I’m an accidental investor.
Looking at our family finances was even lower on my list this weekend than washing the windows.
That said, I am happy you are here.
I do enjoy being candid about what I’ve learned on my investing journey so far.
Before we dive in, I’ll start with a little context.
I don’t have investment advisory or finance background. I have built a co-op and been a consultant so I’ve been in and around business most of the past 13 years.
Primarily though, I’m a dad trying to be faithful to the work of providing for my kids. And in the process, I’m trying to also create ways that make it easier for them to offer a better future for their kids.
That’s where you come in.
For me to help my kids have a chance at a better future for their kids — I’ve realized more of us need to thinking differently about where we put our money. I appreciate you being open to putting in some time to figure this out. You’re exactly the kind of person that gives me hope that we might build a better path forward.
Let me take you back to where it started for me when I was 22.
I was working on my senior thesis and trying to make it a “capstone” project to help me make sense of what I had learned in college. My advisor had opened up various schools of thought in “political economy” to help with my analysis and encouraged me to use them.
My short version was that most of our environmental, human rights, and most other social justice challenges could largely be boiled down to problems with multi-national corporations.
Perhaps I was overly influenced by the film The Corporation. Or maybe I was overly enamored with the possibilities that emerged from watching The Take (About the unemployed Argentinian auto-parts workers who return to their idle factory, refuse to leave, and build an alternative) or reading about Mondragon (the 100,000+ worker cooperative business originating from the Basque region in Spain).
Four months later though, I found myself working for an elite energy research and consulting firm in Boston. It was the kind of place where the top executives got the corner offices with the best views of the MIT crew team practicing on the Charles River and the young associates got the cubicles next to the noisy printers and farthest from any window. To give you a better sense of it, I remember a couple weeks into the job when a colleague caught me looking at a set of power point slides that had just come off the printer:
“You know…” my colleague told me, “Dan’s getting paid $1 million to present those slides at the ExxonMobil Board meeting next week.”
Our 200-person “insight” business had just been purchased by a larger 2,000 person “data” business that wanted to become the leading purveyor of analysis to inform energy and related business decision-making.
My Investing Turmoil began that year.
I realized I was complicit in the firing of my colleagues because I was a shareholder.
Shareholders — in aggregate — want one thing: a singular focus on returns — both now and in the future.
The job of the Board of Directors is to oversee the executive and allocate capital to achieve investor returns.
I’ve come to refer to this singular pursuit of “returns” or “profit” or “shareholder value” as Capital Supremacy.
What I mean by “Capital Supremacy” is that capital’s interests are always supreme over and above the interests of other stakeholders like the workers, the environment, or community. In publicly traded corporations the executives and the Boards have pretty much one job: focus on capital’s interests. You could basically summarize their job as “keep customers, workers, regulators, the public… other stakeholders” in their zone of tolerance, but work extra hard to make sure you keep your capital providers (investors) happy. Obviously this is a simplification.
But given the recent and growing attention being paid to how companies report on “Environment, Social, Governance” (ESG) considerations — perhaps it’s not that much of a simplification.
In many ways the shift in the past couple years to ask companies to provide ESG reports and for investor groups to give companies ESG scores, it seems like the culture amongst investors is beginning to shift. As more investors ask harder questions pertaining to more than just their returns, a shift in culture may be underway.
The problem is that the fundamental dynamics will stay the same.
I spoke with Amelia Evans, an international human rights lawyer, Founder of MSI Integrity (a project that emerged from Harvard’s Law School) who spent the last decade working on, studying multi-stakeholder initiatives between leading big business and corporate accountability groups (Human Rights Watch, Oxfam, Greenpeace), and here’s what she said:
Her Beyond Corporations report is worth a read and Equitable Entities hints at a path forward. Here’s a taste:
“Corporations avoid sharing power … because to do so threatens their obligations to shareholders… As long as corporations are primarily beholden to investors, not only will companies fail to adequately center vulnerable workers or communities in their business decisions, but they will also resist human rights initiatives that threaten their profits or power and continue to harm the environment.”
“Companies are run and controlled by a board of directors, executive management, and shareholders, who do not directly experience the on-the-ground consequences of the company’s decisions. They are not the people who live near or work in the mine sites, farmland, or factories where the repercussions of business practices reverberate. This, combined with the fact that boards are legally prohibited from prioritizing community or societal interests above the financial interests of shareholders, means that decision makers in a corporation are neither structurally situated nor primarily motivated to consider human rights impacts. Instead, companies are incentivized—and often obligated—to make whatever decisions will maximize shareholder profits, without sharing those returns with workers or affected communities. This has caused extreme economic inequality between those who own or run companies and those who do not—a divide that is shaped by inequalities in race, class, gender, sexuality, geography, ability, and other forces of social and economic stratification.”
So, what are the alternative governance and alternative ownership models she’s talking about?
Well, cooperatives are one — you know that food co-op or credit union your dad went to? Co-ops are a distinct legal and tax entities where their governance is elected by their member-owners, which is usually their customers, their workers, community members, capital providers — or a mix.
Greg Brodsky from Start.coop — an accelerator for cooperative businesses — says: “Co-ops can be structured with a wide range of governance and ownership structures that create accountability, reciprocity between stakeholders, and mutualism.”
Okay, I’ll skip to the point.
My Money Transformation
I’ve begun shifting more and more of my money into funds and enterprises where their governance and ownership structures give the decision-makers in the firms a chance to consider the environment, worker dignity, and community needs as part of their internal capital allocation and planning. I want CEOs and Boards of Directors to consider my returns expectations right alongside the social mission of their business. If it means lowering my return from 13% to 11% to not go around regulators to dump toxic waste, I’d like CEOS to find a way to clean up the pollution and not push that off on an unlucky poor community or future generation.
If a Board has to lower the returns on my money from 11% to 8% to be able to give some equity, profit sharing and a living wage to each worker and contractor that productively contributed, then I’d prefer everybody make a decent family sustaining wage versus a wage that also forces them to rely on food stamps or disability.
And if the Board and Executives also thinks they need a budget for strategic initiatives to be inclusive in the workplace, to listen to community and facilitate participatory decision-making at every level appropriate, then I’m happy to have the CEO tell me that’s what they did and why they lowered my return from 8% to 5%.
I’ve chosen to allocate the largest portion of my retirement savings to Kachuwa Impact Fund.
Kachuwa is a mix between a impact real estate and impact company investments. Read about their strategy here.
Holdings include: Organic Valley, Equal Exchange, Namaste Solar, SJF Ventures, The Working World, LEAF, BlocPower, and others you can read about here.
If you want to invest in Kachuwa, write an email to Blake [at] kachuwaimpactfund.com that says: “Hi Blake, I’ve thought long and hard about it and I’m serious about high impact alternative governance and alternative ownership structures. I have X amount of $ that I think I’d like to invest with Kachuwa. What’s my next step?”
I’ve also chosen to invest my time to directly helping:
- Apis & Heritage Capital Partners — helps business owners sell their businesses in a way that allows workers to buy it over time as the business grows in value. Their focus is on communities of color.
- Equitable Economy Fund — helps early stage co-ops get vital catalytic capital and introduces them to a community of co-op friendly investors.
The sad part is that because I have less than $1 million in assets, the Securities and Exchange Commission (the SEC) labels me an “un-accredited” investor. Because I’m unaccredited most small funds (like Apis & Heritage and the Equitable Economy Fund) can’t directly offer a way for me to invest in them (without them taking on pretty burdensome and costly legal work). This 1933 rule was set up to prevent people from selling “snake oil” investments to less sophisticated investors. The result is that it essentially prohibits me and 99% of America from investing in equitable governance and ownership structures.
The good news is there are work arounds and a few smart people are working on them. The difficult part is none of these possible solutions (that I’ve heard about) are ready for prime time yet.
My advice for you
If you’re unaccredited like me, my advice is to start with these two steps.
- Start with a small portion of your total assets (maybe 1 or 2%) and invest it in something really close to home like a Slow Money loan to build a direct relationship with a local farmer or entrepreneur and to get plugged into your local economy, community, and food shed. You want to make sure you are seriously feeling comfortable losing this first $1,000 or 1% — (because 90% of small businesses don’t make it very long). The point of this is to get yourself used to doing things that are different and against the conventional wisdom and “prudent” thinking of what the financial sector will tell you to do with your money. To help with this first step: (a) Read the book Slow Money. (And join a local Slow Money chapter – i.e. Slow Money NC), (b) Take a course with Slow Money co-founder Marco Vangelisti, or (3) Watch this “Simple Carbon Math” 3-minute video and if you want more this 16-min challenge of conventional finance that I took and made from what I learned with Marco. After you’ve gotten confident in the theoretical and emotional part of why you’re doing this, then find a local CSA farmer and offer him $2,000 to increase his marketing / sales / outreach efforts to reach new customers next season. Say you’re only looking for 2% interest or a free box of produce and you’d like to get repaid in 2-4 years. And in the worse case scenario if he can’t repay you, you’re not going to try to evict him or take his land to get your money back. Because you’re not the normal kind of investor. You care about people and the planet and your community and your kids well-being and you want your family name to have a decent reputation so your kids have an easier time in life.
- Another step (if my first idea feels like too much work) is to put a small (maybe 1 – 10%) of your money into community investment notes — issued by a community development financial institution (CDFI). These could be a large group like Calvert or C-Note (easy online platforms — and C-note has high liquidity — you can take it out easily) or with smaller more locally impactful groups like Washington Area Community Investment Fund WACIF, Cooperative Fund of New England (CFNE), Boston Impact Initiative, Boston Ujima Project, or many others. Or RSF Social Finance is another favorite because they’re facilitating alternative banking realtionships between borrowers and investors through their quarterly “Community Pricing Gatherings”.
If you’re looking to put more than a couple percent somewhere, then I’d recommend Kachuwa Impact Fund because it gives you the diversity of a bunch of different investments like a mutual fund, but also balanced out by a good bit of real estate. They target returns that are a good bit better than community investment notes and slow money loans but balance returns in healthy ways with non-extractive relationships with communities, workers, and the environment.
I’ve gathered up some more Investing Resources in this post if you’re looking for more places to look.
In my post about Catalytic Capital, I hint at some of the work I’ve started doing around redefining my own expectations, which feels like an integral part of this work:
My Portfolio Expectations
I believe a livable future is bound up in hundreds of thousands of people re-setting their expectations around their investing. If we continue to allow conventional finance to dominate our thinking when we look at our retirement portfolios, our college savings, I think we our doomed.
I know conventional finance will continue to set our expectations at 8-10% consistent annualized returns.
For those of us that have walked with front-line communities that have experienced the extraction that these firms bring about, we have the visceral experience in our bones that tells us we can’t continue to allow that paradigm to win. We need Livable Future Investing. We need a new consciousness that helps us re-frame these questions.
Thanks for being a part of my journey — and for doing the hard work to advance your own investing journey.
I look forward to staying in touch. Don’t hesitate to reach out if you have questions.
Accredited or Institutional Investor?
If you’re an accredited investor or an institutional investor, I’d love to invite you to the work we’ve started at the Francesco Collaborative.
This Francesco Collaborative grew out of our early 2021 Livable Future Investing Workshop, which grew out of some 2019 and 2020 gatherings around the Economy of Francesco. Here was my January 2020 re-cap blog post that describes some of the work that got me to that place. More recently, I’ve started some mapping of the ecosystem here and here. I hope to continue more of this with groups of stakeholders from Catholic Impact Investing circles and others this Fall.
You can continue to follow along through our new OwnershipMatters.net newsletter.