Democracy makes Investing Better

I revealed in my last post that Sustain has created a new method of measuring the social good of a company.

At Sustain, we listen to the people who are looking to invest. We listen to what they care about to learn about their values. We ask these people how they feel on each issue that affects each stock and feed these opinions directly into our investment decisions.

We are bringing democracy to investing.

What do I mean by democracy?

Google’s third definition of democracy refers to how a company can be controlled by its members.

I’m talking about when companies create products with their communities, for their communities.

The earliest examples of this were glorified competitions:

• Mr Peanut Logo: Schoolchild Antonio Gentile from Virginia, USA, entered the Planters Peanuts competition in 1916 to design a company logo. He won $5 and his design has been immortalised on the front of every jar of Planters Peanuts since.
• Sydney Opera House: When the opera house asked for design submissions, Danish architect Jorn Utzon beat over 200 entries from architects around the world to see his design selected in 1957.

The Planters Peanuts logo is famous in the US and beyond. Image from Planters.com

More recently, there has been a breed of internet-native companies (ie had features that were not available in a non-internet world) that used their submissions to create a unique result that could not have been achieved through any other method.

• Wikipedia: Built as a collaborative encyclopaedia, Wikipedia has grown to be the 5th most visited website on the internet.
• Waze: Originally an independent app, but bought by Google in 2013, Waze tracks every user of its app to see if they are stuck in traffic, then aggregates this information so any app user can see where the traffic is.

There is also crowdfunding, a whole distinct category of ‘democratic company’ whereby any internet user can post a project they are working on to ask other internet users for money.

• JustGiving: A for-profit company that helps non-profit companies to raise funds through sponsorship and donations.
• Kickstarter: With the self-stated mission being ‘to help bring creative projects to life’, Kickstarter has raised nearly $4 billion for projects through its crowdfunding site.

For the ultimate democratic (small d) projects you just need to take one look at the cryptocurrency world. These projects are a combination of crowdfunding, information sourcing, democratic control combined with a powerful dose of incentives (also know as cryptoeconomics).

Sustain harnesses democracy to make better investment choices

Sustain is an investment platform that allows its members to vote on how much a given stock qualifies as sustainable or not.

At Sustain, democracy means taking input from an informed community in order to decide which investments are sustainable. It means there are no investment managers who make all decisions — or rather, it means at Sustain we are all investment managers and the investments we make are collective decisions.

…and together, we can change things! Photo by “My Life Through A Lens” on Unsplash

Why do it this way? Why not find the smartest stock picker on the planet with the purest moral conscience and ask them to decide our investment allocation? The answer is because investing sustainably is always nuanced and often subjective. As we saw in my last post, there often isn’t a clear cut answer about whether or not a company is making the world a better place. And moreover, while there is criteria we can all agree on, my version of making the world a better place is likely different to your version of making the world a better place!

To decide if the community believes in a stock, we have to ask the community.

At Sustain we ask the community to vote on pivotal issues that affect each company that we are looking at. From this data we generate the Sustain Price for a given stock, and from that we get the stock allocations that we use in the Sustain investment portfolio.

Comparing the Sustain Price to the wider market price reveals how under or overvalued the Sustain community thinks the stock is. The difference between the market price and the Sustain Price tells you how sustainable (or unsustainable) the stock is.

Sustain is a way we can hold companies accountable for their actions. Photo by Ben White on Unsplash

Sustainability is a Leading Indicator

Increasingly, citizens from around the world are aligning their behaviours with their values. We see this when food-shoppers buy from organic sources or in the recent push for reusable packaging.

This demand for sustainable goods is moving into the world of investments — but without a transparent and reliable method of measuring how sustainable a company is, this movement struggles to gain momentum.

With sustainability often touted as an indicator of long-term profits, a strong Sustain Price for a stock will signal to investors that the stock is a good investment in terms of both financial return and social return.

Andre and I envision a world where:

1. Investors see that the market price is higher than the Sustain Price
2. Investors see the stock as overvalued
3. Investors sell the stock
4. The market price moves closer to the Sustain Price

Consequently,

1. Company who issued the stock sees the gap between Sustain Price and market price
2. Company takes note of why the Sustain community sees the company as unsustainable
3. Company changes it’s behaviour

And now with Sustain, market incentives are realigned. The people can express their nuanced view on the actions of a company and the company is incentivised to react — or else face a fall in their stock price.

I believe that global financial markets can be fixed.

Call to Action

Do you have any thoughts on anything discussed here? Does anything anger you? Excite you? Bore you? Let me know your uncensored reactions in the comment section below. And seeing that you’re reading this far — don’t forget to long-click the applause button on the left!