Investing as a Game
Leading up to the 2008 economic crisis, I was working in an industry that had financial models coming out of its ears. It was a highly measured and numbers-centric environment. We only focused on five things: the size of the deal, how much money we could make, how much money we could place in the capital markets, how much each banker was going to make in salary and bonus, and how much the people next to us were going to make.
Although we made numbers on computer screens get bigger and bigger, our activities actually created little value. We shuffled the numbers from financial institutions to our clients and back again, and the only thing we succeeded in doing was to make rich people richer. People pursued making lots of money so they could spend it on things that compensated for their unfulfilling work. Some bankers were like robots—living without purpose, chasing bonus payment after bonus payment, and spending more and more extravagantly at bars and restaurants, on properties, and on vacations. It was an expensive form of escapism and a never-ending pursuit. Bankers caught in the rat race sought things that made them feel good, but they were all superficial. These were highly extrinsic rewards.
Titles and goals achieved, listed with some monetary or number value attached to them, are shortcuts people often use to quickly form an opinion or assessment about someone else. But if no attention is paid to the actual value created, they remain shallow. Whenever I see people comparing their title or rank with others or think about people pursuing higher salaries, higher valuations, or bigger deals, it reminds me of the games you can find in the app store: win that badge, complete that level, get a higher score.
Leaving the conventional banking world prompted me to explore how approaching investing as a game could lead to people and the planet being exploited and the inequality gap widening. This led me to try to figure out what impact investing was about and make sense of the state of the investment world, and as I did, several questions came to mind:
Is investing in ethical, responsible businesses a more natural way of investing, or is investing just to make more money innate in people?
Why don’t all investors insist on higher standards of business ethics and the fair and ethical treatment of suppliers and workers? Why do people make investment decisions that lead to the insensitive and unsustainable plundering of the earth?
Why is investing with the sole purpose of making lots of money and then giving some away as charity or philanthropy the predominant approach to doing business and doing good? Why is the prevailing purpose of investing making more money?
I don’t have all the answers, but I do know that while returns are important, not everyone invests solely to make more money.
Striving to get the highest score motivates people to focus on maximizing profit and endless growth. It motivates people who believe that more for its own sake is better, ignoring who gets more, who is not getting more, and worse yet, who is getting less. It also motivates people to cut costs, since that will lead to greater profit—an approach that can lead to the planet being exploited and the long-term cost of environmental harm not being accounted for or being pushed onto someone else (such as future generations or countries where environmental laws may be more lax). Cutting costs can also mean someone in the supply chain being exploited, getting less, or being treated unfairly.
A focus on knocking all the competitors off the playing field or beating the other team creates an us-versus-them mentality.
Investing as a game causes the profit-motive to become unhinged from the purpose-motive, and participants to become more distant from the fact that businesses and investment decisions affect real people. Profit becomes a way of keeping score and an end rather than a means of taking care of the village.
Our current economic and financial system rewards people who play the game. Investment industry professionals place too much emphasis on metrics that reward game players—people constantly looking for rational reasons and measurable evidence to support the investment decisions being made. The rules and predominant culture of investing lean in favor of this approach. People who have earned high incomes or have significant financial wealth can more easily play in the investment game. Smart, entrepreneurial, creative people who have not played the game and lack the same kind of scorecard are left out, despite the fact that they have experience, expertise, and insights to contribute.
The investment industry fails to sufficiently acknowledge how vital trust, insight, foresight, emotion, intuition, and culture are because they do not find these decision influencers reliable. A vicious cycle results from this failure—one that depends upon game-like metrics and rewards game-like behavior, and discounts the importance of behavior that takes care of the village.
We need to change how we make decisions about investment because of the important role it plays in determining what businesses exist, what products and services are available to us, how we are employed or make a living, and ultimately how we get access to essential resources.
How to Take Care of the Village and Avoid the Bad Games When You Invest
There is a type of investment game playing that is particularly damaging to our societies and to our economies in the long run. I encourage you to learn how to spot it so you can avoid unknowingly participating in the game and instead invest with taking care of the village in mind.
The kind of game playing I’m talking about is when an investor uses a business in which they have invested as a game piece, and bases all their decisions on trying to maximize their score and knock all their opponents off the playing field (measured by their return on investment and beating out other investors).
Indicators that someone’s investing is driven by an extrinsically motivated game-playing approach include the following:
They appear to have invested solely to make money and maximize their own gains, rather than to create value, no matter the cost to people and the environment.
They place too much emphasis on numbers and metrics, and ignore how people feel about a business, as well as the impact it has on people when evaluating the business’s success.
They exhibit a lack of awareness of intuition, emotional intelligence, and empathy.
How they behave in their business dealings is not the same as how they behave in personal relationships.
They actually refer to investing and business as a game.
For example, someone investing in an advertising business that bombards people with ads for things they don’t really need is focused on profiting from people blindly spending and excessively consuming products and services. Someone investing in a payday loan business, like MoneyGrabbr, the example described earlier, is focused on profiting from people becoming trapped in a never-ending cycle of dependency on expensive debt.
Investing as taking care of the village, in contrast, is an approach that appreciates collaboration over competition, creates real long-term value for people and the planet, respects the needs of all people in the village, and plays a part in providing the resources needed to meet everyone’s needs. In contrast to someone who sees investing as a game, someone taking care of the village will invest in a business in the sharing economy, thereby repurposing and getting the full use out of products and services that otherwise sit idle. Given the choice between investing in a payday loan business and investing in a lending business that helps people save money and break out of debt dependence, an impact investor will choose the latter, regardless of whether the first is more lucrative.
Impact Is Personal
The “impact” in impact investing reflects how we feel when we, or others with whom we empathize, are healthy and happy. We can identify positive impact by the emotions of happiness, elation, or contentment. Positive impact can also elicit a feeling of satisfaction or being at peace with ourselves and others.
Our experiences and stories about impact tend toward an emotional response. We feel moved when we get improved access to essential resources or witness other people getting improved access t
o essential resources for sustenance, expression, connection, managing change and making decisions. Traditional investing approaches were built upon mainstream economic theories from the late eighteenth and early nineteenth centuries, all of which stated that a business’s primary goal should be profit maximization, decision making should be based on one’s self-interest, and rational decision making should be dominated by reason and analysis. Investors were told not to let emotions affect their decisions.
Some of the common emotions that researchers frequently cite as being dangerous in investment decision making include herd mentality, loss aversion, and fear of regret. What I believe to be missing from much of this research is how positive emotions that are not rooted in fear can positively affect an investment decision. When I have made major decisions in my life from a proactive place of positive emotion, rather than one of fear or a desire to avoid negativity, I experienced great outcomes. Given this, why do we not take positive emotions into consideration when investing?
In the 1970s, Milton Friedman promoted the idea of increasing shareholder value as the primary purpose of business, which set an easily measurable goal for businesses and motivation for investors. Some people were able to make a lot of money using this model, and therefore maximizing shareholder value became the predominant focal point of investment. Any idea of other forms of value creation—such as equality in societies and the empowerment of people—fell by the wayside. That left impact as the traditional focus of charity and philanthropy.
Charity and philanthropy, however, are not the only ways to have impact. Investing in purposeful businesses can also be effective. This isn’t necessarily a new idea, but it does harken back to times before maximizing shareholder value became the investment world’s focus. Investing in purposeful businesses is now more complex, with supply chains and customer communities spanning the world. This is why we need a different, more integrated approach, and a toolkit for making purposeful investment decisions.
Barbara Stewart, a portfolio manager who advises wealthy individuals and families, asked one hundred women how they spend their personal time, energy, and money and published her findings in her 2013 white paper “Rich Thinking.” Here are some of the personal causes her interviewees focused on:
Ensuring we all have water that is safe to drink
Sustainability and addressing climate change issues
Access to career development resources for unemployed, reading-challenged people
Responsible leadership
Providing electricity in fast-growing, power-deficient communities
Access to education for young girls in India
High-quality architectural design that really serves people
Technological advancements that benefit economies for present and future generations
Mentoring women on challenging work and life issues
Childcare and development for orphans and vulnerable children
Investing in companies and helping them solve problems, be more efficient, and create a better future for everybody
Receiving or providing legal services in a more efficient and accessible way
Health and medical innovations
Justice and opportunities for women
Working toward social justice through microfinance services
Offering wisdom, advice, and inspiration to people on challenging personal and professional journeys
Helping others make their ideas happen
Diagnosing and treating cancers
Spending time in the community in social services, arts, and education
Helping people reconsider overlooked spaces in their communities and appreciating how our physical environment tells a story about our communities and culture
Supporting entrepreneurs and entrepreneurship as an investor
Creating a women’s running series—runs by women for women
Issues of social and women’s justice
Preserving the privacy of our personal information
This is a long list, but it is by no means exhaustive. That’s the point: the diversity in the number of causes and types of impact that are possible demonstrates that impact is personal.
Causes and what people believe to be impactful in the world are as great in range as they are in diversity. However, they all have something in common: each of these causes relates to access to essential resources.
Thinking of impact in terms of improvement in people’s access to essential resources will help you make the transition from a mindset of charity and philanthropy to one of purposeful business and impact investing. This is the foundation of integrated investing.
Summary
There is more to life than just numbers. When we ignore words, narratives, and stories that evoke emotion, we ignore significant factors that affect our decisions. We ignore the intuition, gut feeling, hunch, internal whispers—whatever you want to call them—that help us navigate uncertainty and chart direction for the future. Investing is a complex activity that should involve all these things.
Impact investing is about contributing resources, typically financial in nature, to businesses with the anticipation of generating long-term future benefit, outcome, or return to increase and improve access to essential resources for you, your family, your neighbors, your community, and future generations. Impact is the improvement in access to essential resources, which empowers people, protects the planet, and creates more equal societies. Investing as taking care of the village succinctly captures this idea of impact.
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1 Elizabeth Littlefield et al, “Announcing the National Impact Initiative at the UK ’s G 8 Social Impact Investing Forum,” The White House Blog, June 7, 2013, accessed April 8, 2016, http://tinyurl.com/WhiteHouseImpactInitiative
2 Based on an actual short-term lender in British Columbia, Canada, where there are maximum fees for short-term lending. In other countries, the cost of a short-term, payday loan may be even higher. In the US , payday lending is legal in twenty-seven states, with nine others allowing some form of short-term storefront lending with restrictions.
3 Richard Wilkinson and Kate Pickett, The Spirit Level: Why Equality Is Better for Everyone (London, Penguin, 2010), 20.
4 Wilkinson and Pickett, Spirit Level , 22.
5 Wilkinson and Pickett, Spirit Level , 52–53.
6 Living Wage Calculator, accessed April 8, 2016, http://livingwage.mit.edu .
7 Farnoosh Torabi, “Why This CEO Pays Every Employee $ 70,000 a Year,” Time , April 23, 2015, accessed April 8, 2016, http://time.com/money/3831828/ceo-raise-70000-dan-price/ .
4
INVESTING WITH YOUR VALUES
W H ENEVER WE MAKE investment decisions, we are asked about our financial situation and appetite for risk, but not often about our values. Values are a representation of the compass by which we guide our decisions, and yet investment advisors tend to focus only on issues such as your bank accounts, what kind of insurance coverage you have, your savings for education, your financial net worth, your pension, and your retirement savings. When investment advisors do ask non-financial questions, they ask about hobbies and lifestyle, not about your values.
In 2007, I decided I wanted to align my personal investment portfolio more closely with my values, so I worked with a financial advisor to put my money into mutual fund investments. At the time, I thought socially responsible investment funds (SRI funds) were the only alternatives available to me that could reflect my values. I inquired about SRI funds with my financial advisor, but the conversations were short-lived. She typically directed me away from them, telling me they generated inferior financial returns compared to other funds. But financial return was not the only thing I was interested in. I wanted to invest in companies that were responsible, innovative, and demonstrated good leadership. To me, that translated into investing in companies that encouraged good stewardship of our planet and environment (like renewable energy companies), rather than those that exploit, pollute or cau
se damage to the environment (like oil and gas companies). It also meant companies that treated their employees fairly, empowered people, and promoted leadership diversity. Following the advice of my financial advisor meant that my personal investment portfolio did not reflect these values.
Frustrated by both my financial advisor’s lack of interest in values-aligned investing and the lack of nimbleness large, publicly traded companies afforded me in terms of changing my investments to reflect a more holistic set of values, I turned my attention to private companies without the support of my financial advisor. The misalignment between my values and the large companies I’d been dealing with, and my feeling of being unable to influence positive change in them, led me to integrate values into my work and to create more investment choices for other people who also wanted to invest in a values-aligned way. Since then, I’ve found that investing in private companies gives investors the opportunity to make choices that are more closely aligned with people’s values.
In Chapter 4 we will dig deeper into what investing with your values means. Investing involves a number of key decisions, and as I mentioned above, values help guide our decisions every day, in particular the major decisions in our lives. In the pages that follow, I will show you how values do the following:
Help you figure out how to decide
Influence your motivation to invest in the first place
Guide what broad areas or types of companies you should invest in
Integrated Investing Page 6