At a conference last year, I was approached by an audience member after my talk. He thanked me for my observation that it’s unrealistic to expect investors to do nothing in the face of a sharp market-wide selloff, and that pulling out of the market can sometimes be the right thing to do. In fact, this savvy attendee converted all of his equity holdings to cash by the end of October 2008.
He then asked me for some advice: “Is it safe to get back in now?” Seven years after he moved his money into cash, he’s still waiting for just the right time to reinvest; meanwhile, the S&P 500 earned an annualized return of 14% during this period.
In his new book, Superpower, Eurasia Group’s Ian Bremmer suggests three strategic options for America to remain a global superpower. But while many lawmakers appear to be taking his preferred option of an “Independent America” to heart, we believe it’s the wrong choice. In fact, Bremmer leaves out a fourth approach that we feel is the best strategy for America to win not only on the current global chessboard, but on the next one as well.
With the US reluctantly being drawn back into putting out fires in the Middle East, warily watching Russian aggression, facing a stop-and-start “Asia pivot,” and on the sidelines the Greek crisis unfolds or Chinese stock markets go through turmoil, reviewing these options is timely for President Obama; they may be even more important for his successor.
Rather than dipping too deeply into the tax break tool box to attract new business, state and local governments might do just as well to make their local skies more friendly. Some research I’ve recently completed suggests that the easier it is for venture capitalists to travel by air, the better the companies in which they invest do.
When my colleagues (Shai Bernstein at Stanford University and Richard Townsend at Dartmouth College) and I analyzed what happened when new airline routes were introduced that reduced the travel time between venture capitalists and companies in which they had invested, we found a robust result: the travel time reduction leads to an increase in innovation as well as a greater likelihood of an IPO. Moreover, the greater the reduction in travel time, the stronger the positive effect on portfolio companies.
Our results indicate that VC involvement is an important determinant of innovation and success. Far from just sitting back to see if their investments pay off, venture capitalists tend to be active investors. They want to be up close and personal with their companies. Better flight connections that enable them to do so lead to greater company success, we found.
From off-shoring good jobs to the great and growing income divide, finance-driven decision-making has long been at the core of many of our economic problems. It’s not that financial analysts and operatives are necessarily evil or uncaring – rather, they believe they have a fiduciary responsibility to generate maximum returns for their funds, even when the results have worker and society-unfriendly consequences.
Changing this mindset has proven a tough nut to crack even for union pension fund managers, who are aware of the social consequences of investment decisions. But there are glimmers of hope and interest. On June 7, for example, some of the nation’s largest institutional investors and the biggest single pension fund investor – the California Public Employees’ Retirement System (CALpers) — will hold a conference to explore ways to transform socially and environmentally sustainable investment criteria from a perceived liability to an asset. CALpers has a commitment to responsible investing – for example, it calls for neutrality in union organizing – but it has never figured out how to make such policies systemic. Read More »