Integrating your values into your investing strategy

Here’s a note from Jim McRitchie:

This year, my goal is to get more people to realize 75-95% of the variability in return on investments is due to systematic risk. The social construction of investment theories and markets (such as MPT & CAPM) encouraged companies to externalize costs onto others (e.g., racism, sexism, inequality) and overburdened social and natural systems.

To pass a democratic society and salubrious environment to our great-grandchildren, we need to construct an economy that integrates our values as investors with our values as people inhabiting a fragile world.

The SEC defines materiality as facts “a reasonable investor” would consider in making investments. Materiality isn’t static. It is always evolving.

As Moving Beyond Modern Portfolio Theory by Lukomnik and Hawley perhaps best describes, intentional investing today is “much more self-aware and dynamic than MPT’s willful blindness to all but price, volatility, and correlation.” The world Harry Markowitz inhabited when he did his now largely outdated work that decades later won him a Nobel prize in economics has changed.

Screening and stock-picking cannot address systemic risks like climate change or racism. Instead, those issues require coalition-building aimed at companies, trade associations, regulators, and public opinion.