ethical investment seminar
DESCRIPTION
Sue Watson and Matthew MacLeod 15 February, 2009 Engineers Without Borders Ottawa Professional Chapter. Ethical Investment Seminar. What is value?. Objective – e.g. asset-based? Speculative – e.g. Dutch tulip craze? Hockey cards?. Case Studies Begin. Fundamentals of the Stock Market. - PowerPoint PPT PresentationTRANSCRIPT
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Ethical Investment Seminar
Sue Watson and Matthew MacLeod15 February, 2009
Engineers Without BordersOttawa Professional Chapter
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What is value?
Objective – e.g. asset-based? Speculative – e.g. Dutch tulip craze? Hockey
cards?
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Case Studies Begin...
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Fundamentals of the Stock Market
How are you really affecting a company by investing or not?
What happens to companies that can't (or “shouldn't”) grow any more?
Borrowing power? Power to buy other companies?
Common stock vs. preferred stock Can vote with common stock, but better dividends
with preferred stock, other special rights
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Stock Valuation
• Remember – what is value, anyway?
• Efficient Market Hypothesis• Only changes in fundamental factors, such as profits,
losses, acquisitions or dividends, ought to affect share prices
• However, this is visibly not the case• Tech crash
• Steve Jobs
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Stock Valuation
• So what is affecting the price?• risk valuation (e.g. 'risky bets' go down)• psychological factors (tendency to see patterns,
bandwagon effect, certain price levels, etc.)• actually unrelated (but apparently related) negative
economic news
• Note that “expected” growth is already “priced in” to the stock
• Financial guru Warren Buffet recommends a strategy of waiting for stocks to become undervalued due to external factors
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Case Study - The TSX
Toronto Stock Exchange The centre of the Canadian financial universe BUT, also the centre of the mining universe
Almost 60% of the world's mining companies listed Rough break-down as of December 31, 2008
~29% in financials (banks) ~27% in energy ~17.5% in materials (mining)
Any Canadian ethical fund needs to confront this reality
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The Best in Sector Approach
“Reward the leaders, punish the laggards” Basic argument – even (or perhaps especially)
in the 'worst' industries, it is helpful to encourage companies to become 'less bad'
Vote with your dollars Approach taken by most SRIs... otherwise what
else would they invest in on the TSX? Sends a market signal to companies that they
should improve And... you're profiting in the meantime
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Case Study – Jantzi Social Index Perhaps most well-known Canadian 'Ethical'
fund/SRI But does this look like you? Top 10 Holdings :
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Engage.. or Avoid?
Is it better to be an 'activist investor' in 'negative' companies, or avoid them?
If you don't vote, you can't complain... but is that really analogous?
If the market is truly efficient, does avoiding make a difference?
Does engaging through an ethical fund multiply your power, or dilute it?
Will you ever have enough voting power?
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Counter-Point: What if you live outside the centre of the universe?
Statscan reports <2% of Nova Scotian's mutual funds are in Nova Scotia businesses easier to ignore externalities has significant negative impact on local community
NS Government solution – Community Economic Development Investment Funds “Just Us!” Fair Trade coffee co-op funded in this
manner Several different models – pools vs. single business
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Case Study – Shared World Term Deposit
Basically a Micro-loan GIC RSP and TFSA eligbile
Citizens Bank 'Virtual' branchless bank Also have various other programs (Community
Development Fund, Shared Interest Credit Card) CSR policy, carbon neutral
... but 2% return (was more like 4% or 5%)
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Case-study – Microplace
Micro-credit marketplace owned by eBay Unlike Kiva, actually offers a return Only one organization offers >3% returns
Two-year return in this case Searchable by poverty level, geographic area,
repayment time, focus areas (women, green..)
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Case Study – Property
Hard to lose money in the long-term? credit bubble notwithstanding?
Speculative versus long-term focus Investing in energy efficiency?
if your electricity and heating bills are zero, are you going to need as much retirement money?
What about durable goods? Will that fancy espresso maker pay off in the end?
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Case Study – What about family?
Investing for your future implies that you are the one funding your retirement
But in how many cultures and time periods has this really been the expectation?
Can consider your community as a broader extension of family
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Community Investment
Can mean different things Philanthropy on (for most of us!) a small scale
e.g. get your name on a bench, or a University brick Ottawa Community Loan Fund
local 'mini'-credit charitable organization Investing preferentially in local businesses
Encourages “enlightened self interest” Volunteerism
how much money have you saved EWB?
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The “Local” Tax
Similarly, one can view patronizing local small businesses as investment in one's community
Regularly paying slightly higher prices at your local store means it'll be there when you need it
Keeps money circulating in your community, rather than company headquarters
More personal relationships develop sense of community
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Case Study – Partnership/Ownership
High risk, but... Direct impact on your community Directly share the burden of the risk Small is beautiful? La Siembra (local sellers of Cocoa Camino,
etc.) offer RRSPable shares Must hold for 5 years Dividends targeted to 5% (2.5% for 2007/08, met
the previous two years)
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Other Types of Co-operatives
Credit Unions/Caisses Populaire Often pay more interest/charge less 1/3rd of Canadians are members
Housing co-operative Tenants also own the building(s) of a co-operative Various rules on how one may buy-in/sell-out
Consumers' co-operative Membership elect a board of directors MEC has 9, also a yearly AGM in Vancouver
Also Retailers', Workers', Agricultural co-ops
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Case Study - Commodities/Futures
Futures have a bad rep regarding oil speculators, but...
Really originated to help farms regulate their income closely linked to how Fair Trade works and basically what the food box still is
Carbon credit markets are also structured in similar ways
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Case Study – Day Trading
Is essentially the limiting case of trading based on 'technical analysis'
Techniques can involve trend-following, contrarian investing, or range trading
What effect does this have on the market as a whole?
A day trader generally directly selects their products, but may not know anything about what they are/what they do
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Investment vs. Aid
So it's come to this... the classic battle royale Is “aid” an investment? Does it pay-off in the
long term?