Strategy

by Tom Konrad Ph.D., CFA A large and growing number of individual investors are showing an interest in divesting from fossil fuels.  Where in the past I have been asked to give a talk on divestment once every year or two, I’ve spoken on the subject three times so far in 2020.  (Here is a recording of a presentation I did for my college alumni association.) The response to these talks has been overwhelmingly positive, but I’m left with the impression that a lot of the less financially sophisticated attendees are still not sure where to start.  For most of these...

by Tom Konrad Ph.D., CFA Four weeks ago, I predicted that the 12% market correction we had seen would turn into a true bear market.  Bear markets are often defined as a decline of more than 20% for the major market indexes, but I find it more useful to focus on long term changes in investor sentiment. What I did not predict was just how severe the effect of the coronovirus shutdown would be on the economy.  I thought we would need the combined of the effect of the shutdown and investors re-assessing their risk tolerance to bring us into full...

Information asymmetry, climate investing and the active management edge. By Garvin Jabusch The theory of efficient markets says all stock prices are perpetually accurate, because investors always have complete and up-to-date information about their holdings. But as any casual observer knows, information and topical awareness are not evenly distributed, even among professional analysts. Reality is always far more complicated than equity markets can quickly assimilate, meaning information asymmetry is a constant. While usually considered a type of market failure, information asymmetry is frequently used as a “source of competitive advantage.” The person with the most information is best equipped to make the best...

by Tom Konrad, Ph.D. CFA The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal and steel. Since the BDI is a measure of the income which firms that own dry bulk cargo ships can earn, changes in the BDI tend to drive changes in the stock prices of such companies. Stock Price Correlation Until recently, one such company was Scorpio Bulkers (SALT), one of my Ten Clean Energy Stocks for 2021 picks. The chart below shows the last 5 years, with...

By Tom Konrad, Ph.D., CFA An 80% Weasel Coefficient Some activists, including a friend of mine, recently had a conversation with representatives of TIAA to try to persuade them to divest from fossil fuels.  The conversation was mostly cordial, but predictably did not get anywhere. One of the activists summed up the response from TIAA as “a non-response with a weasel coefficient of at least 80%.”  Regarding the weasel coefficient, he also asked, Can anyone explain to me what "our overarching strategy which targets climate-risk adjusted returns over the long-term” means in plain English?  Well, yes.  Yes I can. Climate Risk Adjusted Returns When an investment...

by Tom Konrad Ph.D., CFA Passive Investing And Modern Agriculture: Parallels Today's stock market is a dynamic and scary place. Once choosing stocks to invest in based on the fundamental value of the companies they represent (called fundamental or value investing) was the dominant paradigm for investors.  No longer.  In 2017, JP Morgan estimated that only 10 percent of trading came from fundamental investors. The vast majority of trading now comes from computer based algorithmic trading, and passive investors following pre-defined rules, such as index investors.  According to Morningstar, nearly 45 percent of all stocks are owned by passive investors.  These should...