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Good investing is about future discounted cash flows, behavioral management, and having a long-term perspective. It’s not about partisan politics, religious beliefs, or any other emotionally-driven system separated from the intelligent allocation of capital.
You might not know that, given all of the new ETF’s that are aimed at your emotional hot buttons. Marketing to fear and greed? That’s so very 1990s. Tribalism, identity politics, and ideology are how today’s savvy marketers reach into investors’ wallets.
We’ve looked at this before.1 When investors allowed their personal beliefs about faith or politics to influence their capital allocations in the past, it has not worked out particularly well:
– Moving to Cash on Trump’s Election
– Moving to Cash on Obama’s Election
And many, many other examples.
The most recent entrant to this approach: $YALL (no, really).
As Eric Balchunas notes, “The God Bless America” ETF screens out companies that “have emphasized politically left and/or liberal political activism and social agendas,” then filters for cos that have low PE ratios and multi-year job growth.” If that doesn’t raise a few flags, perhaps the cost will: 65 bps seems kinda pricey for a simple two-step stock screen.
I have no problem having your portfolio reflect an investor’s values and beliefs. This is true whether you invest via Sharia law, avoid Vice stocks, support diverse boards, or embrace sustainable investing.2 It should be a rational approach, one that is more of a tilt towards what you believe in (or away from what you don’t), and UNLIKELY TO IMPACT YOUR PORTFOLIO NEGATIVELY. Any of these thematic investments that move your holdings too far away from the benchmark index is likely to lag over the long haul.3
This is why I find emotional-based ETF ideas to be a poor basis for stock selection.
Time and again, we see that investing based on a (non-finance) belief system invariably leads to poor performance or even losses. It’s just human nature, and unfortunately, most people seem to be unable to overcome their instincts.
Just because we carry evolutionary baggage doesn’t mean as individuals we cannot try to avoid making those mistakes.
The Triumph of Logos (Dollars and Data, October 11, 2022)
Why So Many Investors Missed Nike’s Stock Rebound (March 27, 2019)
Investing based on how you vote is still a terrible idea. (October 3, 2018)
Don’t Mix Religion and Politics with Investing (July 9, 2018)
Thou Shalt Not Buy Biblically Responsible ETFs (March 2, 2017)
Obama’s “Radicalism” Didn’t Quite Kill the Dow . . . (March 8, 2017)
Love Trump? Hate Him? That’s No Way to Invest. (January 20, 2017)
Why politics and investing don’t mix (February 6, 2011)
1. “Vote on the first Tuesday in November, go to church on Sunday, but always bring a cool unemotional detachment to investing on Monday.”
2. I have yet to look at the Vegan ETF (VEGN), but I would be concerned about similar issues.
3. I am not a fan of Low Carbon ETFs in part for this reason: It drives the portfolio too far away from the index/benchmark. But it also attacks the issue from the suppliers of those commodities while ignoring the demand half of the carbon consumption equation. What good does not investing in Chevron, Exxon, BP, and Shell do when you simultaneously invest in all of their customers? Seems gimmicky, and is too similar to the base error made in the war on drugs.
LAUNCHING TODAY: The God Bless America ETF $YALL, which screens out cos that “have emphasized politically left and/or liberal political activism and social agendas” then filters for cos that have low PE ratios and multi-year job growth. Fee 65bps. Here’s the holdings: pic.twitter.com/5qFzhzOgdK
— Eric Balchunas (@EricBalchunas) October 11, 2022
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