Profound ESG analysis could be a next important element in the investment field.
Fulton, Mark, Kahn, Bruce M. and Sharples, Camilla, Sustainable Investing: Establishing Long-Term Value and Performance (June 12, 2012). Available at SSRN: http://ssrn.com/abstract=2222740 or http://dx.doi.org/10.2139/ssrn.2222740
"The evidence is compelling: Sustainable Investing can be a clear win for investors and for companies. However, many SRI fund managers, who have tended to use exclusionary screens, have historically struggled to capture this. We believe that ESG analysis should be built into the investment processes of every serious investor, and into the corporate strategy of every company that cares about shareholder value. ESG best-in-class focused funds should be able to capture superior risk-adjusted returns if well executed.
This is the key finding of our report in which we looked at more than 100 academic studies of sustainable investing around the world, and then closely examined and categorized 56 research papers, as well as 2 literature reviews and 4 meta studies - we believe this is one of the most comprehensive reviews of the literature ever undertaken.
Frequently, Sustainable Investing is stated to yield "mixed results." However, by breaking down our analysis into different categories (SRI, CSR, and ESG) we have identified exactly where in the sprawling, diverse universe of so-called Sustainable Investment, value has been found.
By applying what we believe to be a unique methodology, we show that "Corporate Social Responsibility" (CSR) and most importantly, "Environmental, Social and Governance" (ESG) factors are correlated with superior risk-adjusted returns at a securities level. In conducting this analysis, it became evident that CSR has essentially evolved into ESG. At the same time, we are able to show that studies of fund performance - which have been classified "Socially Responsible Investing" (SRI) in the academic literature and have tended to rely on exclusionary screens - show SRI adds little upside, although it does not underperform either. Exclusion, in many senses, is essentially a values-based or ethical consideration for investors.
We were surprised by the clarity of the results we uncovered: 100% of the academic studies agree that companies with high ratings for CSR and ESG factors have a lower cost of capital in terms of debt (loans and bonds) and equity. In effect, the market recognizes that these companies are lower risk than other companies and rewards them accordingly. This finding alone should put the issue of Sustainability squarely into the office of the Chief Financial Officer, if not the board, of every company. 89% of the studies we examined show that companies with high ratings for ESG factors exhibit market-based outperformance, while 85% of the studies show these types of company's exhibit accounting-based outperformance. Here again, the market is showing correlation between financial performance of companies and what it perceives as advantageous ESG strategies, at least over the medium (3-5 years) to long term (5-10 years).
The single most important of these factors, and the most looked at by academics to date, is Governance (G), with 20 studies focusing in on this component of ESG (relative to 10 studies focusing on E and 8 studies on S). In other words, any company that thinks it does not need to bother with improving its systems of corporate governance is, in effect, thumbing its nose at the market and hurting its own performance all at the same time. In the hierarchy of factors that count with investors and the markets in general, Environment is the next most important, followed closely by Social factors.Most importantly, when we turn to fund returns, it is notable that these are all clustered into the SRI category. Here, 88% of studies of actual SRI fund returns show neutral or mixed results. Looking at the compositions of the fund universes included in the academic studies we see a lot of exclusionary screens being used. However, that is not to say that SRI funds have generally underperformed. In other words, we have found that SRI fund managers have struggled to capture outperformance in the broad SRI category but they have, at least, not lost money in the attempt."
Keywords: ESG, SRI, Sustainable Investing
Keywords: Facebook, Advertising
A MarketObservation editor wrote at the beginning of 2011, when Goldman Sachs structured the private investor deal:
Having hundreds of millions of users there is the potential for big subscription fees. This would be more or less additional profit for Facebook. But Facebook is offerig tremendous new advertising opportunities. Where else can you more precisely target your peer groups?! Maybe not such a bad deal for Goldman... an its clients.... - See more at: http://www.marketobservation.com/blogs/index.php/2011/01/08/facebook-a-bad-deal-for-goldman?blog=8#sthash.mEhCDYM0.dpuf
Contrary to common belief, many of the world’s most powerful nations promote the manufacture and sale of electric vehicles primarily for reasons of economic development – notably job creation – not because of their potential to improve the environment through decreased air pollution and oil consumption.
This is among the main findings of a study by researchers at the Indiana University Bloomington School of Public and Environmental (SPEA) and University of Kansas that analyzed policies related to electric vehicles (EVs) in California, China, the European Union, France, Germany, and the United States – political jurisdictions with significant automotive industries and markets for EVs. read more on the page of the School of Public and Environmental Affairs, Indiana University
Keywords: Environmental Policy, Industrial Policy, Electric Cars
Keywords: Traffic, Tesla
Apple dropped its Q3 2013 financial results hours ago, and the dust is settling: iPhones up, iPads down, some less-bad-than-expected news, and overall, an after-hours Wall Street vote of confidence.
But international sales is a problem that Apple needs to fix.
Here’s a quick look at Apple and international markets, both year-over-year (YoY) and quarter-over-quarter (QoQ):
◾apple declinesEurope: down $600 million YoY, down $2.2 billion QoQ
◾Greater China: down $800 YoY, down $3.6 billion QoQ
◾Japan: up $500 million YoY, down $600 million QoQ
◾Asia Pacific: flat YoY, down $1.2 billion QoQ
Sequentially, that’s down 19 percent, including the relatively strong Americas numbers. Year-over-year, that’s down 8 percent in Europe, 14 percent in China, and 18 percent in the rest of Asia Pacific, in spite of good news in Japan, which was up 27 percent. read more on Venture Beat
Keywords: Apple, Apple's International Sales, Apple Product Innovation
"Media companies can’t get rid of their publishing divisions fast enough. Yet investors can’t get enough of publishers’ stocks. So what’s the real story here?
Are newspapers and magazines a doomed, anachronistic business? Or have the surviving publishers found some equilibrium, learning how to get paid for digital content, driving down expenses, pivoting toward the broadcast business and harvesting value from New Media investments? Probably a bit of both.
The headline-nabbing performance of publishing stocks has also benefited from investors’ hunt for unloved and under-owned ideas, expectations of further industry consolidation and the fact that they had gotten so depressed over the prior five years or so. Most of the stocks leading the sector higher also own television stations, whose implicit value has surged based on recent transactions." read more on Yahoo Finance
Keywords: Media Companies, Internet, Print Media
Zeisberger, Claudia, Prahl, Michael and Wee, Jean, Private Equity and Family Businesses - Making the Partnership Work (July 18, 2013). INSEAD Working Paper No. 2013/81/DS/EFE. Available at SSRN: http://ssrn.com/abstract=2295314
"Fast growing Family Businesses have many choices when considering the sources of funding to expand their business. The article discusses a systematic approach to exploring a potential partnership between Growth Equity Investors and Family Owned Businesses. It describes under which circumstances Growth Equity can significantly contribute to the development of the family firm and contemplates the main issues to consider before entering into such a long term partnership. As such it acts as a valuable checklist for entrepreneurs and business owners to make better informed decisions when selecting a Growth equity or Private Equity investor to facilitate future growth."
Keywords: Private Equity, Family Firms
DOTCOM mania was slow in coming to higher education, but now it has the venerable industry firmly in its grip. Since the launch early last year of Udacity and Coursera, two Silicon Valley start-ups offering free education through MOOCs, massive open online courses, the ivory towers of academia have been shaken to their foundations. University brands built in some cases over centuries have been forced to contemplate the possibility that information technology will rapidly make their existing business model obsolete. Meanwhile, the MOOCs have multiplied in number, resources and student recruitment—without yet having figured out a business model of their own. read the whole article in The Economist
Keywords: MOOC, Online Education
1. “Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match.”
2. “Few stock pickers, if any, have the skill needed to beat the market consistently, year after year.”
3. “I actually am a believer in index funds. … if you don’t have very specific information, which some say you’re not allowed to have, you better not kid yourself that you can pick individual stocks.”
4. “For a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker.”
5. “The persistence of individual differences is the measure by which we confirm the existence of skill.” and “Five years is really nothing. I mean, people who go by the record of five years just don’t understand statistics.”
6. “Individual investors predictably flock to stocks in companies that are in the news.”
7. “Groups tend to be more extreme than individuals.”
8.“Many people now say they knew a financial crisis was coming, but they didn’t really. After a crisis we tell ourselves we understand why it happened and maintain the illusion that the world is understandable. In fact, we should accept the world is incomprehensible much of the time.”
9. “We explain the past with the greatest of ease, and we’re really crummy at forecasting the future….”
10. “Many people will admit that they made a mistake [putting money in dot-coms or telecoms at their peak] But that doesn’t mean that they’ve changed their mind about anything in particular. It doesn’t mean that they are now able to avoid that mistake.”
11. “A person who has not made peace with his losses is likely to accept gambles that would be unacceptable to him otherwise.”
12. People have “bounded self-control…. They have procrastination problems.” People don’t save enough money given their needs for things like retirement.
Keywords: Investing, Investing Biases
1. An earnings-to-price yield of twice the triple-A bond yield. The earnings yield is the
reciprocal of the price earnings ratio.
2. A price/earnings ratio down to four-tenths of the highest average P/E ratio the stock reached
in the most recent five years. (Average P/E ratio is the average stock price for a year
divided by the earnings for that year.)
3. A dividend yield of two-thirds of the triple-A bond yield.
4. A stock price down to two-thirds of tangible book value per share.
5. A stock price down to two-thirds of net current asset value — current assets less total debt.
6. Total debt less than tangible book value.
7. Current ratio (current assets divided by current liabilities) of two or more.
8. Total debt equal or less than twice the net quick liquidation value as defined in No. 5.
9. Earnings growth over the most recent ten years of seven percent compounded—a doubling of
earnings in a ten-year period.
10.Stability of growth in earnings—defined as no more than two declines of five percent or more
in year-end earnings over the most recent ten years.
Keywords: Value Investing, Value Investor, Value Investment Rules, Benjamin Graham
Extremley relevant graph for the judgement of the innovation power of countries.
Keywords: Inventors, Immigrants, Emigrants, Inventors
2013 top ten in Innovation Index Ranking:
1 Switzerland 66.6 (Score)
2 Sweden 61.4
3 United Kingdom 61.2
4 Netherlands 61.1
5 United States of America 60.3
6 Finland 59.5
7 Hong Kong 59.4
8 Singapore 59.4
9 Denmark 58.3
10 Ireland 57.9
I am puzzled by the renewed demand for the return of Glass-Steagall. I am puzzled not because Glass-Steagall might be bad policy but because it is so clearly a policy that doesn’t deal with the problems that created the financial crisis. If one had to sum the crisis up in one sentence it would be hard to do better than “a run on the shadow banking system.” The shadow banking system is that collection of mostly non-bank financial intermediaries who base their credit creation not on deposits but on repo, money market funds, SIVs, asset backed securitizations and other financial structures. The big new fact that I learned from the financial crisis and that I thought someone like Elizabeth Warren would surely also have learned is that the shadow banking system is larger than the regular banking system.
Separate commercial and investment banking? read more on Marginal Revolution
Keywords: Banking, Financial Regulation, Glass-Steagall
Keywords: Media, Google
"Much attention has been given to the recent growth of the U.S. federal debt. This paper examines the growth of federal liabilities that are not included in the officially reported numbers. These take the form of implicit or explicit government guarantees and commitments. The five major categories surveyed include support for housing, other loan guarantees, deposit insurance, actions taken by the Federal Reserve, and government trust funds. The total dollar value of notional off-balance-sheet commitments came to $70 trillion as of 2012, or 6 times the size of the reported on-balance-sheet debt. The paper reviews the potential costs and benefits of these off-balance-sheet commitments and their role in precipitating or mitigating the financial crisis of 2008."
Read also more on Econbrowser, the blog of the author.
Keywords: US Government Liabilities, Government Debt, Public Off Balance Sheet Commitments
One of the biggest economic stories in the world right now is the sharp slowdown in China’s economy. On Monday, the country reported that it had grown just 7.5 percent in the second quarter of 2013, a worrisome drop from previous quarters.
To get a clearer sense of why China is in such economic turmoil — and whether it could drag the rest of the world down with it — I called up Patrick Chovanec, a longtime China watcher who is currently chief strategist at Silvercrest Asset Management and was formerly an associate professor at Tsinghua University’s School of Economics and Management in Beijing. A transcript of our talk follows. read the whole interview with Patrick Chovanec in the Washington Post
Keywords: China, Chinese Economy
..."But while publishers revel in the robust margins provided by e-books — no manufacturing, no shipping and no remaindering — the growth of Amazon leaves them as secondary characters in a business they used to control.
Apple may be the one that was found guilty of setting prices, but Amazon has the kind of market power that allows it to set prices unilaterally. The company is already pulling back on discounts on scholarly and small-press books.
Barnes & Noble tried to keep up with the technological shift, but the company’s earnings were perforated by a $177 million loss from its Nook division, and that news took out William Lynch Jr., the chief executive, and threw a deep scare into publishers." Source: New York Times
Keywords: E-Books, Books, Book Market, Publishers, Amazon
Cambridge Associates: U.S. Private Equity and Venture Capital Funds Outpaced Public Equities in the Final Quarter of 2012. Both Alternative Asset Classes Turned in Solid 12-month Performances, According to Cambridge Associates, Boston, July 9, 2013
"In a fourth quarter fraught with political uncertainties, including the “fiscal cliff” negotiations, and other macroeconomic factors affecting the public markets, U.S. private equity and venture capital funds both generated positive returns for their investors and outperformed public equities, which were largely negative for the quarter. Continuing on momentum from a strong finish in 2011, both private asset classes also posted solid results for the calendar year, according to Cambridge Associates.
The Cambridge Associates LLC U.S. Private Equity Index® earned 3.5% for the quarter ending December 31, 2012, and 13.8% for the year ending on the same date. The Cambridge Associates LLC U.S. Venture Capital Index® returned 1.2% for the quarter and 7.2% for the year. The indices are derived from performance data compiled for funds that represent the majority of institutional capital raised by U.S.-based partnerships for their respective asset classes (private equity and venture capital, respectively). The following tabledetails the performance of the Cambridge benchmarks against several key market indices. Returns for periods of one year and longer are annualized." read more at Cambridge Associates
Keywords: Private Equity, Venture Capital
"THE term “alternative assets” conjures up an image of the counterculture—tie-dye shirts and magic mushrooms. But in financial jargon it means those assets that are not equities, bonds or cash. It covers everything from hedge funds to property, infrastructure projects to art.
When the stockmarket was rising by 20% a year in the late 1990s, interest in alternatives was limited. Equities provided all the excitement that investors needed. But in recent years a combination of poor stockmarkets and low bond yields have made alternatives fashionable.
Since 1995 global pension funds have increased their portfolio allocation to alternatives from 5% to 19%. In just the past two years there has been a 15% increase in the assets managed by alternatives managers on behalf of insurance companies, according to a new survey by Towers Watson, a consultancy. The 100 biggest alternatives managers look after more than $3 trillion of assets." read more in The Economist
Keywords: Alternative Assets, Asset Alloction, Pension Funds
Keywords: Retail, Technology, E-Commerce, Smartphones
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