Quote of the week:
'Once you have the satisfying experience of this product, you will find you can't do without it.' - The reason why Japan is the second largest economy in the world - (PG-13 alert) Ahem ...
______
Help Wanted:
Ittihad is looking for an authentic genius (not like me - a real one) to work at our shining, pristine, glass enclosed cage (I mean Head Office) in Toronto for the summer (July / August). This genius will be called an Administrative Assistant and will be responsible for organizing the office and our infrastructure in a way that will allow Ittihad to take over the world one cubicle at a time. Ideally the person will be a University Student / Graduate who is willing to help administer, organize and help out with the many projects we have on the go while also interacting with the many illustrious CEO's and assorted big-wigs that drop in for a chat and Orange Juice from time to time. As such, excellent verbal, written and numerical skills are par for the course. The hourly pay is unlikely to be very high but the job satisfaction of working here will stay with you forever and will more than make up for the two months of poverty. An abiding interest in Islamic Finance or Ethical Finance would be an asset. Please send your resume directly to info@ittihadcapital.com . Do not call me or send me an email - if you do, I will become vindictive and ensure you do not get the job. I will also hide all your pens, put salt in your coffee and secretly put viruses on your computer if I am unable to get you fired in the unlikely event that you do get the job despite my wishes. Just try me.
_________
Commentary of the week:
Fooled By Randomness - by Nassim Nicholas Taleb (Book Report):
I read a pretty fascinating book recently whose ideas I would like to share with you all (yes, I do read even though it seems to you that I only write long emails). I think it will serve you all very well in life and it is perhaps one of the most intelligent books on the nature of knowledge, particularly financial knowledge that I have ever come across. Unfortunately, it is intentionally written sometimes in an offhand manner so one has to be a bit weird and resolute to get through it. Thankfully for you, your humble correspondent has those qualities in droves. What I am about to tell you though, may cause you to think about this a bit so be careful. I may butcher the point or it may come across as less profound than it is so if you like truth, you might want to get the book and read it in order to double-check the beautiful lies I am about to tell you.
The book is fundamentally about the nature of knowledge, how we come to know things, how we really come to believe that we know things and then how we keep acting on that knowledge even though it may not be entirely accurate. In the interest of action, we take short-cuts in analysis. Furthermore, even if we were to take no short-cuts, some forms of knowledge are fundamentally unknowable. You cannot for example tell me what the price of oil will be tomorrow, next year or ten years from now with any kind of intentional correctness (I can tell you, but this is about you, not me). One cannot not just tell the future, but cannot also not tell what rules will be in place at that time that will determine its lived reality. In that sense, we are double-blind, not only can we not predict the future with any degree of planned accuracy, we cannot also assume that today's parameters will work the same way. Nassim calls this problem the Turkey problem. I can pass on turkeys but love Cows. I will call it the Cow problem.
Let us say that we have a cow that we own and love and feed every day. It was born on the Ittihad farm and we are trying to keep it healthy by giving it lots of exercise and lots of food. From the cow's perspective, this is a great life. Not only are the geniuses at Ittihad neglecting finance, they are giddily procuring hay and whatever else this cow loves and feeding it with great care. Let us say then that this continues for a matter of 2000 days. The cow has evidence over the 2000 days of its existence that the Ittihad tribe means it no harm. It continues bonding and nuzzling with us as if we were friends. On the 2001st day however, it is the Big Eid. The Ittihad tribe breaks out the sharp steel and heaven becomes richer by one cow-soul and the Earth becomes poorer by one cow. Now, from the perspective of the cow, was there ever any evidence that we did not have its best interests at heart? Let us make this even scarier, even if the cow knew we were secretly cow-killers, did the cow ever know which day Eid was going to be? You are right, I think not. In the way things really work, we are the cow. We are fundamentally unprepared for the nature of Reality. We only live in our own smaller realities but are subject to the larger Reality that is known only by the Divine.
From a financial perspective, the question of whether the markets will go up or down tomorrow is a somewhat similar situation. We tell ourselves a story and make up reasons for our actions once we are committed to the concept of investing. Nobody really knows and nobody really causes anything. There are so many reasons and causes that we would exhaust ourselves with 'paralysis by analysis' if were to try and understand Everything before we did anything. I don't want to depress you about things because even though I have spoken of this 'randomness', as he called it, in a negative sense, we could also have set the cow free on the 2001th day. That would take away from the gravity of the situation however, so we stick with the negative for a bit more.
So on a practical basis then, what can be done to get out of this situation of unknowing? The first thing of course, is to recognize the fallibility of what he calls 'scientism'. Much of the 'expertise' on display (guilty as charged?!) cannot be trusted to produce a result in all circumstances. It can only be expected to give a plausible story to explain what perhaps happened or what might happen. If something actually does happen the way it was explained, then that still does not mean that the explanation and the cause are the same. For example, for the longest time, much of Europe believed that the Sun revolved around the Earth and that caused sunrise and sunset. This was a perfectly good explanation for centuries that stood the test of time. But the cause of sunrise today is known to be the fact that I wake up in the morning and need to find my slippers so the light is helpful. Similarly, I want to sleep at night and God is infinitely merciful and provides me with night.
So what does any of this have to do with Finance? Well, the way he describes the idea is that most of what happens in the financial markets on a daily basis is not driven by any long-term mechanics but by daily occurrences which are fundamentally unpredictable and unknowable. In such a context, investing for the long-term makes about as much sense as applying for a job as a cow on the Ittihad farm. Yet we do it, and we are usually okay because usually it is not Eid, and usually it is not our turn to become steak anyway. I am oversimplifying his point here a bit but I think it is better to give you the extreme scenario in order for you all be a bit more discerning in the way you invest. But let us move to the applications of this idea in other areas of your life.
On some days then, life itself must change. We either become inspired by something that makes us alive, never to be the same again; or we lose something or someone of great value. We are thus constantly called to be present in a way that is devoid of foreknowledge. As people of Faith then, or no Faith but spirituality, we trust this foreknowledge and ascribe it to the Divine. When we trust just ourselves and lose the momentary nature of our being, crashes in both our structures of knowledge and in the public markets are usually just around the corner. I don't mean to belabour this point, but perhaps it is much better to simply prepare yourself not for any outside reality that you cannot really predict, but simply to prepare yourself for yourself. Maybe all the struggles are just internal, and the rest is just noise ... but my thoughts become random, just as was accurately predicted by the Book. You decide.
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Upcoming Events:
We have been invited by TARIC mosque (located here) to present our views on Islamic Finance on Saturday, the 21st of June at 7:00 pm. I encourage everyone to attend with friends as the discussion will focus on the place that Islam does or does not have in our financial choices. By the end of the discussion, attendees should have a good idea about how to judge the IF field for themselves. This is a discussion that will IA take place outside the logic of a sales presentation so you can leave your cheque-books at home, we will accept Halal Credit Cards instead (Relax, I'm kidding). Come with friends and come with difficult questions - hopefully, we will trade in good ideas that will profit our minds.
__________
Finance News:
1. Want to know what really happens to your mortgage after you sign it at the bank? ... read more here
2. Think your company pension plan is safe? Check again. I don't mean to alarm you but I have heard a lot of complaints on the issue ... read more here
3. We have not discussed the credit crisis for a while but here it is once more. It's not over yet ... read more here
Economic News:
1. I thought we were in a new age where words like stagflation were relics of the past, but I guess not
2. Canada's housing market cools ... read more here
Islamic / Middle East / Emerging Markets:
1. The UK Financial Services Authority about to announce its strategy vis a vis Islamic Finance soon ... read more here
Interesting but not all Finance:
1. Canada apologizes to the First Nations for a Century of abuse (hat-tip to Siddiq Mohamed) ... read more here
2. Harvard finally figures out what makes people happy. Took them long enough to find out about Zakat, eh? ... read more here
3. A car that runs on water, well not on water, but with water instead of gas. Again, it's the Japanese ... read more here
Tuesday, June 17, 2008
Sunday, June 15, 2008
Does Ethical Investing Work? (Part II)
Quote of the week:
'Besides being a leader in genetic engineering, Monsanto is one of the largest suppliers of seeds in the world. It also sells the widely used herbicide Roundup, use of which has grown with the adoption of genetically engineered crops resistant to Roundup.' - The NY Times lets slip how the Agri-Food business really works.
The Ittihad Weekly Briefing is now archived at: www.ittihadsecurities.blogspot.com
Commentary of the week:
Does Ethical Investing Work? (Part II - contd. from the last issue):
As promised, this week sees us beginning to tackle the idea of Ethical or Socially Responsible Investing (SRI), which are actually slightly different from each other but which I will knowingly treat as two peas in a pod for the purpose of most of our discussion. The actual difference is that SRI is typically a negative screen which roots out bad apples in the corporate sector, whereas Ethical Investing is a search for the 'good apples' in the stock market in which we can invest. For the purposes of our discussion today, think of them as identical twins - they might be different in theory, but to us they look the same (this is called the problem of reductionism in logic - a severe logical fallacy for lesser mortals).
As we discussed last week, one of severest problems we face as people who believe that we are responsible and accountable for our wealth (or debts), not just our actions - is the inability to control what uses our funds are put to if we plug into the conventional financial system in any meaningful way. Given that we 'need' to have mortgages, savings, credit cards etc. simply in order to live 'normally', how are we to ensure that the hard-earned money we earn and save for our kids is not actually going towards poisoning the very Earth and the water that will be left for our Grand-kids? In a system that functions according to its own value-less logic, how do we live and function with the values that we do have without feeling like hypocrites who talk a lot but whose money is still part of the problem. After all, nobody really believes that we should spread poisons like cyanide in their own backyard, so then why is okay if it is done 2000 km away (and we ignore it) if the rivers will simply carry it to your neighbourhood (if not your cousin's) in a matter of weeks? How much is clean water really worth? The economists of the world have a really good answer to this question - so good that it is not even worth discussing.
Our answer has to be different. We must of course, begin to impose some limits (did someone say values) on how capital is taken from our savings, put into companies that do damage, and then given back to us in a sanitized manner without us really knowing what it has been up to in the meantime. This is the moral disintermediation problem we discussed two weeks ago and even though I was away for more than a whole week, I return to see it still has not been solved (come on people ...).
One possible proposed solution has been the movement towards Socially Responsible (SRI) or Ethical Investing. This is the movement where individuals and investment companies screen and focus their investment activities by first screening out 'bad' corporate citizens from their portfolios and then investing instead in companies that are either improving their image or practices, as the case may be. This is supposed to have two effects (at least). One, it signals to companies and governments (perhaps) that they need to have policies and governance mechanisms in place that will protect egregious abuses and that someone is always watching. Two, it is supposed to deny capital to the 'bad' companies and deny much needed liquidity to their shares in the stock markets so that the stock collapses and the company is sold to someone with a better handle on both business and morals.
This sectors has now grown to over $500B in Canada (which is big) and there seems to be a groundswell of interest in the subject. People from all backgrounds are now asking their financial advisor questions about whether there is anything available which makes them money and is also not damaging to the environment. God only knows how this question is being handled in your household my advisor is very shifty with his answers. One suspects that he knows less about this sector that he lets on, but I digress (and embellish). The question for us is whether SRI does what it intends to do? Does SRI solve the problem of disintermediation? Does it signal the right thing to companies? Does it deny capital to corporate offenders?
The answers to these questions are, from my humble perspective - Yes and no, no, yes & then finally - no. Clear as mud? Let me explain. SRI as a sector is only partly successful (to date) given its intentions. It does not solve the problem of moral disintermediation because we still do not know what our money is up to and where it actually goes (transparency is still an issue). It does signal extremely well to companies that investors are waking up, but ultimately it does not really deny capital to companies with faulty records and dubious future plans. This is because the top holdings for many SRI funds and portfolios in Canada are the banks. This would not ordinarily be a problem except for the fact that in Canada, the banks are actually the largest producers and channels of capital (no, not the government). Even though some investment capital is moving away from companies directly, the same investment capital finds its way to companies through the banks in the form of debt instead. The SRI fund invests in a new offering of bank shares, the bank turns around and loans this money to Company G. Cyanide still finds its way into the water supply. The difference though, is that Company G has a more difficult time (sometimes) selling its shares. Is this success?
Of course, it is too early to say and I think that we should all as people still investigate it for ourselves, but in my opinion, and I fully recognize that I am both a bit weird and in the minority, but we need something a little more drastic. At the very least, the SRI sector needs to begin to demand that the banks begin to include SRI considerations in their loan criteria. That will send shockwaves through the corporate board-rooms where the environment is considered little more than a garbage dump because they know they can always get a bigger loan. It will also begin to address the seriousness of the situation in a way that will change practices quickly, rather than at the leisurely pace that things are usually done in Canada. Of course, as believers, we do not think that the banks' business models are good for society at all, but that is no reason to think that they could not have better practices than they do at the moment. I leave it up to you to decode where IF fits into all this, but from my perspective, we really have to stop thinking about just money when we talk about money. As thinking, feeling people, we are called to a deeper existence.
--------------
Upcoming Events:
We have been invited by TARIC mosque (located here) to present our views on Islamic Finance on Saturday, the 21st of June at 7:00 pm. I encourage everyone to attend with friends as the discussion will focus on the place that Islam does or does not have in our financial choices. By the end of the discussion, attendees should have a good idea about how to judge the IF field for themselves. This is a discussion that will IA take place outside the logic of a sales presentation so you can leave your cheque-books at home, we will accept Halal Credit Cards instead (Relax, I'm kidding). Come with friends and come with difficult questions - hopefully, we will trade in good ideas that will profit our minds.
__________
Finance News:
1. Wonderful Q/A session with a serial entrepreneur (hat-tip to K Niazi) ... read more here
2. Remember how Dr. Yunus from Bangladesh got the Nobel Prize for Micro-finance a few years ago? Well, this article looks at some recent happenings in the world of Micro-finance. I believe the word used was 'shocking' ... read more here
Economic News:
1. The Economist's analysis of the prospects for the Oil markets ... read more here
2. House prices fall faster than in the depression ... read more here
3. Some insights about what drives Innovation in an economy ... read more here
4. The companies whose tinkering with our food supply contributed to the food crisis in the first place now say they have a solution ... this news is most disturbing ... read more here
Islamic / Middle East / Emerging Markets:
1. In case you were still wondering where Oil Money usually goes ... read more here
2. The definitive and final reason on why Japan is the absolute and most advanced civilization on Earth (ever) ... read more here
Interesting but not all Finance:
1. In case you're wondering where to go for the summer ... read more here
2. A new way to clean up oil spills? ... read more here
3. A new site to help you analyze your business ... read more here
4. A wonderful play about a girl from the US who died under tragic circumstances in Palestine recently. A must see for those interested in how wars affect people's livelihoods and why Ethical Investing has an aversion to investing in defence related industries ... read more here
'Besides being a leader in genetic engineering, Monsanto is one of the largest suppliers of seeds in the world. It also sells the widely used herbicide Roundup, use of which has grown with the adoption of genetically engineered crops resistant to Roundup.' - The NY Times lets slip how the Agri-Food business really works.
The Ittihad Weekly Briefing is now archived at: www.ittihadsecurities.blogspot.com
Commentary of the week:
Does Ethical Investing Work? (Part II - contd. from the last issue):
As promised, this week sees us beginning to tackle the idea of Ethical or Socially Responsible Investing (SRI), which are actually slightly different from each other but which I will knowingly treat as two peas in a pod for the purpose of most of our discussion. The actual difference is that SRI is typically a negative screen which roots out bad apples in the corporate sector, whereas Ethical Investing is a search for the 'good apples' in the stock market in which we can invest. For the purposes of our discussion today, think of them as identical twins - they might be different in theory, but to us they look the same (this is called the problem of reductionism in logic - a severe logical fallacy for lesser mortals).
As we discussed last week, one of severest problems we face as people who believe that we are responsible and accountable for our wealth (or debts), not just our actions - is the inability to control what uses our funds are put to if we plug into the conventional financial system in any meaningful way. Given that we 'need' to have mortgages, savings, credit cards etc. simply in order to live 'normally', how are we to ensure that the hard-earned money we earn and save for our kids is not actually going towards poisoning the very Earth and the water that will be left for our Grand-kids? In a system that functions according to its own value-less logic, how do we live and function with the values that we do have without feeling like hypocrites who talk a lot but whose money is still part of the problem. After all, nobody really believes that we should spread poisons like cyanide in their own backyard, so then why is okay if it is done 2000 km away (and we ignore it) if the rivers will simply carry it to your neighbourhood (if not your cousin's) in a matter of weeks? How much is clean water really worth? The economists of the world have a really good answer to this question - so good that it is not even worth discussing.
Our answer has to be different. We must of course, begin to impose some limits (did someone say values) on how capital is taken from our savings, put into companies that do damage, and then given back to us in a sanitized manner without us really knowing what it has been up to in the meantime. This is the moral disintermediation problem we discussed two weeks ago and even though I was away for more than a whole week, I return to see it still has not been solved (come on people ...).
One possible proposed solution has been the movement towards Socially Responsible (SRI) or Ethical Investing. This is the movement where individuals and investment companies screen and focus their investment activities by first screening out 'bad' corporate citizens from their portfolios and then investing instead in companies that are either improving their image or practices, as the case may be. This is supposed to have two effects (at least). One, it signals to companies and governments (perhaps) that they need to have policies and governance mechanisms in place that will protect egregious abuses and that someone is always watching. Two, it is supposed to deny capital to the 'bad' companies and deny much needed liquidity to their shares in the stock markets so that the stock collapses and the company is sold to someone with a better handle on both business and morals.
This sectors has now grown to over $500B in Canada (which is big) and there seems to be a groundswell of interest in the subject. People from all backgrounds are now asking their financial advisor questions about whether there is anything available which makes them money and is also not damaging to the environment. God only knows how this question is being handled in your household my advisor is very shifty with his answers. One suspects that he knows less about this sector that he lets on, but I digress (and embellish). The question for us is whether SRI does what it intends to do? Does SRI solve the problem of disintermediation? Does it signal the right thing to companies? Does it deny capital to corporate offenders?
The answers to these questions are, from my humble perspective - Yes and no, no, yes & then finally - no. Clear as mud? Let me explain. SRI as a sector is only partly successful (to date) given its intentions. It does not solve the problem of moral disintermediation because we still do not know what our money is up to and where it actually goes (transparency is still an issue). It does signal extremely well to companies that investors are waking up, but ultimately it does not really deny capital to companies with faulty records and dubious future plans. This is because the top holdings for many SRI funds and portfolios in Canada are the banks. This would not ordinarily be a problem except for the fact that in Canada, the banks are actually the largest producers and channels of capital (no, not the government). Even though some investment capital is moving away from companies directly, the same investment capital finds its way to companies through the banks in the form of debt instead. The SRI fund invests in a new offering of bank shares, the bank turns around and loans this money to Company G. Cyanide still finds its way into the water supply. The difference though, is that Company G has a more difficult time (sometimes) selling its shares. Is this success?
Of course, it is too early to say and I think that we should all as people still investigate it for ourselves, but in my opinion, and I fully recognize that I am both a bit weird and in the minority, but we need something a little more drastic. At the very least, the SRI sector needs to begin to demand that the banks begin to include SRI considerations in their loan criteria. That will send shockwaves through the corporate board-rooms where the environment is considered little more than a garbage dump because they know they can always get a bigger loan. It will also begin to address the seriousness of the situation in a way that will change practices quickly, rather than at the leisurely pace that things are usually done in Canada. Of course, as believers, we do not think that the banks' business models are good for society at all, but that is no reason to think that they could not have better practices than they do at the moment. I leave it up to you to decode where IF fits into all this, but from my perspective, we really have to stop thinking about just money when we talk about money. As thinking, feeling people, we are called to a deeper existence.
--------------
Upcoming Events:
We have been invited by TARIC mosque (located here) to present our views on Islamic Finance on Saturday, the 21st of June at 7:00 pm. I encourage everyone to attend with friends as the discussion will focus on the place that Islam does or does not have in our financial choices. By the end of the discussion, attendees should have a good idea about how to judge the IF field for themselves. This is a discussion that will IA take place outside the logic of a sales presentation so you can leave your cheque-books at home, we will accept Halal Credit Cards instead (Relax, I'm kidding). Come with friends and come with difficult questions - hopefully, we will trade in good ideas that will profit our minds.
__________
Finance News:
1. Wonderful Q/A session with a serial entrepreneur (hat-tip to K Niazi) ... read more here
2. Remember how Dr. Yunus from Bangladesh got the Nobel Prize for Micro-finance a few years ago? Well, this article looks at some recent happenings in the world of Micro-finance. I believe the word used was 'shocking' ... read more here
Economic News:
1. The Economist's analysis of the prospects for the Oil markets ... read more here
2. House prices fall faster than in the depression ... read more here
3. Some insights about what drives Innovation in an economy ... read more here
4. The companies whose tinkering with our food supply contributed to the food crisis in the first place now say they have a solution ... this news is most disturbing ... read more here
Islamic / Middle East / Emerging Markets:
1. In case you were still wondering where Oil Money usually goes ... read more here
2. The definitive and final reason on why Japan is the absolute and most advanced civilization on Earth (ever) ... read more here
Interesting but not all Finance:
1. In case you're wondering where to go for the summer ... read more here
2. A new way to clean up oil spills? ... read more here
3. A new site to help you analyze your business ... read more here
4. A wonderful play about a girl from the US who died under tragic circumstances in Palestine recently. A must see for those interested in how wars affect people's livelihoods and why Ethical Investing has an aversion to investing in defence related industries ... read more here
Wednesday, June 4, 2008
Investing and Ethical Investing (Part I)
Quote of the week:
'It is what you read when you don't have to that determines what you will be when you can't help it.' - Oscar Wilde
The Ittihad Weekly Briefing is now archived at: www.ittihadsecurities.blogspot.com
Commentary of the week:
Difference between Investing & Ethical Investing (Part I):
For regular readers of the briefing, you all know how I usually nitpick and split hairs in order to arrive at any deep insight (or any insight for that matter). This week is a bit different, and it is not some esoteric minutiae of finance that is under discussion but rather what we do with our money on a practical basis all day, every day, all night, every night - for even though we are all sleeping, the stereotypical financial corporation is wide awake and thinking of your money. I don't mean this is a bad way of course, you all know by now how deeply I respect the world of finance (hmm). I just mean that even though you think your money is safely laying golden eggs in a bank account, GIC, mutual fund, hedge fund, LP, Stock or Bond, it is actually nowhere close to any such entity. It is lost in a sea of electrons, moving from your corner bank branch, brokerage or financial advisor, through public markets such as the TSX and into and out of the pockets of actual people and companies again somewhere else, only to show up on your bank / investment statement at the required end of the month exactly as scheduled. In this sense, your dollars are like me when I was in high school: registered, but not always present (ah, those were the days).
For example, if you invest in a mutual fund and the mutual fund participates in the IPO of a mining company, then a portion of your money has actually found its way into the coffers of the mining company. Let us then also suppose that this Gold Mining company is imaginatively called Company G. A portion of that portion then, went into the purchase and use of cyanide (yes, the poison) which is used in the separation the gold from the sulphurous rocks in which it is usually found. This cyanide then, after the gold has been extracted, then finds its way sometimes (some say always, it is only a matter of time) into the local water supply. Company G then gets sued and in order to protect your hard earned savings from seizure in legal claims, you now find yourself on the wrong side of a legal case involving poor farmers from some foreign country whose livestock and children are sadly no more and whose lands are no longer safe for the growing of food. Your financial health and moral imperative are now in conflict and this causes you great trouble. You read about the issue, go the Annual General Meeting (AGM) and demand that the company change its practices and begins to use a safer chemical than cyanide for the extraction of Gold. But wait a second, you are not a shareholder of the company. What!!!, you ask? How can that be? They have your money after all and surely you can do something to make them stop poisoning the Earth, can't you? Alas, my friends, you invested in a brand name mutual fund, not in Company G. Not only do you not know which companies you have invested in beyond the top ten, you also do not know which countries each of those then are involved in and what it is that they do once they are there. After all, you need to see the 10+% return on investment every year that the Financial Advisor promised you and also, you are not in finance - so how is all this your problem? Surely, someone else is supposed to be making sure your money is spent in good things while making good money. Isn't that why you pay your advisors? (and trust me, you do pay).
Excellent answer. This is indeed not your problem because you cannot solve it. Your mutual fund solves this dilemma for you quite neatly. You neither ask what it is that they do with your money and they oblige your intense curiosity by not telling you. But even if they did tell you, what could you do? You are not a full shareholder in the companies in which you have invested. You are just a unit-holder of the mutual fund. The mutual fund doesn't have the mandate to actually prevent the use of cyanide even if they knew what the devil it was; the mutual fund wants the company to extract as much gold as possible for the least amount of costs without getting into too much trouble with the authorities. You provide the money, the bank provides a loan, the mutual fund provides 'intermediation', the government(s) provides the mining license and company G provides the returns. The farmers provide just collateral damage. Since they are not Canadian / American / European and they don't make the 6:00 pm news and because Company G has great lawyers and a large advertising budget that keeps the story from getting to us - you and I don't have to think about where the returns came from. All parties are able to sleep at night without use of Xanax, except for the poor farmers for whom all sleep is short and whose insomnia is spent in remembrance of that which brought them such joy in a land that existed a long time ago.
This, in a nutshell is called Investing. While I have picked (perhaps unfairly) on mutual funds and mining this week, this story applies to other sectors and savings / investment vehicles as well. Also, the major point here is not that mining is terrible (which it might well be), but that we are constantly plugged into a system (for lack of a better word that describes the movement of money) that has no moral values as such. I say this because any moral outcome that results is little more than an accident. As people, we all have some moral code we follow, yet our finances are strangely liberated from this need to be good. There is in the financial sector no aim greater than that of taking some money and making some more money out of it. This is the sole measure of success. Back when I was a psychology student a few decades ago, having no values was considered psychopathic. Now that I am a student of finance, having no values is called efficiency.
Nevertheless, I don't say all this to make you depressed. We have to get over ourselves and our petty emotions, we have to pray for those we have hurt unknowingly and think deeply about how we want to move forward (and then perhaps actually move forward). The whole problem with humanity is that when we see a complex problem, we lose heart even before we understand all of it. We need realistic, determined enthusiasm driven by something approaching Love to change the world (even if that makes you nervous). We do not need the half-hearted, depressional funk that people like me can get you into so easily. We must never allow the search for an accurate description of our circumstances to confuse our internal apparatus of hope - each has its place in life. Wake up, shape up & grow up - more rests on our attitude towards life than on our money.
Next, we shall have to tackle Ethical Investing - which some people say is the antidote to moral disintermediation in finance. In the meantime, enjoy the caviar at the next AGM - it is the least damage we can do to the companies we 'own' but have no sway over.
The IWB will return two weeks from now IA as I will be away on vacation. Be good, make me proud, write some responses on the Blog and start a conversation amongst yourselves.
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Upcoming Events:
The Crescent Entrepreneurial Association (CEA) is hosting a business plan competition that I think many of you will enjoy attending. This is a volunteer organization that is helping the community get a better handle on its economic future. The exposure and insights gained at the competition will be quite priceless IA so if you have daughters, sons, younger nieces and nephews, cousins etc., try and bring them out to this event on the 31st of May. We at Ittihad are both fans and supporters of CEA and would like to see a large turnout. This wonderful organization will help the community build a critical mass of good, ethical businesses that will contribute to society IA. Please register here.
We have been invited by TARIC mosque (located here) to present our views on Islamic Finance on Saturday, the 21st of June at 7:00 pm. I encourage everyone to attend with friends as the discussion will focus on the place that Islam does or does not have in our financial choices. By the end of the discussion, attendees should have a good idea about how to judge the IF field for themselves. This is a discussion that will IA take place outside the logic of a sales presentation so you can leave your cheque-books at home, we will accept Halal Credit Cards instead (Relax, I'm kidding). Come with friends and come with difficult questions - hopefully, we will trade in good ideas that will profit our minds.
__________
Finance News:
1. Five steps to a better financial future ... read more here
2. The Guardian's introduction to Ethical Investing (hat-tip Br. Alim) ... read more here
3. Investing in inflationary times ... read more here
Economic News:
1. The Fed raises their inflation projections. Did someone finally send them the Ittihad Weekly? ... read more here
2. An extremely disturbing (if you are a consumer) development on the Oil front. Seems that futures prices have increased so much that even the Oil companies want to start stockpiling oil rather than selling it ... this should be an interesting political battle. No way the consumer can win this one with the kinds of spineless politicians we have ... read more here
3. A great short article on the interplay between the US$ and Chinese Yuan ... read more here
4. Outlook for the Real Estate and Housing in different countries ... read more here
5. One usually doesn't publicize such things, but I feel a bit like Mary Poppins must have when she opened up her umbrella and flew around town. The IWB of three weeks ago makes the cover of the Economist ... read more here
Islamic / Middle East / Emerging Markets:
1. N/A
Interesting but not all Finance:
1. Is mining still ethical if some lakes are destroyed? ... read more here
1. This is what happens to fertilizers after we use them so liberally to grow mostly bland food ... read more here
2. Brazil's minister for the environment resigns, but her life story is quite inspiring (although too short) ... read more here
3. Getting energy from Garbage ... read more here
'It is what you read when you don't have to that determines what you will be when you can't help it.' - Oscar Wilde
The Ittihad Weekly Briefing is now archived at: www.ittihadsecurities.blogspot.com
Commentary of the week:
Difference between Investing & Ethical Investing (Part I):
For regular readers of the briefing, you all know how I usually nitpick and split hairs in order to arrive at any deep insight (or any insight for that matter). This week is a bit different, and it is not some esoteric minutiae of finance that is under discussion but rather what we do with our money on a practical basis all day, every day, all night, every night - for even though we are all sleeping, the stereotypical financial corporation is wide awake and thinking of your money. I don't mean this is a bad way of course, you all know by now how deeply I respect the world of finance (hmm). I just mean that even though you think your money is safely laying golden eggs in a bank account, GIC, mutual fund, hedge fund, LP, Stock or Bond, it is actually nowhere close to any such entity. It is lost in a sea of electrons, moving from your corner bank branch, brokerage or financial advisor, through public markets such as the TSX and into and out of the pockets of actual people and companies again somewhere else, only to show up on your bank / investment statement at the required end of the month exactly as scheduled. In this sense, your dollars are like me when I was in high school: registered, but not always present (ah, those were the days).
For example, if you invest in a mutual fund and the mutual fund participates in the IPO of a mining company, then a portion of your money has actually found its way into the coffers of the mining company. Let us then also suppose that this Gold Mining company is imaginatively called Company G. A portion of that portion then, went into the purchase and use of cyanide (yes, the poison) which is used in the separation the gold from the sulphurous rocks in which it is usually found. This cyanide then, after the gold has been extracted, then finds its way sometimes (some say always, it is only a matter of time) into the local water supply. Company G then gets sued and in order to protect your hard earned savings from seizure in legal claims, you now find yourself on the wrong side of a legal case involving poor farmers from some foreign country whose livestock and children are sadly no more and whose lands are no longer safe for the growing of food. Your financial health and moral imperative are now in conflict and this causes you great trouble. You read about the issue, go the Annual General Meeting (AGM) and demand that the company change its practices and begins to use a safer chemical than cyanide for the extraction of Gold. But wait a second, you are not a shareholder of the company. What!!!, you ask? How can that be? They have your money after all and surely you can do something to make them stop poisoning the Earth, can't you? Alas, my friends, you invested in a brand name mutual fund, not in Company G. Not only do you not know which companies you have invested in beyond the top ten, you also do not know which countries each of those then are involved in and what it is that they do once they are there. After all, you need to see the 10+% return on investment every year that the Financial Advisor promised you and also, you are not in finance - so how is all this your problem? Surely, someone else is supposed to be making sure your money is spent in good things while making good money. Isn't that why you pay your advisors? (and trust me, you do pay).
Excellent answer. This is indeed not your problem because you cannot solve it. Your mutual fund solves this dilemma for you quite neatly. You neither ask what it is that they do with your money and they oblige your intense curiosity by not telling you. But even if they did tell you, what could you do? You are not a full shareholder in the companies in which you have invested. You are just a unit-holder of the mutual fund. The mutual fund doesn't have the mandate to actually prevent the use of cyanide even if they knew what the devil it was; the mutual fund wants the company to extract as much gold as possible for the least amount of costs without getting into too much trouble with the authorities. You provide the money, the bank provides a loan, the mutual fund provides 'intermediation', the government(s) provides the mining license and company G provides the returns. The farmers provide just collateral damage. Since they are not Canadian / American / European and they don't make the 6:00 pm news and because Company G has great lawyers and a large advertising budget that keeps the story from getting to us - you and I don't have to think about where the returns came from. All parties are able to sleep at night without use of Xanax, except for the poor farmers for whom all sleep is short and whose insomnia is spent in remembrance of that which brought them such joy in a land that existed a long time ago.
This, in a nutshell is called Investing. While I have picked (perhaps unfairly) on mutual funds and mining this week, this story applies to other sectors and savings / investment vehicles as well. Also, the major point here is not that mining is terrible (which it might well be), but that we are constantly plugged into a system (for lack of a better word that describes the movement of money) that has no moral values as such. I say this because any moral outcome that results is little more than an accident. As people, we all have some moral code we follow, yet our finances are strangely liberated from this need to be good. There is in the financial sector no aim greater than that of taking some money and making some more money out of it. This is the sole measure of success. Back when I was a psychology student a few decades ago, having no values was considered psychopathic. Now that I am a student of finance, having no values is called efficiency.
Nevertheless, I don't say all this to make you depressed. We have to get over ourselves and our petty emotions, we have to pray for those we have hurt unknowingly and think deeply about how we want to move forward (and then perhaps actually move forward). The whole problem with humanity is that when we see a complex problem, we lose heart even before we understand all of it. We need realistic, determined enthusiasm driven by something approaching Love to change the world (even if that makes you nervous). We do not need the half-hearted, depressional funk that people like me can get you into so easily. We must never allow the search for an accurate description of our circumstances to confuse our internal apparatus of hope - each has its place in life. Wake up, shape up & grow up - more rests on our attitude towards life than on our money.
Next, we shall have to tackle Ethical Investing - which some people say is the antidote to moral disintermediation in finance. In the meantime, enjoy the caviar at the next AGM - it is the least damage we can do to the companies we 'own' but have no sway over.
The IWB will return two weeks from now IA as I will be away on vacation. Be good, make me proud, write some responses on the Blog and start a conversation amongst yourselves.
--------------
Upcoming Events:
The Crescent Entrepreneurial Association (CEA) is hosting a business plan competition that I think many of you will enjoy attending. This is a volunteer organization that is helping the community get a better handle on its economic future. The exposure and insights gained at the competition will be quite priceless IA so if you have daughters, sons, younger nieces and nephews, cousins etc., try and bring them out to this event on the 31st of May. We at Ittihad are both fans and supporters of CEA and would like to see a large turnout. This wonderful organization will help the community build a critical mass of good, ethical businesses that will contribute to society IA. Please register here.
We have been invited by TARIC mosque (located here) to present our views on Islamic Finance on Saturday, the 21st of June at 7:00 pm. I encourage everyone to attend with friends as the discussion will focus on the place that Islam does or does not have in our financial choices. By the end of the discussion, attendees should have a good idea about how to judge the IF field for themselves. This is a discussion that will IA take place outside the logic of a sales presentation so you can leave your cheque-books at home, we will accept Halal Credit Cards instead (Relax, I'm kidding). Come with friends and come with difficult questions - hopefully, we will trade in good ideas that will profit our minds.
__________
Finance News:
1. Five steps to a better financial future ... read more here
2. The Guardian's introduction to Ethical Investing (hat-tip Br. Alim) ... read more here
3. Investing in inflationary times ... read more here
Economic News:
1. The Fed raises their inflation projections. Did someone finally send them the Ittihad Weekly? ... read more here
2. An extremely disturbing (if you are a consumer) development on the Oil front. Seems that futures prices have increased so much that even the Oil companies want to start stockpiling oil rather than selling it ... this should be an interesting political battle. No way the consumer can win this one with the kinds of spineless politicians we have ... read more here
3. A great short article on the interplay between the US$ and Chinese Yuan ... read more here
4. Outlook for the Real Estate and Housing in different countries ... read more here
5. One usually doesn't publicize such things, but I feel a bit like Mary Poppins must have when she opened up her umbrella and flew around town. The IWB of three weeks ago makes the cover of the Economist ... read more here
Islamic / Middle East / Emerging Markets:
1. N/A
Interesting but not all Finance:
1. Is mining still ethical if some lakes are destroyed? ... read more here
1. This is what happens to fertilizers after we use them so liberally to grow mostly bland food ... read more here
2. Brazil's minister for the environment resigns, but her life story is quite inspiring (although too short) ... read more here
3. Getting energy from Garbage ... read more here
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