2019-05-01 Money Australia

THE DEBATE

MICHELLEBRISBANE

Financialadviser,

EthicalInvestmentServices

WHAT

YOU NEED

TO KNOW

ResearchfromtheResponsible

InvestmentAssociationAustrala-

siasaysmorethan60%of Austral-

iansexpecttheirfinancialadviser

to incorporatetheirvaluesor

considerthesocietalorenvi-

ronmentalimplications

of investments.

W

hywouldyouinvestin a
companyyoudon’t
believein?Asa financialadviser,
I aimtonotonlyimprovemy
clients’financialpositionsbut
toalsogetcapitalworking
forbetterenvironmentalor
social outcomes.
Wedothisbyhavinga
conversationaboutwhatclients
valueandwhattheybelievein
andthenincorporatethisinto
theirinvestmentportfolios.
Workingwithclientsin the
ethicalinvestmentareameans
thatwealsohavea values
conversation.Thevalues
conceptis differentforeachof
us,butthatdoesn’tpreclude
combiningvalueswith
investmentconsiderations.
Proofthatyoucancombine
profitwithprincipleshasbeen
demonstratedyearonyear
asourportfoliosdeliversolid
long-termresults.
Howdoyoureconcilewith
yourownconscienceif you
knowyourinvestmentcapital
is supportinganythingyou
don’tbelievein?
Takeweaponsproduction,for
example– responsiblefordeath
andpermanentpainordisability

• thereareplentyofpeoplewho
  don’twanttheirmoney
  supportingsuchproducts.
  I’vebeenconstructing
  screenedportfoliosforethically
  mindedclientsforover 20 years
  withpleasingreturns.AtEthical
  InvestmentServiceswedeal
  witha rangeofpeople,including
  veryhigh-net-worthclients
  whoallhavestrongconvictions
  regardingwheretheywant
  theirmoneyinvested.Theold
  saying “ifyoudon’tstandfor
  something,you’llfallfor
  anything”appliesto
  investmentsaswell.
  If youhaveanopportunityto
  supportpositivechangeand
  makemoney,thenwhynot?
  Screeningforethical
  concernscanbea
  proxyforgood
  governance,
  management
  andprofit.
  Ethical
  investment
  clientsand
  advisers
  havestrong
  convictionsand
  theyexpect
  strongresults.

YES

JULIA LEE

Equities analyst,

Bell Direct

Should you divest

a company you no

longer believe in?

T

here’s a saying in markets

that you should cut

your losses early and let your

winners run. And yet when it

comes to practice, it’s mostly

entirely the opposite. Investors

hardly realise losses and mostly

sell winners. The disposition

effect describes a behavioural

bias, where investors tend to

keep capital losses to avoid

the feeling of regret and realise

gains to enjoy the feeling of joy.

Most companies are

impacted by different cycles.

Chances are that if you no

longer believe in a company, it’s

because of a prolonged period

of share price pain. There’s a

general rule in markets that it’s

OK to sell if you sell early,

but what do you do

if you’ve watched

the share

price fall for

a prolonged

period?

Unfortunately,

most

investors

sell at the

maximum

point of pain.

Share prices tend to

overreact to good news and

bad news. Usually this means

that at some point the market

overreacts and there is a buying

opportunity. This is also usually

the point where professional

investors find the company

interesting. Ask if perhaps the

worst is behind it. If so, consider

holding on for a turnaround.

In the end, risk management

is a key to returns over the

long term. If you haven’t sold a

losing position in a stock that

you no longer believe in, make

sure it’s not your emotions

helping to make the decision.

Evaluate whether this is a

buying opportunity rather than

a selling one, and evaluate what

business cycle may be impeding

or helping the company and

whether it could turn soon.

It’s always darkest before

the dawn. Unfortunately, many

investors sell at the maximum

pain point based on emotion

rather than evaluating it from a

stock and business cycle point

of view. But if you still don’t

like the investment, then, sure,

run for the hills, but do it after

evaluating it from a logical not

an emotional viewpoint.

NO