for mobile innovation. For example, Apple could focus on creating the greatest operating system and user experience, while Canon and Nikon develop camera components. Personally, I would love to see something like this concept succeed. What do you think?
The definition of social returns is left open to interpretation by individual investors. In particular, while the social returns could reflect the altruistic motivations of an investor, they could also be defined more conventionally as the amount the investor spends on themselves (as we discuss in more detail below). Altruistic social returns also don’t have to be strictly social (e.g. job creation, health improvement, poverty reduction, etc.); they could also be related to the environmental good created by different investments (e.g. carbon reduction, water improvement, etc.).
My first two posts outlined three broad categories of ways to invest your money: with conventional, impact and philanthropic investments. I then suggested a few basic investment strategies you might follow to maximize your long-term social return if these investments provided the following returns: