Consciousness versus Volatility ?

As we are settling down into confinement, it seems like a good time for readings and reflexions.

I am thinking about what we do at WHYO and, more importantly, about the reasons why we are doing it.

Why are we investing our time, our energy and our hard earned savings? Why is it important to develop a simple and ergonomic reporting solution for investors? Why do we want to incorporate extra-financial dimensions in these reports?

I dream of a world in which investors could easily build portfolios reflecting their values.

Those who are sensitive to the problem of unemployment could build portfolios in favour of employment. Those who are sensitive to climate change could build portfolios favouring the transition to a zero carbon economy. The portfolios would still be efficient from a risk / return perspective; but they would present an additional dimension. Obviously, these values can complement each other and everyone could finance the world in which he or she would like to live.

I dream that we could finance a better world for all of us.

Which brings me to the market krach over the last few weeks. We know we are entering a recession; we do not know its magnitude, nor its consequences. Perspectives of profits are clearly reduced and valuations are reviewed downwards to reflect that reality. But is it a reason to sell? I do not think so.

If we invest only for a financial return (and to pay for our pensions), this new unknown is reason enough to sell. Uncertainty increases the risk factors in our valuation models and we will discount futur cash flows using higher rates. Assets become expensive as valuations are lowered. This classic vision is perfectly logical and correct. However, it may be a bit simplistic and short-sighted. Prices vary. Valuations vary.

Our values do not change.

If we invest to build a new world, valuations become less important. They are an indicator, not the truth. Just as the entrepreneur does not leave his company because a new hurdle presents itself, just as the house owner does not abandon his house because a tree fell on the roof, our investor, conscious of the world he wants to finance and build, knows he needs to look far, above today’s challenges. Then, instead of selling, he will review and adjust his portfolio to maximise his chances of seeing the world he wants become reality.

If long-term consciousness is not enough to dampen short-term volatility, it can help us keep our heads cool, and maybe use this volatility to our advantage.

Personally, and at the risk of looking naive, I dream of a world where climate worries would be forgotten and where everyone could live with dignity, contributing his talents to society. Companies building this world exist today. And I will continue to finance them within my limited means. Because this world will not be build in one day and because with a bit of luck (and rigour), today’s crisis will pass and, sooner or later, will become a memory.

Originally published at https://www.whyo.io on March 18, 2020.