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BARENAKED MONEY PODCAST: EPISODE 2

Transcript

Josh Sheluk:

Morning Colin.

Colin White:

Morning Josh. And good morning faithful listeners. Welcome to the next edition of the Barenaked Money Podcast. We're going to have a chat today about something that's very topical. And you may be surprised to find out that we're not going to entirely poo poo it. So stay tuned to find out exactly what our opinion is. It's going to take a while to unfold. It will be an exciting journey.

Colin White:

We're going to talk about ESG Investing. ESG is the most recent iteration of the TLAs, or three letter acronyms, that have lived in this space for a bit. So Josh, maybe you could help our viewers and listeners with a little bit of a tutorial, if you will, on what some of the various terms are that get thrown around in this space and what they might mean.

Josh Sheluk:

Yeah. I just wanted to set the stage a little bit, because I know... It's like a lot of things finance, it can be pretty confusing. And there's, as you said, a lot of different acronyms out there that have been used to define this ESG space. Like you introduced right at the outset, ESG. So generally speaking, what we're talking about today is a variety of different types of responsible, or socially focused investments. So ESG has been, I guess the most prominent acronym that's used to describe this. And ESG stands for Environmental, Social, Governance. So these are the focus areas of any type of investment that's branded ESG, or so they say. You'll also see things like SRI, Socially Responsible Investing, responsible investing, carbon-free, CO2-free or low CO2, carbon neutral, green. Everything that you can possibly think of has been used to describe these types of investments. So it is very wide ranging, encompasses a variety of different areas of being socially responsible, I guess you could say.

Josh Sheluk:

So the question I'm going to throw to you right off the bat, Colin, is why is it just now that we are taking our first foray into this space? Because quite frankly, ESG and ethically focused investments have been around for at least a couple of years now, more than that, if you really go [inaudible 00:02:24].

Colin White:

Well I mean, I guess I would debate the recently decided. We've been foraying, if that's the word, in this space for as long as it's existed because, well, we're naturally curious. But the challenge is whenever something like this gets trotted out is, we have to decide is it real or is this just marketing? Because again, the whole idea of investing to make the planet a better place is very appealing to many people. And when something's appealing to many people, then it will be somebody who will find a way to sell them something. So we were looking for, and waiting for, something to come along that actually had some meat on the bones.

Colin White:

Back in the early days of green investing, I was sitting in a presentation. And I'm the kind of person that actually looks through the portfolio of the presenter. And I noticed that there was a coal mining company on the list of the green investments, which at the end, or when the questions came up, I stuck my hand up and said, "I'm just curious, why is there a coal mining company in the green fund?" And he said, "Oh, well, that's the cleanest of the coal mining companies." Didn't like the answer. And I further didn't think that clients who thought they were investing in a green investment would like that answer. So that was where we were early on.

Colin White:

And also, I was at a presentation where somebody was talking about wonderful new green technologies, emerging technologies, fantastic things that were going to potentially change the direction that the planet rotated. Like they were just amazing things with zero track record. There was no actual business there yet. It was a fantastic story, an exciting story. Disney could have made a movie about it. I wanted to be part of it, but I couldn't call it an investment. It just wasn't there yet. So the experience we've had, all of us, of going through the woods and trying to find these things, because again, we're all curious, we've all been watching. We've been waiting for the moment where we could put our arms around it and go, "This is really an option that is a real investment and pays homage to this very worthwhile cause of investing with a higher purpose." And it's only been recently that we felt that it's matured enough, that there is enough of an option out there for people, that it's matured to a point where we could actually put our stamp on it and call it investing.

Colin White:

So Josh, maybe you could give us a couple of comments on how we were screening and where that ended up with regards to how a portfolio was constructed.

Josh Sheluk:

Yeah, yeah. Definitely happy to do that, Colin. I want to follow up on one thing though, before I get to that, because you always talk about business models of companies that are putting out investment products, or financial companies. So talk about the business model of asset management companies and why they have been pushing this type of thing for a long time, maybe not so in line with how we really look at the space.

Colin White:

Well, again, if there's enough of a demand for something, somebody is going to create the product. If we're reading in the newspaper every day about gold, or about silver, or about Bitcoin, whatever the hottest topic is, there is a manufacturer somewhere who goes, "Ooh, people are talking about this. I have to build one." And they will throw it into the marketplace, just trying to satisfy what they perceive as a demand, without necessarily, in my opinion, taking the additional step of making sure that it's a sustainable offering, like it's really going to be a positive outcome for clients. The industry often will say, "This has been a very successful product." And I challenge them and say, "What do you mean? It's returned good money to clients?" "Oh no, we've attracted $1 billion in the last six months." That's one definition of success. And I guess that might be the prevailing definition of success. But if you actually want to have something that you're happy looking at a year later, that's a different metric or way of looking at success.

Josh Sheluk:

Yeah. You mentioned Bitcoin there. So there was a Canadian asset management company that launched the Bitcoin fund, I guess we'll call it, a few weeks ago. Great success. Well, by their definition, like you said, collecting assets. Great success for them. Three weeks later, they have an Ethereum ETFO. So any track record, any longterm success with this product? No, but to their definition of it, great success because they were able to attract a lot of assets and that's how they get paid.

Colin White:

Oh, absolutely. And that's what makes the world go round. So I am very proud, and I think we all should be very proud, that we've actually dug into this space and we've actually come up with what we think is actually, legitimately could be labeled a real investment while still accomplishing some of these goals that any human being would say, "Yeah, these are good goals and things we should chase." So again, back to you, Josh. Run us through it. Tell us how we found them, what we found and what it looks like.

Josh Sheluk:

Yeah. So it was a pretty extensive process, like you were saying. ...

BARENAKED MONEY PODCAST: EPISODE 1

Bad Financial Advice

Colin White:

Welcome everybody to the first pilot episode of Barenaked Money, our attempt at putting together something in the form of a podcast that we hope you find interesting and useful thought. I thought I'd give you a little bit of background as to why we chose Barenaked, so we're going to tell you the whole story. So there's going to be no hidden corners, there's going to be nothing that we obfuscate. We're going to try to really shine a bright light on topics that we choose to talk about. It's a pretty topical thing right now, Josh. I mean, everybody's getting their information off this thing called Reddit. As a young guy who's getting all his information off the interweb, you must know all about that.

Josh Sheluk:

Yeah. I wouldn't say I know all about it, but you mentioned Reddit, and I think part of our focus today is going to be bad financial advice. What does it look like when you're getting bad financial advice? And of course, we're going to be a little bit biased on this as advice givers ourselves, but the Reddit thing has become extremely fascinating, especially over the last week. We've seen the whole GameStop story, which may have played out at this point. We're a week in. It's already played out.

Josh Sheluk:

Silver is the new thing. I don't know if you've heard that, but I watched a TikTok video. Yes, I did watch a TikTok video today, and it was a guy saying, "Silver is the next thing. Silver is going to be bigger than GameStop, so go out and buy silver." I think he suggested buying four ounces of silver, and every man, woman, and child in the United States should have four ounces of silver to make this happen. So a lot to unpack here with just this one. And when I look at the advice space today, especially when it comes to money, technology and social media have made it easier and easier to give financial advice and to receive financial advice, but at the same time, I would say that the quality of advice has gone down.

Colin White:

Yes. People take information, and they feel they've been given advice. And sometimes, there's a thin line between the two. But yeah, information absolutely is easier to get out there, and people are, all the time, using the microphone available to them to spread whatever they like. And if it's interesting, people will continue to share it. But no, I don't think it's as much advice as it is information is easier to get.

Josh Sheluk:

Yeah. And that's fair. So let's just unpack this Reddit thing to start, because it is absolutely crazy. A few weeks ago, the folks on Reddit, they banded together and said, "Well, GameStop, this is one of our favorite companies. We shop at GameStop all the time. There's a whole bunch of short sellers out there. Let's all bid up the stock. Let's start buying shares of GameStop." And with 4 million followers or something on this Wall Street Bets subreddit these days, that's a lot of buying power going after a company.

Josh Sheluk:

So despite the lack of success that GameStop has experienced over the last decade, if you have enough people throwing enough money at something, it's going to go up in value. Should it go up in value? I guess that's something for us as historians of the market to debate a little bit, and people that focus on the actual fundamental success of a business.

Josh Sheluk:

But the bottom line is, for a short period of time anyway, you can definitely inflate the value of stock. And I don't know if you could even really call this advice. Maybe there needs to be something a little bit more substantial. But there's certainly been people out there that have made money by investing in GameStop and other stocks like it that have a high amount of short interest from the forum of Reddit.

Colin White:

I think that's what the key is, Josh. There's people who have made some good money off this. There's a business model here. For me, everything is about the business model. I attended a seminar that was put on one time by a mathematician. Yes, yes. I'm that guy. I go listen to mathematicians talk. And before he started his presentation, people were peppering him with questions about becoming a millionaire, and he kind of offhandedly gave the acceptance.

Colin White:

"Well, that's easy. You want to become a millionaire? Give me a list of 64,000 names. You do up a newsletter. Half of them, you predict the market's going to go up. Half, you predict the market is going to go down. You were right on half of them, so you got 32,000. The second time you do the same thing. You keep dividing the list by two. After six newsletters, you've been right six times in a row to a thousand people." You send them a note saying, "Send me a thousand bucks, I'll keep sending you my newsletter, because my big super computer is going to keep predicting the markets. A thousand people send you a thousand bucks, you're a millionaire."

Colin White:

Now the problem is, as mathematically true as that is, it's illegal. It's called fraud. So, the business model behind these things, typically somewhere in the start, the first few people through the door now have a vested interest in turning this into something big. And the subreddit gives them a real happy audience, who can share things really easy and build the buzz. And so, the first people through the door on things like this stand to make a lot of money.

Colin White:

So, as much as it's being portrayed as it's just the people rising up against Wall Street, I think if we look closely at this, no, it's not necessarily that. It's a little bit more nefarious, and I think that when the SEC and those people get involved and look at it, they're going to have some opinions as to how these things got started and what was good or bad about them.

Josh Sheluk:

Yeah. One of the things that you brought up there that I think is super important is it's really hard to distinguish good advice from bad advice if all you're doing is looking at the results of that advice. Because like you said, if you put enough predictions out there, and look, there's thousands or millions of people that are commenting on markets these days, with predictions of this, and that, and the other thing, at some point, one of them is going to be right.

Josh Sheluk:

And at some point, a handful of them are going to be right multiple times in a row to make them look really, really smart. And then you start focusing on the results, focusing and following those supposedly really smart people, when really, they just got lucky for a little while. If you flip a coin enough times, you're going to get 10 heads in a row, as unlikely as it is. So that's just speaking to the luck that comes into play with investing. And you can't really focus just on the results when you're trying to look for this good advice.

Colin White:

Yeah. It's been described as the halo effect. Somebody makes money. "How did you do it?" "Well..." Then they tell the story about what they eat for breakfast. "Ooh, everybody should eat that for breakfast, because they made money." "And I exercise three times a week." "Ooh. If I want to make money, I need to exer...

Each quarter the Portfolio Managers host a live webinar, which we then share in audio version here on our podcast channel. You can also view a video of the webinar on our website at wlwp.ca.