Trust and Consequences

The daughter of a friend of mine called me about a Dutch Fraud Film festival. Would I have any examples of fraud to apply for the Fraud Film Festival Prize? The winner would receive funding to produce a documentary. I replied. “Wow. There is no shortage of examples”. Leonard Blankfein’s (Goldman Sachs CEO) Senate Hearings testimony came to mind.

If you look at this clip, it is quite amazing to see how Blankfein defends Goldman’s actions in a very circular reasoning that gets the viewer so confused that one loses the script. The basic question that Senator Levin asked was quite simple. “Is there not a conflict when you sell something to someone and then are determined to bet against that security and don’t disclose that to your client?”

Blankfein’s answer is stunning.

“Whoever is careless with the truth in small matters cannot be trusted with important matters.”
Albert Einstein
I look forward to greeting you at TBLI CONFERENCE EUROPE 2015 in Zurich November 19-20 and introducing you to people of integrity and trust.

TBLI Testimonial

“TBLI is not just a great place to increase one’s understanding about sustainable investing it is also an excellent place to meet and network; some of the contacts I have made at TBLI have turned into successful and lucrative business partnerships.”

Rufo Quintavalle-Poet, Investor and Director at Agro-Ecological Investment Management

Guest Blog: Rufo Quintavalle

Tracking errors are themselves an error

An article earlier this year in Institutional Investor pointed to low carbon indexes as an alternative to fossil fuel divestment for investors who are concerned about climate change. Citing the example of the Swedish pension fund, AP4, and the French pension fund, FRR, who both use this investment strategy the article describes these funds as “low-carbon equity indexes that closely track blue-chip benchmarks while excluding most carbon-exposed companies in those benchmarks.” Which, translated into terms that people outside of the financial sector can understand, means “a way to say you are doing something about climate change while not actually doing it”.
It is probably already too late to stop global warming of 2?C, although that remains the official goal that negotiators at the COP21 will be working towards. But what is certain is that if there is to be any hope at all of avoiding catastrophic climate change then the world economy will have to fundamentally alter. In such a context any strategy that proposes closely tracking “blue-chip benchmarks” is woefully inadequate since the “blue-chip benchmarks” simply reflect the reality of the world economy as it is and not as it should be.
Proponents of low carbon indexes would say that by excluding the most polluting companies they can contribute to an incremental change towards a low carbon future – companies will be pressurized to improve their performance in order to make it onto the index and a virtuous circle will be set in place. But in the same way that you cannot have your cake and eat it you cannot have an investment strategy that purports to address climate change while only accepting a tiny tracking error relative to the broader economy. The broader economy is itself part of the problem and if we do want to address climate change then what is needed is as large a tracking error as possible. Otherwise we will end up with low carbon indexes that by their own internal logic are obliged to invest in companies such as Royal Dutch Shell (the fourth largest holding of MSCI’s European Low Carbon Leaders Index) and Exxon Mobil (the third largest holding of the equivalent global fund).
The inadequacy of low carbon indexes to address climate change is, to be fair, not an indictment of institutions like AP4 and FRR who are, compared to their peers, among the more progressive of institutional investors. Rather it is an indictment of our financial system as a whole which, as it is structured will never be able to address climate change or indeed any other problem that is time-sensitive and requires systemic change. And ultimately this failure boils down to a philosphical failure regarding moral agency and the true nature of investment. If the goal of investing is simply to mimic the behavior of the broader financial market then the money managers and the people devising the indexes are doing a good job (although one suspects it is the kind of job that could be done just as easily by a computer). But if we are to understand investment as something that does not simply follow the markets but rather seeks to actively create value for society then our financial system is conspicuously failing.
So what to do in a context where the system as a whole is inadequate to serve society? And in which every single one of us is complicit in this problem the minute we take out an insurance policy or start paying into a pension plan? To those with no disposable income at all the most obvious course of action is to lobby your pension fund and your insurer to adopt a genuinely proactive policy on climate change and divest from fossil fuels. For those who do have disposable income to invest and are interested in using their investment dollars to combat climate change then you could consider investing this money outside the stock markets via angel investing, crowdfunding, private equity and other asset classes that your banker will do his or her best not to tell you about. The rewards here are far greater both financially but also in terms of accelerating the transition to a clean, green economy. And finally, since it is all too easy to point the finger at others we ought to examine our own collective responsibility in creating a state of affairs where “investment” has reduced itself to the buying and selling of shares in publicly listed multinationals who never needed our money in the first place.
Bernie Madoff was able to thrive as long as he did because there was a stream of people who liked the idea of a steady “no-risk” annual return of 10%. But ultimately if you are getting returns without risk that means someone else is picking up the bill. In the case of Madoff it was the new subscribers who were picking up the bill for the old ones. In the case of the broader financial system (of which low carbon indexes are merely a symptom) it is the planet as a whole which is picking up the bill for our obsession with “low-risk” listed equities and our refusal to rock the boat.

 

Eastern Exposure

There is a Thai island in the Gulf of Thailand’, called Koh Chang. Rieki and I visited it for the first time, 23 years ago. There was nothing there when we came. No electricity. No road, just simple huts on the beach and a kerosine lamp for light. The beach was stunning. They didn’t call it White Sands beach for nothing. A real paradise where time just slipped through your hands as sand would. We returned several times over the years. A road was built and an electric cable stretching to the mainland was installed. Development occurred. Hotels, restaurants, massage stores, supermarkets all popped up along the road that was built. Fortunately 3/4 of the island is National Park, so development is limited. In spite of the development, Koh Chang always kept its laid back, slow pace that seem to be moving in slow motion. We always felt at home there and hoped one day to make our presence more semi-permanent.

On a recent return to Koh Chang, we met many a lot of AE’s (authentic eccentrics). All were looking for a quality and not a quantity of life. While we were wandering around the main road, where all activity seemed to happen, I was reminded of an old TV show called Northern Exposure. It was a show about a remote village in Alaska, called Cicely, that attracted all kinds of AE’s. Very entertaining. Deep down, I was alway looking for my Cecily, Alaska. Koh Chang seems to come real close.

There is a cast of characters that were making Koh Chang their home. Mr. Yuji, a Japanese water engineer from Osaka, who started an authentic Japanese restaurant. He always reminded me that the food was “authentic Osaka style”. He showed me the Onsen (thermal bath) that he built in the back using solar heating. The reason he built an Onsen, in a place that often feels like an oven, is that he wanted to relax in a large bath heated to boiling temperature. If most went into the bath, they would shout “ Hey! What do you think I am a tea bag”. He only had 3 tables, because he didn’t want to make his restaurant a business, but a hobby. His restaurant was also home to Mah, his manager who spoke little english and who had no real business to manage, Sakura a playful black labrador and Bamboo a stunning persian cat with a football tshirt supporting Portugal who played with Sakura,

Dave, from Big Sur, ran a restaurant that served the best breakfast and barbecue, I had in years. His body was a wall tapestry of tattoos from famous artists. The name of his place was Annie P. after his girl friend, who every day laid out a food offering to the gods, that was huge. Didn’t realise that the spirits were so hungry. Dave is the philosopher and uber cook, who just wanted to follow his passion: Chilling, cooking and people and get away from the madness that is called America.

We arrived one evening to taste Dave’s pulled pork, which is out of this world,  and met some of the other AE’s that Annie P. attracts. Hans Henrik from Denmark, also moved to Koh Chang and used to work on oil rigs but now works in North Sea putting up massive wind farms, as a crane operator. Rick, who is a handsome Indonesian, and grew up in Santa Barbara, California. He is a pipe fitter doing maintenance at nuclear power plants. Rick is the guy you want to go out with to get into trouble but have fun while you are doing that. Very funny and generous guy, who works 3 months to focus on his main hobby, living.

Just across the road is Khun NOi, a beautiful Thai woman who runs a hydroponics lettuce farm in front of her shop that doubles as  a juice bar. Well maybe not a bar. Maybe more a telephone booth size juice bar. She is fun, funny, kind, and a very good business woman. Totally follows her heart and speak her mind.  She was often complaining about her Austrian partner who she calls a butterfly (chasing women). We got along wonderfully. Next to her is Sylvain, or Sweepie, as the Thai couldn’t pronounce his name. He is a French Rastafarian, and runs with his Thai girl friend a book store and a store dedicated to Bob Marley. Every possible image of Marley was integrated in clothes, socks, towels, etc. It was like being at a football stadium with all the merchandise. Sylvain had such a beautiful aura of happiness about him. It was intoxicating.

Heli, without the copter, is a Swedish single mom who had been living on the island for 20 years. She had been successful with property development and was working on opening a new beach front restaurant. I remember when we were talking about her life there and things she missed from Europe. She would say “I miss nothing. I get home sick for Koh Chang when I visit Trad” Trad is the mainland town where you catch the ferry for the 30 minute journey to Koh Chang. One thing struck me while we were chatting. She was remodelling, and all the builders were busy running power saws, hammering, etc. In spite of the need to get the job done before high season stated, she shouted, take a break so we can chat in peace and enjoy our conversation. Most entrepreneurs would not stop the job to have a conversation with a stranger.

Almost forgot Henk, who started a business making home made kroketten, bitter ballen and frikandel. For those of you unfamiliar with any of these Dutch delicacies, it is an acquired taste. Henk had a very busy job as manager and felt life was not about being exhausted, physically and mentally everyday. There has to be another way and ultimately ended up in Koh Chang.

This menagerie of people whether Thai or expat, all shared a common love of Thailand. All worked to integrate that “je ne sais quoi” that made Thailand unique, into their lives. Not one tried to discourage us from moving to Koh Chang. We were welcome. They saw we had that Koh Chang gene in us.

I nearly forgot the most interesting group. The dogs. There are beautiful street dogs everywhere. They epitomise everything that is magical about Koh Chang. They all seem to have gotten lots of scrapes, bumps, bruises, and all seem to have a weathered face reflecting their character building life. In spite of all these rough experiences, the dogs are not aggressive, at all but unbelievably sweet, gentle, and full of love. Like everyone we met. Oh yeah, let’s not forget that they are all well fed.

Everyone seemed to have found contentment in their lives. That was the common denominator. Whether the massage girls down the road who cracked, stretched and realigned my tired body or the owner of Yes restaurant who loved seeing Rieki’s smile. The all shared love, respect, generosity, friendliness, no rush, and all working to make a life and not only a living. Dying rich was definitely not the goal. All following their passion in a community that was home.

Finally found my Cicely, Alaska.

Looking forward to meeting you and other AE’s at TBLI CONFERENCE EUROPE 2015 in Zurich, Nov. 19-20.

Follow your heart

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Believe it or not in a previous life (1975-1978), I had a carrier on oil rigs. My world wind career had me working offshore and on land in Iran, the North Sea (UK and Norway), France, Texas, Colorado and Oman (actually didn’t start, quit before I was sent there). In less than 2.5 years, I had a meteoric rise in oil and gas exploration, something that I never considered. I went from dishwasher, to roustabout (kind of go for), roughneck (guys who all seem to be missing fingers), derrick man (lonely person at top of oil rig snapping pipes with a rope into place to store them) and finally, Air Drilling Engineer.  This rapid rise surprised me. It wasn’t an inspiring job and as I got to see the environmental destruction we were doing, and the military hierarchy of that company (subsidiary of Schlumberger), further career moves upward were just not appealing.

It always seemed strange that I was sent to Iran to do air drilling, as I was not trained or experienced to do the job (air drilling in fractured formations to find oil or gas). Right place, right time, wrong job. I really enjoyed the theater working with some of the funniest characters, I would ever meet. Will always have great stories to tell and memories upon which to reflect. Some of my former colleagues were fantastic. I remember Jean who was a mechanic and started a goat farm, making cheese. He worked on the rigs to help get his business going and cover his costs, in order to follow his dream. He sent me a care package of wonderful goat cheese. I also learned some of the most obscene French expressions that would make even hardened criminals blush, and I still use them from time to time, as they are visually brilliant.

The CEO offered to fast track my career even more, in order to keep me from leaving. The finances were fine, and I worked 4 weeks on and then got 4 weeks holiday (6 months a year). I didn’t have to worry about anything. When you finished your 12 hour shift,  covered in mud, you dropped your clothes on the ground, and the next day, my room was clean and my work clothes were spotless. We ate wonderful French food, with wine and aperitifs. This was something American rigs wouldn’t allow. I remember having long periods of doing nothing, as we worked only if there was a problem with the drilling. If that happened, we would start up the compressors and perform air drilling. Other times, we would have a great deal of free time on our hands and would go exploring the remote areas of Iran. After 4 weeks of working, I had 4 weeks of holiday and I used that time to travel, which expanded my collection of characters. Yes it was very hard work. Hammering a pipe connection in 48 degrees celsius was very exhausting.

There was, however, something missing, I wasn’t happy or fulfilled and I still needed to find my passion. When I look at some of the photos of working on the rigs, I often think of a tv show called Dirty Jobs hosted by Mike Rowe and the podcast he made about how people doing horrible dirty jobs are financially secure and happy, even though they are not following their passion.

I wanted more. Not more stuff or money. I wanted to be fulfilled. What I am doing now, with TBLI, provides that in abundance. Most important, when I am really doing what fulfils me or am in “The Zone” , it costs me no energy, but actually gives me energy. Oh yeah, I don’t have to work in dangerous situations, like Hydrogen Sulphide (H2S) gas explosions, or losing fingers when running pipe back into the well.

Are you following your heart? Try it. You won’t regret it.

Looking forward to meeting you and others who are following their heart at TBLI CONFERENCE EUROPE 2015 in Zurich, Nov. 19-20.

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Empty Gestures

I am a huge fan of the tv show Curb Your Enthusiasm. The star and writer, Larry David, is brilliant in his ability to be brutally honest, awkward,  and totally embarrassing with his social dysfunctionality. However, the show makes you laugh, which is essential, these days.  If you never watched it, start today. Every time I am watching a television interview or listening to a podcast interview about something that I find important, I think of Larry David.

Most people being interviewed always say “that is a very good question” even if the question is stupid, useless, empty or just a dead end. What drives me crazy is the standard  one-two punch in responding to the interviewer. First “that is a very good question” then you hear “You know. It is very interesting…”, even if nothing is interesting, which they often prove with their answer. I often think that media advisors or other “experts” on not being authentic, train people with these two repetitive statements. Larry David’s does a brilliant parody on these empty comments.

Let’s  have a real dialogue where people say what they really think and challenge the interviewer in a polite, educational, and engaging way. Empty gestures don’t cut it and just dumbs us down. The stakes are too high and we need to be inspirational, thought provoking and laugh.

A genuine leader is not a searcher for consensus but a molder of consensus.

Martin Luther King, Jr.

Come to TBLI EUROPE 2015, Nov. 19-20 in Zurich. You will  be inspired and have your thoughts challenged, and have a great time.

Guest Post Jochen Wermuth

The first Dow Jones Industrial Index only had steam engine rail companies in it, there were only horses on the roads and horse-whip-makers were great investments. Just a few years later there were no more horses on the road, no rail company in the Dow Jones – a new industrial revolution based on the combustion engine wiped out the old economy companies, with many losers and winners like the Rockefellers and JP Morgans at the time. A similar new industrial revolution is under way now with similarly large risks and opportunities.
With solar power being offered at $4cent/kWh in Austin Texas, a price with which oil could only compete at $7/barrel, the fossil fuel economy is dead. There will be huge changes in the world economy with many losers (the old oil, gas, coal companies and their related industries ) and many winners, the new Rockefellers. We  can stand at the spearhead of this new industrial revolution, allowing us to earn outstanding profits and at the same time generating a sustainable future for our planet.
On the risk side, there will have to be write-offs of $21 trillion in oil, gas and coal reserves by listed companies, as they will no longer be profitable to burn because greater energy efficiency and competition from renewables will drive down long-term fossil fuel prices. This is huge and compares to $15 trillion write-offs in the mortgage bubble.
On the opportunity side, emerging markets still consume 4x as much energy as we do say in Germany or in the EU. Thus bringing state-of-art products there we can make a lot of money and have a huge impact. With solar and wind-power now costing less than power from the grid there are also ample business opportunities across the world. Few have realized this, just as few realized for a long time that smoking was bad for your health…
Great background reading in this regard is the book “My indecent proposal to the German Chancellor” which tells the great success story of a farmer’s boy becoming the owner-manager of a multibillion dollar company in the renewable energy space and sets out the plan for Germany to become 100% renewable powered by 2020. A model for a successful business leader in the new industrial revolution, winning against all odds, and a model for any country in the world (in particular those with more sun) to follow.
As missing this opportunity may not only cost each of us money but could destroy life on our plante, my wife Sasha and I have shared with many of you a hard-copy of the book already. Given continued interest we have gotten the author to make the book available electronically and free of charge for TBLI Blog readers in return for my father having edited and translated it to English.
To download your complimentary copy of the Book in different “eBook” formats for almost any common reading device like Kindle, Tablets ( IOS Android ) or Smartphones, please visit There is also a pdf version for PC-, Mac and Linux Users available. If everything else fails, you can also find an adobe flash based ePaper Version that you can read online with any flash enabled Browser. If you have Problems downloading or opening your copy, please contact helmut.zengerling@wermutham.com.
Please have a look and enjoy!

Jochen Wermuth
Founding Partner and CIO
Wermuth Asset Management GmbH
www.wermutham.com
jwermuth@wermutham.com