Archive for August, 2006

Ok, time to get a few bees out of my bonnet. One bumble is the disincentives for long-term investment. You’ve heard the story: companies are pressured to focus on quarterly results by those damn hedge-fund analysts who hound them for short term results because they’re greedy money grubbers who just care about keeping score. But I’m starting to see the other side. Part of angel investing has meant acquiring a modest portfolio of my own, with the proviso that if I demonstrate I’m not just going to lose it, then I’m welcome to take responsibility for more assets. A sensible way to start. But wait a minute, even if I’m NOT trying to be responsible as an investor, we’re talking 2-3 years before we get feedback on whether or not I’m a hot private equity placer. As someone trying to think about the long-term, really we’re looking at seven to ten or MORE years before I have a substantial enough track record that I might ask someone besides my own spouse to trust me with their money. Well gol-ly, that’s a long time to demonstrate solo competence and grow my portfolio. Those 2-3 year investments are starting to look pretty good, and those institutional investors coming on and pushing for 1 year returns are looking less like greedy piranha and more like role models.

Obviously people get hired in finance in starting jobs with lower responsibility and 10 years isn’t unimaginably long to establish oneself in a career, but there’s more than just the personal-career-growth pressure for short-term results. We’re conditioned to think that way all the time. Think about the last time you looked at a comparison of mutual fund results. Every comparison grid starts with the 1 year (have you seen 1 quarter? I hope not), then the 3 year, the 5 year, the 10 year (that column that so often says N/A?). Perhaps mutual funds shouldn’t be permitted to publish less than three year results. Three years should be enough time to have poor returns come due on short-term decision-making that guts investments in hiring, training, customer service and product quality in pursuit of a stock price boost.

How about this pressure: Several fellow students and I have bandied about the possibility of doing a portfolio management challenge. A common business school activity, but for an SRI portfolio how do we decide who wins? A core issue for the entire industry alas. The industry answer is becoming “wait long enough and fiscal evil will be its own downfall.” Thus in a 2 year MBA program how do you run a socially responsible fund? It would have to run longer than that – we’re thinking five years. Perhaps it’s the activity at the first major alumni gathering – 3 years out we decide the winner of the SRI investment contest. Though the fact that investment is a contest at all (which to some degree it is in “real life”) is part of the problem. We need to get back to earning standing in your community and building relationships.

One bee gone. Let’s cross-post this to the BGI-blog and make it a double.

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