long term investment strategy

Three Elements of a Smart Long Term Investment Strategy

Dart Throwing Monkeys ≠ Long Term Investment Strategy

In my view, as investors seek to construct a long term investment strategy that holds potential to achieve above average performance over the long term, it is critically important to take a systematized approach.

It has been rightly stated that investment success is measured with a calendar, not a stopwatch. Anyone can get lucky with stock picks over a short time frame, and even a blind squirrel finds a nut once in a while.

But investors who have been successful over the long term consistently adhere to a defined system of identifying the stocks they want to invest in, whether that is a focus on finding undervalued companies, high growth companies, strong fundamentals, competitive ethical advantages or what have you.

Whatever your focus, a proper stock selection process must have three characteristics: It must be measurable, repeatable and produce beneficial results.

No dart throwing monkeys allowed.

Measurable Long Term Investment Strategy

At the most basic level, the metrics used in selecting stocks must be measurable in an objective fashion.

Financial factors such as corporate earnings growth, discounted cash flow and debt to equity ratios are easy to measure and objective in nature. Numbers don’t lie (except when they do, but that’s another story). And many investors focus solely on these data for precisely that reason.

However, subjective analysis such as “a great leadership team”, or “unique products”, or “strong integrity” are all important investing criterion – and I would argue are even more important than financial metrics such as discounted cash flow because in reality, all of the financial data is derivative from these more subjective criteria.

Poor leadership, irrelevant products and unethical business practices are not qualities that make a great investment opportunity, neither from a moral nor a financial perspective. But there must be an objective measure of those subjective characteristics, otherwise they are unhelpful and we’re back to dart throwing monkeys.

So, how do you objectively measure the greatness of a leadership team, unique products, corporate integrity and other subjective criterion?

This is where a faith-based ESG (environmental, social and governance) factor approach to investing offers a strong value proposition to investors seeking to follow a long term investment strategy.

Converting Subjective Observations Into Objective Data

Let’s look at an example of how faith-based, biblically responsible ESG analysis can convert subjective observations into objective data that is useful to investors using the Inspire Impact Score methodology.

One of the many factors that the Inspire Impact Score takes into consideration is corporate ethical integrity, which is a subjective issue with many relevant effects on corporate productivity, profitability and therefore long term investment strategy success.

We begin the process of objectively measuring this category by collecting factual data regarding issues and events that correlate to corporate ethics. Instances of tax-related fines, political contributions, court cases, executive compensation controversies or reports from corporate watchdog organizations would be examples of items that might be looked at.

We then assign a numerical score to each of these issues according to a fixed formula and aggregate those scores to arrive at a total for that category. This numerical score for corporate integrity can then be objectively measured against those of other corporations within or across industries, geographies, market capitalizations or other categorizations to identify those organizations that have measurable patterns of ethical behavior, and those that have measurable patterns of unethical behavior.

If investors had that type of measurable data on corporate ethics prior to investing in Enron, WorldCom or any other scandal-ridden company, it is possible that those investors could have avoided a disastrous outcome for their capital accounts.

Repeatable Long Term Investment Strategy

The second criterion for a proper stock selection methodology is the ability to produce consistently repeatable results. It is not enough for an investor to be able to measure data and make a great investment decision today if that process cannot be repeated tomorrow, or next month, or next year.

Long term investment success requires a repeatable process that can be applied consistently over decades.

In my opinion, this is the primary reason most active managers fail to produce consistent outperformance. They do not have a systematic approach that is repeatable across market cycles and instead make decisions based on their gut.

Certainly they may look at financials, study price history and other analysis. But their shortcoming is that all of this objective data is then analyzed in a subjective fashion and results in a decision not based on facts, but based on the manager’s feelings about the facts.

Some investors have great intuitive sense and have had great runs operating this way. But when viewed across the long term — over decades, bull markets, bear markets and all manner of economic expansion, contraction, inflation and other myriad environments – even the best intuitive investors eventually hit a rough patch. Often that rough patch undoes any outperformance they may have achieved in their good years and they would have been better off just buying a plain vanilla index fund and accepting completely average results.

The lack of a truly repeatable, objectively measurable framework that creates precise results for conviction buys or sells is many an investors’ Achilles’ heel.

Beneficial Long Term Investment Strategy

Lastly, it doesn’t matter how measurable or repeatable your investment process is if the results it produces are not beneficial. Every investment strategy has its pros and cons, and every strategy performs better at certain times and through different seasons than at other times.

But some strategies just suck all the time.

Also, observe that there are different ways to measure how beneficial an approach may be, and an investor must decide how they will define “beneficial” for themselves.

Are positive returns the only statistic that matters? What about the level of risk comparative to the return? And what about the moral implications of the companies you invest in?

It is my experience that many investors are quick to say that “returns are the only thing that matter”. But they don’t really mean it.

Consider this: If I could offer you an investment that had consistent returns in excess of 100% per year, would you buy it? And if I told you that investment was in a business that laundered money for the mob and smuggled illicit drugs across the border, would that have any bearing on your decision?

Of course it would…I hope.

The reality is that law abiding citizens routinely choose lower performing investments (relative to the black market) to satisfy their moral and ethical concerns, such as not breaking the law.

As such, it is obvious that returns are not the all-important measure of the merits of an investment. Morality, ethics, risk and other factors play not even an equal role, but a greater role in the beneficial measure of an investment. Only when all else is equal (morals, ethics, risk) do returns play the part of tie breaker as the last and least important factor.

When returns are positioned as more important than morals, ethics or risk, bad things happen. Like 2008, for example. “Better is a little with righteousness than great revenues with injustice.” (Proverbs 16:8)

Ask yourself: Does your portfolio violate your morals, invest in unethical companies or contain hidden risks?

Smart Approach

For all of these reasons, I prefer a long term investment strategy that invests using rules based, objectively measured index methods built using the Inspire Impact Score to identify unique portfolios of stocks that demonstrate compelling financial attributes and align with biblical values to boot.

Past performance is no guarantee of future results, but such an approach is measurable, repeatable and has produced beneficial results both in terms of moral values and risk adjusted return characteristics.

Is your long term investment strategy measurable, repeatable and beneficial (really)?

 

Blessings,

-R


About the author:

Robert Netzly is the CEO of Inspire Investing, a social enterprise creating meaningful change in the lives of people all over the world by providing low cost, biblically responsible impact investments easily accessible on the NYSE. Follow Robert on Twitter and LinkedIn and get inspired!

Image result for twitter logo Twitter.com/robertnetzly
Image result for linkedin logo LinkedIn: @Robert_Netzly

Why The Wall Street Journal Is Wrong About Socially Responsible Investing

Is Socially Responsible Investing For “Suckers”?

“The basic idea is to throw money away,” declares The Wall Street Journal today in reference to socially responsible investing (SRI). In their article titled “Stocks Weren’t Made For Social Climbing” author Andy Kessler and WSJ make the misguided assertion that anyone who invests with an eye toward corporate responsibility and making the world a better place is a “sucker”. In Kessler’s words,

“Wall Street considers it a truism that money sloshes around the globe seeking the highest return. But there are countless investors, believe it or not, who are willing to accept lower returns. P.T. Barnum supposedly said there’s a sucker born every minute. Many of them go into so-called socially responsible investing…In reality there is no trade-off of Vice vs. Nice. There are only returns.”

I am more than a little surprised at the ignorance of this article, but I suppose it is an opinion piece after all, and hey, everyone is entitled to an opinion…even me! So, here is my opinion then.

Socially Responsible Investing Performance Studies

While Kessler has an entertaining writing style and definitely knows how to turn a phrase, his entire premise is flawed. He makes the rather uninformed statement that responsible investing requires one to sacrifice performance, but he gives no basis for this conclusion.

The facts are that research done over the past several years by the likes of Oxford UniversityWharton University, Biola University and others show that responsible investing did not require a sacrifice of performance in their studies. In fact, some of these studies show that there was actually a slight improvement in performance for responsible investors compared to non-responsible investments.

According to Oxford University’s study with Arabesque Partners, “80 percent of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance.”

Socially Responsible Investing For More Than Returns

That aside, Kessler has also made himself out to be a hypocrite or a criminal. He proudly asserts that returns are the only thing that matter when selecting an investment, that “there are only returns.” He most certainly doesn’t believe that…unless he is investing in illegal prostitution rings, arms dealers and drug cartels. They make a ton of money, but obviously (I hope) he would never consider investing in such a thing as it is 1) illegal and 2) completely immoral.

So, returns are not the only thing that matter. The law matters, too. And for Christians, God’s law matters even more than the law of man, so how could we possibly invest in companies that are in direct violation of God’s law, even if they did offer tantalizing promises of high returns? “Better is a little with righteousness than great gains with injustice.” (Proverbs 16:8)

Wall Street would goad us to give in to greed and chase high returns above all else. Sadly, there are many who fall prey to that siren’s call. “But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction.” (1 Timothy 6:9)

As for me, there is no return high enough to entice me to invest in immoral industries like abortion, pornography and human trafficking.

Wall Street can keep their profits-at-any-cost approach to investing; I will keep my integrity. And if Oxford University is right, I may end up keeping more money in the long run anyway.

How about you?

PS – You can read the entire Wall Street Journal article here. But your IQ may drop after doing so. Just saying.

Blessings,

-R


About the author:

Robert Netzly is the CEO of Inspire Investing, a social enterprise creating meaningful change in the lives of people all over the world by providing low cost, biblically responsible impact investments easily accessible on the NYSE. Follow Robert on Twitter and LinkedIn and get inspired!

Image result for twitter logo Twitter.com/robertnetzly
Image result for linkedin logo LinkedIn: @Robert_Netzly

Should Christians Invest In Bitcoin?

Making heads or tails of Bitcoin

I just received an email proclaiming that if I started investing in Bitcoin today that I could “make as much as 55 times your money”. To which I assume they expect me to respond with something along the lines of, “55 times my money, eh? Well in that case, here is my life savings. Shall I wire it to you? Or do you prefer a suitcase full of cash?”

Maybe you have received similar emails about the phenomenon that is the Bitcoin investment rage du jour.

So, what’s up with Bitcoin anyway? Is it actually a thing? Should Bitcoin be a part of my portfolio as an investor? Should Bitcoin be a part of my portfolio as a biblically responsible investor?

If you have no idea what Bitcoin is, I don’t blame you. I think most people don’t really know what it is — including those who own Bitcoins and possibly even those who are aggressively marketing Bitcoins for investment.

What is Bitcoin?

Bitcoin is the first and most popular “cryptocurrency”, which are virtual, computer generated, de-centralized currencies available to anyone who has Internet access. Bitcoin allows you to convert your old-fashioned money (such as US Dollars) into Bitcoins by buying them on an exchange from someone who already owns Bitcoins.

There are numerous Bitcoin exchanges that offer “virtual wallets” which serve as a sort of Bitcoin bank account online, on your computer or on your smartphone. There are even Bitcoin ATMs that have sprung up around the globe to facilitate Bitcoin deposits and withdrawals (hint: no physical Bitcoins go in or out of those machines, they are strictly electronic transfer devices that provide paper receipts). And some bold businesses have begun accepting Bitcoin as payment, and even paying employees and vendors in Bitcoins instead of traditional currency.

If you are really gung-ho, you could even go into the Bitcoin mining business, wherein you purchase specialized computer software and hardware that enables you to run a complicated algorithm in an attempt to “crack the code” and “verify” a Bitcoin transaction. When your computer hits upon the correct code, you are rewarded with 25 Bitcoins for your efforts. Every four years, the number of Bitcoins granted in this “verification reward” is cut in half, reducing the payoff for this activity. Also, the “blockchain” code becomes increasingly complex with each verification, making it increasingly difficult to mine Bitcoins as the remaining coins become more scarce.

Bitcoin miners can continue their hunt for new Bitcoins until the total number of Bitcoins in circulation is 21M, at which point there are no more Bitcoins left to find. This limitation was built into the Bitcoin blockchain rules at the outset to ensure that there was a limited supply, and thus value relative to demand. The bigger your computing power, the better your chances of successfully mining Bitcoins becomes.

Yes, this is really happening. And no, George Orwell is not the author of Bitcoin.

Bitcoin is big business

On January 1, 2011, $100 US Dollars would have bought you about 333.33 Bitcoins (Bitcoin was valued at 30 cents per coin at that time, according to the CoinDesk Bitcoin Price Index). If you held on to those Bitcoins through the hyper-volatile roller coaster of price swings that has defined Bitcoin value since inception, on December 31st, 2017 your Bitcoins would have been worth about $4,600,154.00 US Dollars (Bitcoin value $13,800.60 USD per coin).

Total value of all Bitcoins in circulation today is pegged at $223.8 billion USD (you can see current values here: http://www.bitcoinblockhalf.com/ )

Wow. No wonder there is so much media noise about Bitcoin speculation.

Should Christians invest in Bitcoin?

No doubt the astronomical price returns on Bitcoin over the past years is very tempting to investors everywhere. I mean, who wouldn’t like to turn $100 into over four million dollars in just a few years?

Let me say that again. This time let it really sink in… $100 into over four million dollars in just a few years. Does anybody else hear warning bells in that sentence, or is it just me?

Well, King Solomon might have something to say about that. After all, he was the one who wrote, “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” (Proverbs 13:11)

And the Apostle Paul would have a few thoughts on the matter as well as he wrote, “But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction.” (1 Timothy 6:9-10)

If I had to guess at the primary motivation that drives people to exchange their actual money for Bitcoins I would say that it is greed, plain and simple. The desire to be rich. The desire to be rich fast. The desire to be rich easily.

Greed is never a good reason to do anything. If you are considering buying into Bitcoin, first check your heart and be honest about what your motivation is for doing so. Is it greed? Then don’t do it.

Besides, when anything goes up in value that far, that fast I can only think of tech stocks in 2001 and financial stocks in 2008. Also tulip bulbs in 1630. When will the Bitcoin bubble burst? I don’t know, but it is coming and I don’t want any part of it.

The dark side of Bitcoin

Aside from the problems of greed and bubbles waiting to burst, there is a very real, very insidious side to Bitcoin that Christian investors should think about very carefully.

It is becoming increasingly evident that ISIS and other terror groups are exploiting Bitcoin to fund their massive budgets and evil purposes. Just recently a woman was arrested and charged with laundering $85,000 through Bitcoin and other cryptocurrencies to the Islamic State.

Zoobiah Shahnaz, age 27 from Long Island, allegedly used 16 credit cards (which she had obtained by fraudulent methods) to purchase $63,000 in Bitcoin and other cryptocurrencies, in addition to $22,500 she was able to acquire through a loan from a Manhattan bank. Shahnaz was detained by federal agents at JFK International Airport as she was attempting to board a flight to Syria to join ISIS in person.

And she is not the only one.

In fact, a prominent pro-ISIS blog which is used to recruit and train terrorists, explains to readers how Bitcoins can be used to fund the Islamic State’s detestable activities without being traced by Western “Kafir” governments. God only knows how much of the hundreds of billions of dollars currently in Bitcoin is supporting the most blatantly evil organization on the face of the planet.

Of course, terrorists can use any kind of currency to fund their atrocities. But Bitcoin is designed with the specific purpose of being completely anonymous, untraceable and detached from any government or law enforcement protections. The black market loves Bitcoin.

Bitcoin may be the closest thing to blood money the world has ever seen.

Bitcoin or bust?

Listen, you are not evil if you buy some Bitcoins. Unless you are a member of ISIS and then, yes, you are evil. But there are significant problems with the Bitcoin economy that any wise investor must take into consideration before jumping into that dark pool. Allow me to summarize them here:

  1. Bitcoin is very weird. You probably don’t understand what you are buying.
  2. You probably want to buy Bitcoin because of the lure of fast, easy riches. That is greed.
  3. Bitcoin values have skyrocketed to ridiculously astronomical heights in a ridiculously short amount of time. Usually, that means something has got to give. And usually that means the bubble is ripe for the popping.
  4. Bitcoin is perhaps the bad guys’ favorite thing in the world and is funding the most despicable acts of evil the world has seen in a very long time, all with complete anonymity and without the pesky oversight of law enforcement.

For all of these reasons, you can count me out of the Bitcoin binge. How about you?

Blessings,

-R


About the author:

Robert Netzly is the CEO of Inspire Investing, a social enterprise creating meaningful change in the lives of people all over the world by providing low cost, biblically responsible investments easily accessible on the NYSE. Follow Robert on Twitter and LinkedIn and get inspired!

Image result for twitter logo Twitter.com/robertnetzly
Image result for linkedin logo LinkedIn: @Robert_Netzly

 

INFOGRAPHIC: The 5 Most Inspiring Tech Stocks

Technology is great. Except when it isn’t.

Tech companies are great. Except when they aren’t.

Like many things, technology can be used for good or for evil. And like the technology they create and distribute, tech companies can be forces for good or for not-so-good. (There, see? I didn’t call tech companies “evil”.)

Biblically responsible investors are wise to consider the impact that their technology stocks are having on the world at large. In particular, tech companies can shine particularly brightly, or fail miserably, in areas of special concern such as supply chains (remember the FoxCon/Apple suicides?) and the environment (tech manufacturing can be a very dirty business).

So, which tech companies are doing the best job of adding positive impact to the world in line with biblically responsible investing values? See below for our picks of the five tech companies with the highest Inspire Impact Scores. To learn more about how biblically responsible investing based on the Inspire Impact Score can affect portfolio performance, read our post titled “Can Impact Investments Outperform?”.

CEO, Robert Netzly on BRI

What is BRI in 20 seconds

Can Impact Investments Outperform?

**UPDATE**: Biola University has published the full research paper mentioned below. To read the full study, click here to visit the Biola Inspire Research Institute for BRI website.

It has long been a debate in the investing world whether impact investments, socially responsible investments (SRI), biblically responsible investments (BRI), and other “screened” investment strategies can perform as well as their non-screened peers.  This debate may finally be reaching it’s end.

New research conducted by Biola University’s Inspire Research Institute for Biblically Responsible Investing has found that applying the Inspire Impact Score methodology of security selection can actually result in better investment returns than investing in a broader, non-screened benchmark.  **The full study is due to be released soon (…so make sure you subscribe to this blog above so you don’t miss the big announcement) but in the meantime, we have compiled an initial summary of the findings to provide you a little sneak peek into this groundbreaking research.

CLICK HERE TO READ MORE about “Generating Alpha Potential With Inspire Impact Score”.

Blessings,

-R


About the author:

Robert Netzly is the CEO of Inspire Investing, a social enterprise creating meaningful change in the lives of people all over the world by providing low cost, biblically responsible impact investments easily accessible on the NYSE. Follow Robert on Twitter and LinkedIn and get inspired!

Image result for twitter logo Twitter.com/robertnetzly
Image result for linkedin logo LinkedIn: @Robert_Netzly

Follow me on Twitter: @robertnetzly

Merits Of Equal Weighting An Index

What is the best way to cook an egg?  Scrambled?  Fried?  Poached, perhaps?  That is, of course, an impossible question because the correct answer is completely dependent on what you want the end result to be.

The same is true with index construction.

What is the best way to build an index?  Market cap weighted?  Sector weighted?  Equally weighted?  Or maybe one of the other myriad smart-beta strategies prevalent in the market today?  The right answer depends completely on what you want the characteristics of your finished product, in this case the index, to be.  Are you after lower volatility?  Higher growth?  Broader diversification?

Amid all of these potential strategies, it is one of the simplest, oldest, and elegant that quite possibly is also one of the most beneficial:  the equally weighted index.

In this paper written by Shane Enete, CFA, with Biola University’s Inspire Research Institute for Biblically Responsible Investing, you will be introduced to the history of indexing, how the “traditional” indexes came to be and why there might be a better way.

READ THE FULL PAPER HERE

Inspired Investing: An Introduction To Biblically Responsible Investing

“Inspired Investing: An Introduction To Biblically Responsible Investing” is a paper from the Inspire-Biola Research Institute for Biblically Responsible Investing written by Shane Enete, CFA.  Read the full paper below:

Biblically Responsible Investing (BRI) is a growing movement among Christian investors and investment firms, with significant potential for cultural impact. BRI is an investing approach that seeks to ensure that a Christian is investing in a way that is consistent with the moral standards of the Bible. Is BRI a helpful investment approach? Or just a marketing ploy meant to exploit? As this paper will argue, BRI products, through their excluding, engaging and endorsing activities, help Christian investors maintain their integrity and responsibility to biblical stewardship while actively investing in the stock market. This paper will also address two common questions with BRI: 1) Does BRI deliver lower returns due to a restricted investment universe?; and 2) Are there an adequate number of BRI investment options available to invest prudently with sufficient diversification?

READ THE FULL PAPER HERE

Inspire Impact Score Methodology