For years we have been tracking China’s rise as the world’s political, military and business superpower. This summer we learned that 2021 China’s spending on Research & Development will exceed $500 billion and for the first time ever will exceed R&D spending by the United States (Source: Bank of America). We believe China will be to the 21st century what America was to the 20th: the world’s superpower. The growing importance of China is why we work with investment managers who are located in China and have in-depth, local knowledge on how best to invest there.
A Cautionary Tale
On August 31, the criminal fraud trial of Elizabeth Holmes (former CEO of Theranos) began. The story of Theranos is a cautionary tale on the importance of investing in things that are well-understood while eschewing investments that seem too good to be true. Theranos was a high-flying health-care company founded by Holmes in 2003. It claimed to have technologies that would make blood tests widely available at a fraction of the cost. Theranos embodied a wonderful promise that enabled its value to grow to $10 billion (USD) by 2013. Unfortunately for their clients and investors, the technology never delivered as promised, patients were harmed, and many investors lost their savings when the value of the company collapsed. When we see stories like Theranos, we are reminded of why we work with investment managers who research and understand the businesses we invest in so we can avoid these situations.
Ethical Investing, ESG and Greenwashing
We continue to cast a skeptical eye on so-called “green” mutual funds and ETFs. Investors are increasingly concerned about how their investments are impacting the world and the future – and we think this is a good thing. At the same time, investment companies are using investor sentiment as an opportunity for profit without really helping the environment (this is a process called “greenwashing”). Helping the environment is a complex endeavour and serious solutions are needed. TransAlta, a Canadian power company, is in the process of converting from coal to natural gas power generation. This conversion will reduce the company’s annual carbon emissions by 30 mega tonnes which represents 14% of the target carbon emission reduction for Canada (Source: Edgepoint). We believe a typical “green” investor would be disinclined to invest in TransAlta, yet it is difficult to find a company that will contribute as much to the reduction in Canada’s carbon emissions moving forward as TransAlta.
We believe that investing continues to be a nuanced and complex endeavour where simplistic solutions are counterproductive. We agree that making the world a better place through our investments is a good thing – and affixing simple labels to investments and/or people does more harm than good.
Welcome Garrett Boekestyn
We are pleased to announce a new addition to our team. Garrett Boekestyn joined us earlier this year, and his expertise in tax and financial planning will continue to strengthen our service. You can review his bio along with the rest of the team on our updated website.