Why We Are A B-Corp, Benjamin Graham, and the DC Skyline.
Submitted by DeDora Capital on November 13th, 2015by Will Becker, AWMA/AIF
What do Ben & Jerry’s Ice Cream, Patagonia, King Arthur Flour, New Belgium Brewing Co, and DeDora Capital have in common? We are all B-Corporations!
We feel really strongly about our role as Fiduciaries – required by law to put our client best interests first (similar to Doctors, Attorney’s, and Tax Advisors). But there is something that has been nagging at us for a long time. The typical corporate structure requires Financial Advisors to be fiduciaries to their employer; to provide profit to their company & shareholders. In fact, most Financial Advisors in our industry are actually regulated as stock brokers and are not Fiduciaries for their clients (Some are, some aren’t. I can’t speak for everyone. If you want to know, ask the person to put it in writing). So in some ways many Financial Advisors can have a higher responsibility to their employers than to their clients. That strikes us as wrong. If a client entrusts their Advisor to weigh in on intimate financial dilemmas, we believe the client deserves to know exactly what side the Advisor is on. This strikes to the core of how we view our company. We believe that we are on a higher social purpose beyond simply our profit. For example, our purpose includes YOUR profit, YOUR financial wellbeing, our staff, and our community. To be clear, we have a Fiduciary responsibility to you. No if’s, and’s, or but’s on that one.
So if our business is based on providing meaningful insight for intimate financial questions and investing responsibly, how do we make it clear that we also run a business that operates responsibly for all stakeholders - including clients, staff, community, and shareholders? That is exactly why the B-Corporation Certification was created nine years ago. The B-Corp Certification is kind of like Fair Trade certification for Coffee or USDA Organic certification for milk. B-Corporation Certification requires amending Corporate Bylaws to enable the company to consider the community under the definition of Fiduciary, and also includes a rigorous assessment of business practices. It turns out that we were already operating like a B-Corporation. We updated the Bylaws, went through the Assessment & third party evaluation, and this month the official Certification arrived – check it out here! We may be Napa’s first B-Corporation, but we hope others will follow this path.
Investment Perspective
Back in the 1930’s when Benjamin Graham started writing about investing, there was too little data. He defined many terms – such as investing vs speculation – and built support for regular financial reporting by companies. Much of what he did was to lay the groundwork for sound investment decision making. Fast forward to today, and we are at the opposite side of the spectrum. Today, multiple media programs are humming our a constant stream of financial “news.” Today there are more than eight ways to calculate Earnings (EBIAT, EBIDA, EBIT, EBITD, EBITDA, EBITDAL, EBITDAR, EBITDAX… etc). During Benjamin Graham’s time, the challenge was to find enough data to make a sound investment decision; today, it is filtering out the noise to focus on what’s really going on.
This leads me to the topic this week: Noise vs News. I’ll illustrate the point with three cartoons, and close it out with one serious graph.
Let’s start with the Noise. There is so much data these days that one guy even put together a comedic website comparing things that have nothing to do with each other. For example: did you know that the “Per Capital Consumption of Chicken” and the “Total US Crude Oil Imports” are correlated? See below! There’s a dozen more charts like this on his website, so follow the link to enjoy more humorous examples. His point is clear; we are surrounded by tons of data, but just because two things happen to have the same trend does not mean one causes the other or that they have anything to do with eachother. This is noise, but at least it is humorous noise.
Yet we still want to believe that there is a reason for everything the markets do. You do know that the markets are created by humans, and humans are famous for doing irrational things, right? There is an entire field of studying Irrational economic decisions. The cartoonist www.xkcd.com followed that train of thought with his humorous comparison between the Dow Jones and the Washington DC Skyline. They have nothing to do with each other, but we seek explanations for things happening around us, so there you go!
Now let’s talk News.
Since the Great Recession, arguably the two greatest investing debates have been 1) when will interest rates go up, and 2) will earnings keep growing?
I went into some depth on the Interest Rate debate back in September, and nothing has really changed since then. The Fed kept rates at rock-bottom, so the waiting game continues. Odds appear to be increasing for a December rate hike, but we’re not crying wolf on that. Instead, I’ll let this cartoon from www.Hedgeye.com summarize our thoughts on where the economy is at with interest rates.
Finally, Earnings. Our favorite of all! If there is one piece of investment news to watch, it is the degree to which companies are growing earnings. After all, the point of investing is to either make money or earn income. According to the folks from www.fastgraphs.net, the companies in the S&P 500 continue to grow earnings over the long run (in green). So there you have it: actual news!
This commentary on this website reflects the personal opinions, viewpoints and analyses of the DeDora Capital, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by DeDora Capital, Inc. or performance returns of any DeDora Capital, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. DeDora Capital, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Disclosure: This commentary on this website reflects the personal opinions, viewpoints and analyses of the DeDora Capital, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by DeDora Capital, Inc. or performance returns of any DeDora Capital, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. DeDora Capital, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.