Talking About Ethics.

This is a tricky subject.

It is very personal, and from my point of view, completely subjective. It can also be controversial, so here is a disclaimer:

I am about to write about ethics and morality in investing. I target no one in particular, but I do speak broadly, so keep your calm, and let’s communicate like adults who have a similar goal in mind.

 In December, the 10th to be exact, we held a Zoom meeting for all of our clients. About 55 households showed up and we chatted about numerous things, but the main topic was our model (The 3 Circles) and how it requires more diversity at the moment, both from a global investing standpoint as well as a management philosophy standpoint.

 We also raised a few thousand dollars for the Canadian Mental Health Association, thank you very much!

 The end goal is to find more flexibility from portfolio managers as we look to be more aggressive. The stricter a fund manager is, the less likely, in our opinions, they and their team are to be successful in the coming years. We also need to find a way to slowly divest the portfolio from its weighting in America. To accomplish this, we have made it our goal to invest between $3-5,000,000 into the Asian Pacific fund run by Dynamic. This way we can continue to have a great presence where we believe returns will be easy to come by with little risk, but also decrease the overall weighting of US exposure by growing the overall portfolio.

 We spent a couple of hours speaking to Ben Zhan, Portfolio Manager and a VP at Dynamic. We gained a larger understanding of the balance of the fund as well as his and the team’s thoughts on the region, the global markets, and the future of the fund (as they see it today).

 In our conversation with Ben, which was facilitated by management at Industrial Alliance, we discussed (as objectively as we could) the potential ethical issues that could arise with a portfolio so highly concentrated in China. While Ben was able to answer our questions satisfactorily, we are only asking from the standpoint of investing in a region as it is today, not how it was yesterday, not how it could be tomorrow.

 We can only deal with a world the way it is, not the way it ought to be, or the way we’d like it to be. To wish for a panacea is, well, wishful thinking.

 Which is where the trouble begins; ethics are personal, morals are personal; scruples belong to the person, not the society. So, when we begin to talk about the potential for return on investment by investing in China, the Pacific Rim and various emerging markets we have to take into account that there will be human issues we have to accept in order to invest.

 From our standpoint, every dollar we invest is a dollar that gets a region closer to better and more humane living conditions, further away from the potential for dictatorship. In the direct case of China, further from the communism and regime doctrine (Maoist) that we in the west do not approve of, to a more open and fair nation, edging ever closer to democracy (republic or otherwise).

Ok… perhaps that is too far. The likelihood of democracy in China is pretty unlikely. That being said, in a lifetime we have seen incredible and massive changes to social and economic policy in China that have opened borders and provided more freedom of movement and financial success to more Chinese people than ever before. Don’t get me wrong, this isn’t freedom like we know and enjoy it, but it is a massive change since “the Great Leap Forward” of the 50s & 60s.

 We aren’t dealing with that China anymore. We’re not dealing with that Vietnam anymore, that Malaysia, that South Korea, etc etc etc.

 These are young, advancing and growing societies that are benefiting from the change we are seeing and have seen in China. We likely wouldn’t see growth in the region without the strife of the last century in China.

 Here I am trying to convince you to think it is ethical to invest in China… That wasn’t my point.

 During our Zoom event, we had a question about the ethical nature of investing in China, which slammed the brakes on the meeting in the best way possible. We are supposed to collaborate and communicate. So, we heard some good thoughts during the Zoom, but also in many conversations that followed.

 From a moral standpoint, I believe the best thing I can do is to listen to someone’s opinion, and to refrain from judging them for having a personal ethical issue investing in this or that. From a professional standpoint, we have made it clear that we will do our best to educate and sometimes that means we will counter certain points and do our best to ensure we aren’t using the moral high ground to mask any cognitive biases or dissonance that could stop us from making returns.

Cognitive dissonance refers to a situation involving conflicting attitudes, beliefs or behaviors. This produces a feeling of mental discomfort leading to an alteration in one of the attitudes, beliefs or behaviors to reduce the discomfort and restore balance. - Simple Psychology

Jeff Bezos made $13,000,000,000 in a single day in 2020. The company which he owns the majority share of will fire anyone who tries to unionize or have a bathroom break. Amazon didn’t pay taxes in the most profitable years it has seen and has received hundreds of millions of dollars in tax rebates.

 The world’s other richest man, and real life Bond Villain, Elon Musk who has leveraged American Tax dollars by the billions to build an empire based on ridiculous luxury items and future condos on Mars, has a pretty spotty record on labour laws himself.

 Instacart , Uber and Skip the Dishes, three relatively recent tech success stories, also aren’t looking to be on the right side of history after making billions in profits.

 Facebook, Youtube, Twitter, Twitch, and many other social media platforms recently decided to ban newly private citizen Donald Trump from their platforms, after years of abuse of their terms and conditions of use, but it took a literal failed coup attempt to do so. But really, they can’t make money off his use anymore, so, they finally did the “right” thing.

  Not to point a finger, but these are all companies that one could argue, and I am, that ethically and morally, we probably ought to avoid.

Problem is, well, if we did avoid them, we wouldn’t have made the kinds of returns we saw over the last decade. A lot of people talk about dumping Nike when they have been found to abuse all sorts of human rights violations over many years making your $200+ shoes. But Jordan and co are riding all-time high profits. The Gap, Apple, Samsung, most Automotive companies at one time or another, and Disney are all examples of companies that we pay good money to, whether in goods, services and or stock purchases, that have all been found guilty of various ethical and moral failures.

 This list isn’t exhaustive.

 We can talk all we want about our principles, but the reality is, at some point we will likely look past them if the returns are strong enough.

 We buy the hype.

 We have no choice, there is no other way to build a portfolio to ensure we can grow capital to a size to see us through retirement without taking on a whole bunch more risk or putting our children’s futures at risk. The reality of our situation is that we must trade some of our soul so we don’t have to put our financial futures in jeopardy. We don’t even have to bend that far either, if at all.

 Look, we live in a region of the world where we put a finite resource that we know harms the world around us ahead of other technologies and industries that could provide the jobs and revenue to grow and diversify our economy. We feed the world, but we can’t power the combines and tractors that put in the work without foreign influence. We do this because a change of industrial direction will be hard and costly in the short term.

 I could write paragraph after paragraph, sentence after run-on sentence about the mental gymnastics we as people will go through to make a buck. But I think it best to wrap up at this point. We know there can be moral challenges around investing, and sometimes we will not work past them. Our job as advisors is to show you to the door, what you choose to do at that point is up to you. We will choose to show you more doors and windows to open or close.

 My perfect world is one where we are continually conversing about, and hopefully evolving, our relationship around the personal philosophies we have. Sometimes the FVI creed will not match your own personal viewpoints, but we learn much more about each other from discussing the things that set us apart ever so slightly than simply agreeing on every subject.

 The 3 Circles Model is built upon the foundations of communication and collaboration. Over the last 40 some odd years, dad and now I have listened to the investors in our community and tailored the portfolio to best match what we believe makes the most sense from an ethical and profitability standpoint.

 But sometimes we also need to be heard.

 I would suggest to you that in our efforts to diversify the Financial Value portfolio within the 3 Circles model, investing in Asia, investing into China, and investing into growing economies that are slowly working to make their regions better for their peoples, is a way to positively affect not only your portfolio, but also the daily lives of people who have lived in circumstances we would view as less than fortunate.

 This is a slow process, to be plainly obvious, but one worthy of consideration in our opinions. It is also a profitable process.

 That is the moral and ethical support we are building that particular portion of the portfolio upon.

Hey, say what you want about Bill Gates and his companies, but between him and Warren Buffet, nearly a hundred billion greenbacks have been given to charity to provide clean drinking water and vaccines to wipe out disease, amongst many other good things to make the world a better place. It would be nice if they just paid taxes like the rest of us. What did I say about wishful thinking again?

I know this is a long read, but I feel it is important to get off my chest and ensure that you know you are heard. That we are working our hardest to find the best solutions to ensure you can achieve your goals. Sometimes those solutions won’t jive with your beliefs and we want to hear that they don’t, because we want to be able to at least try to find a solution that resonates with your particular frequency.

If we can’t then we can move along. On to the next.

Thanks for sticking with me on this.

Darris Cameron,
President & COO
Financial Value