I’ve been thinking a lot recently about our human preference for comforting certainties over disquieting realities. When I was in elementary school, we did a fair bit of rote learning. One of the lessons I distinctly recall memorizing was, “all life derives from photosynthesis.” There was a sense of power in pronouncing such compact and definite statements, even if I was just repeating them without real comprehension.
As an adult, I find one of the great joys of science — and any persistent application of intellectual curiosity — is the near-constant discovery that reality is much more exhilarating and fascinating than any simple, declarative aphorism.
Including, notably, that photosynthesis perhaps wasn’t even the primary pathway for life here on Earth, life is way more resilient than my 4th grade textbook ever imagined, and there are very likely all manner of life forms we don’t yet know how to recognize.
It is tremendously enlivening: embracing a more complex reality frees us to expand our horizons, experience wonder, and literally discover new worlds within, around, and beyond us.
But at the same time, well-worn thought habits can be hard to change, and it’s not always easy to relinquish outdated or disproven models, even when the evidence is inescapable. It can be frightening to let go of familiar precepts, particularly when we are feeling overwhelmed or threatened. Particularly in professional settings, we may find ourselves struggling with our own desire for validation, or against the objections and disapproval of our friends or colleagues — or bosses. It can feel profoundly unsafe and unwise to set aside a widely held certainty to grasp a new insight into a less tidy reality.
Paradoxically, however, we put ourselves most at the mercy of reality when we retreat to the perceived safety of our preferred axioms.
Ignorance is bliss complicity (and potentially deadly)
In The Matrix, the character Cypher pointedly misquotes George Orwell when he betrays his shipmates, sighing, “Ignorance is bliss.” He acknowledges that he is also betraying himself as he elects to surrender conscious agency, choosing the luxury of re-imprisonment in an illusion, as an escape from the discomfort and anxiety of freedom. The Wachowskis inclined a sly nod to Benjamin Franklin by allowing him to have neither.
Fiction aside, the Covid-19 pandemic has freshly brought home the unwelcome fact that what you don’t know can kill you. Denying or choosing not to know vital information only contributes to the hazard.
For investors, the same is true. Writing to other members of the Illinois Government Finance Officers Association, Chicago City Treasurer Kurt Summers titled his December 2018 dispatch, “Lost opportunities and unseen risk loom when investing without intention.” In the article, he pointedly observes:
At this point, it is well-established in both market and regulatory practice that ESG factors are critically important to consider when maximizing risk-adjusted returns and protecting the interests of taxpayers.
But unfortunately our efforts, like any challenge to the status quo, have attracted their share of detractors. There is a common negative narrative about sustainable and responsible investing that has been parroted for decades. They say this is playing politics at the risk of public money. They say that investments are not a vehicle for meaningful social change. They say that this decision is driven by “political whim” rather than “fiduciary responsibility.”
To these and other criticisms, we cite study after study from the world’s leading financial institutions and investment managers refuting each and every one. [emphasis mine]
“The way to right wrongs is to turn the light of truth upon them” — Ida B. Wells
Many thoughtful, sophisticated, highly skilled, professionally accomplished, respected finance professionals will bristle at hearing the status quo characterized as “without intention,” or as widely refuted by leading institutions and managers, or — as I have done here — just plain wrong.
Perhaps, dear reader, you may be one of them.
Please consider this: what would you discover if you shone the full light of your intellect on the familiar best practices that you and/or your institution have followed on the firm conviction that they were fair and prudent, and optimized risk and return? Would those best practices hold up under close impartial scrutiny?
Kudos to you for still reading on! I am absolutely not making light of the discomfort and consternation, even anger, that you might be feeling right now. My point is neither to offend you nor to simply convert you to a new dogma.
My point is to invite you to choose your own clear-eyed and rational intellectual agency. Sheltered certitude at best obscures your view of reality, and more perniciously serves increasingly naked systemic power structures.
Throw away the tired slogans and rote falsehoods: We’ve always done it this way. Everyone knows this is how it works. We have a pipeline problem. There isn’t enough investable talent. People of color and women are higher risk. If we ask more of our portfolio / managers / consultants, we’ll sacrifice returns. We can’t afford to invest in “unproven” strategies / teams. We need more data. I don’t have a specific mandate, so there’s no justification to try.
Choose audacious realism instead. Look at the facts. Examine your portfolios closely. Discover for yourself what unseen risks you can name and retire, and what missed opportunities you can identify and capture. Observe how much bigger, more vibrant, and more resilient your investment universe becomes. You may have to go looking for them outside your usual circles, but you have access to all the evidence, tools, talent, products, and justification you need.
You absolutely can do this.
If you see something, say something. And then DO something.
Be brave: it takes courage to declare the emperor is unrobed!
But once you glimpse his bare goosefleshed rump, it requires a determined act of willful ignorance to praise the cut of his suit. Put your energies to better use than denying or unseeing the reality that is readily visible all around you.
You will have fears and concerns. State them. Investigate.
You will have questions. Ask them. And keep asking. Unlike conventional wisdom, reality invites and rewards questions.
But don’t stop there. Take action to bring your investment policies, strategy, criteria, and processes into alignment with verifiable reality.
Borrow the courage of those who are a step or two ahead of you. They will be glad to welcome you to their ranks. And you will be glad to be liberated from very real disadvantages — unseen risks and lost opportunities — you never consciously signed up for.
Now is the most opportune moment to learn and adapt. You have time to gather information, make sound determinations, experiment, iterate. But there is no time to waste. Reality is having its effect on your investment performance and legacy, with or without your say so.
The Future: It’s Bigger and Weirder than You Think
For our part, Reinventure Capital is practicing audacious realism through our investment strategy focused exclusively on US-based companies led and controlled by people of color and/or women, at or about breakeven, and poised to grow profitably. We know from mounting evidence, including Ed’s track record, that disciplined adherence to this strategy both moderates risk and generates non-concessionary returns to investors.* And while there are scant few funds targeting the same companies as we do, the opportunity set is prodigious and growing.
We are actively welcoming a wide variety of limited partners (LPs) who are choosing to reject unseen risks carried by funds and portfolios that are overwhelmingly homogeneous, and capture opportunities missed by those practices adhering to convention over evidence. The facts and the flow of demographics are in their favor.
If you’re ready to commit capital with intention, please contact us. We will be delighted to welcome you. And if you are already actively investing in recognition of a more vibrant present and preparation for a more resilient future, or otherwise discarding debunked investment practices in favor of dynamic reality, please share, so others can join you!
Image credit: Natalia Ornia, from DOI.gov
*While there’s no such thing as a guarantee in investing and no one can reliably predict the future, Ed’s prior track record delivering 32%IRR to investors provides direct evidence that it is indeed possible to consistently invest for both financial returns and social value creation. If you are an accredited investor and would like to learn more about investments that can advance social, racial, and gender equity by supporting high-value companies led by women and/or people of color, please contact us to start that conversation.
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The information contained in this blog does not constitute, and should not be used or construed as, an offer to sell, or a solicitation of any offer to buy, securities of any issuer, fund or other investment product in any jurisdiction. No such offer or solicitation may be made prior to the delivery of definitive offering documentation. The information in this blog is not intended and should not be construed as investment, tax, legal, financial or other advice.