Paul Winkler: Welcome to “The Investor Coaching Show.” I’m Paul Winkler, talking money and investing, along with Mr. Ira Work, and Evan Barnard, who are joining me today. No, Ira, you’re not going to get a golden microphone.
Ira Work: I should have one.
PW: I know you think you should have one.
IW: Well, my wife says I’m a legend.
PW: In your own mind, right?
IW: That’s exactly what she says.
PW: Exactly. I know how that works. Okay, so fellers, I’m sure we have some things to talk about today; we have all kinds of things to talk about today. I’m sure you guys have some topics.
The End of ESG
PW: I think one thing that hit me this week was the ESG. The latest dirty word in corporate America is ESG.
Evan Barnard: Oh gosh.
PW: Many companies no longer utter these three letters.
IW: Well, I think that’s right ahead of DEI: diversity, equity and inclusion.
PW: Well, ESG is right along those same lines. Following years of simmering investor backlash, political pressure and legal threats over environmental, social and governance efforts, a number of business leaders are now making a conscious effort to avoid the once-widely-used acronym.
It has become a very, very big political football, number one.
There has been lots of talk about how it just hasn’t panned out as an investment strategy.
IW: Yeah, go figure.
PW: Why do you think?
EB: I mean, you always bring up the Tron stocks back in the ’60s or ’50s.
PW: As in Tronics, yeah.
EB: And just some flavor of the day, or the.com in the ’90s, pets.com, whatever. Just because something is popular, or just because it has any even political or cultural legs, doesn’t mean there’s any academic science at all behind that being an asset class.
PW: Right. And so many things are called an asset class these days.
EB: Yeah, yeah.
PW: It drives me crazy. It was like that thing we did last week. We were talking about that one article, “Investing at various ages.”
EB: Yes, yeah.
PW: Then of course they had asset classes, and it still cracks me up. The rate of return on the commodities portfolios was the better of the two.
EB: Right.
PW: It was still like a 2% return.
EB: Futures.
PW: The futures were the 2%. That’s right. That’s right, Evan. That’s right.
The futures were 2%. The commodities were zero point something percent per year.
EB: Something, yeah.
PW: Yet they still have the audacity to call that an asset class, from an investing standpoint. But ESG was this idea of, “I want to do good with my money.”
Just for those of you who don’t know, when I invest, I am investing in a company, and I’m letting them use my money. When I’m looking at ESG — environmental, social and governance — I’m thinking that I’m going to do good with my money.
But the reality is your money is not going to that company. Your money is going to somebody else who bought that company before you.
EB: Right.
PW: And they want to get paid as much as they possibly can. There has been a lot of push to have these companies try to be more responsible, quote, unquote, in environmental ways. It says that for some companies the shift was — and basically here, our stance on this show has been — no.
EB: Right.
PW: Because you’re actually causing yourself to break a rule of investing by doing this, which is diversifying.
EB: Or not diversifying.
PW: Yeah. Yeah. You’re breaking that rule of diversifying.
EB: Right, yeah.
PW: You’re not diversifying. Exactly.
The Shift From ESG
PW: But it says on earnings calls that many chief executives now employ new approaches. Some companies, including Coca-Cola, are rebranding corporate reports and committees, stripping ESG from titles.
Advisors are coaching executives on alternative ways to describe their efforts, proposing new terms like “responsible business.”
Wall Street, meanwhile, and some firms, are closing once popular ESG funds as the interest fades. Isn’t it interesting how things change?
EB: Oh, yeah.
PW: As much as we had to fight against this and rail against this, it was just one of those things. We just seemed like we were out of touch in so many different ways.
EB: Right. We hate the environment or something like that. Yeah.
PW: Right, and it was one of the things I pointed out, over and over, on this show, and I guess every once in a while, you’ve just got to make the point. You know?
EB: I told you so?
PW: I told you so. I was trying so hard not to say that.
EB: We’re discussing that it’s just out of favor from the cultural conversation. Now the companies are trying to sanitize the terms, but they would only be doing that if they weren’t making 30% a year because they had been environmentally conscious. I mean, if they were shooting the lights out, they’d still be tooting that horn, even if people weren’t caring.
PW: So true.
EB: But clearly, what is it we talk about? It’s as dangerous as anything — the things you know, that just ain’t so.
PW: Right, right, right, right. Yeah. That is one of those things that just sounded good. It sounded good.
EB: Right.
PW: It’s so many things in investing. You have certain things that sound really good, and we get pulled in on them. Just to walk back a couple of years, there were periods of time when energy stocks were in the news everywhere, and it made perfect sense that you ought to be interested in it, until it …
IW: Doesn’t.
PW: Until it didn’t.
IW: Well, until it proved that it didn’t.
PW: Yeah.
IW: Okay, because it proved itself.
Celebrities and Familiarity Bias
IW: That’s why I wonder why all these people follow actors who advertise certain products. I mean, I certainly couldn’t be hired to act.
PW: You wouldn’t be talking about gold or anything?
IW: It doesn’t matter what it is. I could not be hired to act, because that’s not my area of expertise.
EB: Right.
IW: But people believe actors — that this is what you should be doing with your money.
PW: Why is that? Why is that?
IW: Because they’re —
EB: Social proof.
IW: Well, because they tend to be successful, and they’re constantly in your face.
PW: They act like they know what they’re talking about.
EB: Right.
PW: In reality, yeah, in a way, they seem believable.
EB: It’s almost like familiarity bias. Really.
It’s like, “Well, I know who George Clooney is. I know who Taylor Swift is. They must know what they’re talking about.”
IW: Morgan Freeman.
EB: I think it’s just even knowing a company, as a stock.
PW: You know, it’s interesting, because you talk about that, Evan, and I think that it’s that trust.
EB: Yeah.
PW: I know people, and I’ve heard them, and I think I know them because I’ve seen them so much.
They wouldn’t mislead me, because I know them.
They wouldn’t do that. You might be right, they might not knowingly do it.
IW: Well, you follow certain shows, like for example, Blue Bloods. Tom Selleck has been on there now, I don’t know, 20 years or so. You see him every week.
EB: Right.
IW: And he’s very believable as the police commissioner. And I think that’s really a great role for him. But he is an authority on law.
Now he comes out, and he does an advertisement for reverse mortgages, and you say, “Well, there’s a guy who follows the law, and is leading the police department, so therefore he must know what he’s talking about, when it comes to reverse mortgages. I should probably check that out.”
PW: Yeah. You take that credibility and you move it over to a different area.
IW: Right.
EB: Attribution error.
PW: Ooh, that was pretty fancy.
EB: There you go.
The Fallout of a Ruined Reputation
EB: You know, I’m just thinking about it, thinking about the show, and when we were just speaking about actors, and so forth in general, or public figures. I’m not making a political, or a judgment statement, other than it will be interesting to follow the people that are named in all these Epstein documents.
How is that going to affect their brand value, in terms of being a sponsor for a particular product?
We saw that when Bud Light made a misstep that just tanked their stock value. It will be interesting to follow — if there’s any fallout from being associated with that as a spokesperson for some product, whether it’s a tennis shoe, a cola, makeup or whatever.
PW: It just reminds me of Warren Buffett saying it takes years and years and years to build a good reputation —
EB: Yeah. Yes.
PW: — but minutes to ruin it.
EB: Yeah.
PW: Yeah. I mean, I think that that is so true. And I think that if we can get credit for anything around here, it is that we are absolutely consistent in the message.
EB: Right, yeah.
PW: I think that has been critical. I’m going to tell you, folks, in over 22 years of doing this show, that has not necessarily been easy.
EB: Right. You’ve been swimming upstream a few times.
PW: Yeah, you have a lot of times where you are going literally against everything out there. COVID-19, my goodness. We were live, and I called all you guys in, and said, “Let’s get on the radio, right now, and let’s do this as a group.” We were spread out between these two rooms.
EB: Right.
PW: Remember that? We were spread out between these two rooms talking about what was going on.
I think back to, and I like to bring back 2008 — December of 2008. It’s a holiday month, it’s December.
You should be relaxing. And I think we had 32, 33 videos, in a 31-month day, educational videos telling people not to panic.
Now, in this particular case, it’s telling people to look at the ESG type of thing. Well, back when you had Bitcoin that was up at 70, and who knew where that was going to be?
EB: Right.
PW: But it was at 60-something thousand, almost 70,000, I think it was. Saying that it wasn’t the greatest thing ever seemed absurd.
EB: Exactly.
PW: Then it dropped diagonally.
EB: Well, we’re just old fuddy-duddies. We can’t get with the times.
PW: Yeah, and it’s easy to get pulled astray. That I think is really important to keep in mind. But it’s just one of those other things.
Getting Pulled in by Fund Companies
PW: It’s going to be a year where you’re going to hear a lot about this, I’m sure, because it has been a political football. When you get down to it, there are a lot of companies that are engaging in this. They’re starting to back away from it, to a great extent, recognizing that their mutual fund companies will do whatever they feel like they need to do, unfortunately. Whatever they think you want, they will give you.
But it doesn’t mean that the mutual fund companies are bad. We don’t look at them from that standpoint. We look at them from the standpoint that, okay, they provide something that we need. Some of the companies that we absolutely think are just phenomenal, from an academic standpoint, have done stupid things over the years.
EB: Oh, yeah.
PW: It’s just watching out so you don’t get pulled in. And I guess where I’m going with this is — I’m thinking aloud as to where my mind is going on this — so often we watch advertising, we see that and we think that the fund company is our friend. You’re an owner.
IW: Of the fund company?
PW: Yeah.
EB: Yeah.
PW: You hear those commercials. “You’re an owner.” You’ll see commercials that make you feel like they really love you, and they really care about you.
The reality of it is, the fund company has one job, and that’s to sell you their product.
Why is it that you’ll have some of these fund companies — one comes to mind that has what, over a thousand mutual funds?
IW: At least, yeah.
PW: They have a dozen of them investing in one area of the market, one section of the stock market, actually even more, depending on how you break it out.
EB: Right.
PW: Then you go, well, why do they have so many different funds that invest in that one section of the stock market, that has a limited number of stocks to choose from? Is it because they just love you and want to take care of you, or is it because they have got to get you, and the means justify the ends? They’ve got to get you on board as a client, and that’s all there is to it.
EB: Right.
Comparing Fund Companies to Grocery Stores
EB: Well, and out of those 12 funds in this example, in that area of the market, one of them will do the best of the 12.
They’ll all overweight different stocks, and whichever fund did the best, that’s what makes the cover of Money Magazine. That’s what makes the ad in the Wall Street Journal, or whatever, and it attracts dollars because it did well that year.
IW: But in addition to that, when they have, let’s say 12 out of 1,000 funds, all focusing on a particular area of the market, even if they’re all weighting certain stocks a little bit differently, the returns are going to come out fairly close.
PW: Yeah.
IW: Therefore, they can say, “Well, we had 12 funds that beat their benchmark this year.” That sounds very, very impressive.
EB: Right.
PW: That’s true.
IW:
But the general public doesn’t realize that they’re all invested in the same thing, so they should have had a return that was very close to one another.
EB: Yeah.
PW: You look at the fund company, like I said, providing a product. I mean, you think about it, and it’s like a grocery store. I walk into the grocery store, and some of those choices just aren’t that good.
EB: Right.
PW: I guess there are some niche grocery stores that only try to do healthy products. But even the ones that only try to do healthy products have some things in there that aren’t so necessarily good for you.
EB: Yep.
PW: But they’ve got to get you in there, or they’re not going to stay in business.
IW: Then again, what is a healthy product is going to depend upon the person walking into the store.
PW: That’s true.
IW: For example, I think beef and pork are very healthy products, but you don’t eat those things, Paul.
PW: Well, yeah, because when you have a cholesterol level of 300, it’s probably not a good idea to eat that stuff.
EB: I eat your share. Don’t worry about it. I eat your share.
IW: Let me tell you, I will admit this: I only eat vegetarian cows. The cows I eat are vegetarians.
PW: That’s just ridiculous. That’s just ridiculous.
Influences Against Your Best Interest
PW: Here’s the final thought in regards to the ESG, and those types of things: Just recognize that there are things that are going to come along, as time goes on. The thing that I like to point out to people is there will be an emotional reason that just seems to make a tremendous amount of sense. You’ll hear the media get behind it, and you’ll hear politicians get behind it.
I think about some of the things that the government is pushing right now. They push them, and you don’t even recognize it.
You tell me, “Well, what is the government? What dog do they have in the fight?” Well, let me just give an example: Roth IRA conversions.
EB: Oh, yeah.
PW: In some cases, they make a tremendous amount of sense. But the reality of it is, if they can get you to pay taxes right now in the federal budget mess that they’re in, they’re going to get you to do that.
What’s another example? Well, another example would be insurance companies, and I’ve mentioned this before. Who is the biggest buyer of government bonds, if it isn’t the insurance companies?
EB: Right. Yeah.
PW: The government would say, “Hey, you know, maybe it’s not a bad idea to annuitize, and we’ll put annuities inside your 401K. We’ll do these types of things.” Because they know that what will happen is the more demand they create for these products, the more demand they’re going to create for their bonds that they’ve put out there.
Because if there’s lots of demand for bonds, what does that do to the price of bonds? It drives prices of bonds up, and you create lots of demand.
But what does it also do? It drives interest rates down, and then it keeps politicians out of hot water.
If you think about it, there is no place that you can go where you don’t have some influence that is against what is maybe in your best interest.
EB: Right.
PW: Keep that in mind.
Continuing the Education Process
PW:
That’s why I think it’s so important to stay grounded in academics, when it comes to investing, in the year 2024.
That’s what we’re doing, all year long. We were all talking amongst us before the show, and we were talking about the educational opportunities, the things that are coming along, that I think in 2024 we need to be looking at. We need to be looking at education funding.
We need to be talking about things like what to do when you have debt up to your eyeballs. Because the rules are really stinking complicated. And we were laughing amongst ourselves. If this is complicated to us, what is going on with you guys out there?
EB: The ostrich effect.
PW: Yeah, probably. If you’re wise, yeah, just stick your head in the sand.
“Calgon, take me away. I hope the world goes away. Make the world go away. Get it off my shoulders.”
I think that’s one of the things that we are going to be committed to, in the coming year, as we always are: continuing that education process. How do you do that? Put in the website, paulwinkler.com. You go there and you sign up to make sure that you’re getting the emails when we put new workshops up there.
Look at the workshop area, the tab there. We have webinar tabs there, where we teach about Medicare — because most of the information you’re getting on Medicare is driven by the investing — or the sales of insurance and the insurance industry, or people selling those types of things. Where do you get information about social security?
Well, for a lot of this stuff out there, people are doing these workshops that are out there. You get a steak dinner, and you learn about social security, and a lot of the stuff you learn is of marginal value.
EB: Yeah.
PW: And they’re really designed just to say, “Hey, come see us, and then we’ll help you with your social security; we’ll teach you a little bit about social security, enough to be dangerous.” Then you come in.
So we put out the workshops on that type of thing on the internet, for free. You can sit there and just watch that, partially because I like really irritating —
EB: We’re such nice guys.
PW: I like irritating the companies that put on those steak dinners, just by basically saying, “Hey, you can go out there and get the same information, without feeling the pressure to buy something.”
EB: Yep.
PW: That’ll show them.
