The role that fashion plays amongst investors is often underestimated. One would be forgiven for thinking that investment policy is driven principally by expected future financial returns but with the rise of ethical investment funds, this is not necessarily the case and perhaps never has been. “Sin” stocks are increasingly traded at a discount and sometimes on a dividend basis, like tobacco and gambling companies were in the early 2000’s.
One could argue that this is because of a lack of perceived growth as their products are shunned or regulation is tightened like with slot machines. Twenty years ago, who would have believed that cigarettes would be socially unacceptable while increasing amounts of money are channelled into the cannabis economy? Casa Verde, the fund in which Calvin Broadus a.k.a. Snoop Dog is a partner, is but one example of this weight of money.
More recently fossil fuel companies have suffered from disinvestment decisions taken by the trustees of pension funds, foundations and even sovereign wealth funds. Look no further than the ethics committee of Norway’s $1tr sovereign wealth fund which has developed a blacklist of firms producing excessive amounts of greenhouse gases. In its view, these companies include cement and steel companies as well as just oil producers.
And after Lehman Brothers filed for bankruptcy in September 2008, bank stocks fell heavily out of favour. The wave of regulation and fines imposed on them in the aftermath of the banking crash is evidence of how much they had undermined the trust of the public. Nevertheless despite the opprobrium heaped on them in the years that followed, they have continued in business as their services have, by and large, proved indispensable to economic life since the twelfth century.
But business does not sit still and over the last two years more and more venture money has found its way into almost any start-up employing artificial intelligence or using Blockchain “technology” for whatever purpose. The best example of the former is the purchase of DeepMind by Google in 2014 for $400m four years after it had been set up. Its founder, Dennis Hassabis, is a new breed of entrepreneur who began his career at Lionhead Studios designing computer games.
The latest companies to fall out of favour, and then some, are those involved in advertising and social media. Their perceived misuse of personal data harvested without the full consent of their owners has been the key issue triggering their change in fortunes. Worse still for them, these allegations have surfaced at a time when “fake” news has already climbed up the political agenda resulting in a number of high profile investigations in various countries.
It is likely, therefore, that this will result in tougher regulation and a higher tax take on their revenues. Such are the vagaries of the market and the penalties paid for being considered “passé” by its participants. In view of the above, I would therefore argue that fashion plays as an important role in investing as it does in the world of haute couture!