Nordbi Sun, 19 Sep 2021 23:21:03 +0000 en-US hourly 1 Nordbi 32 32 Modern Portfolio Theory Ignores Critical Systemic Risk, Author Says – The Madison Leader Gazette Sun, 19 Sep 2021 19:44:54 +0000

Decades later, the risks are very different, and a new article questions the limits of modern portfolio theory (MPT). Jon Lukomnik heads Sinclair Capital, a consulting firm specializing in corporate governance. He was previously an investment advisor for the New York City Pension Fund and has been repeatedly named one of the 100 Most Influential People in Corporate Governance in the United States by the National Association of Corporate Directors. Lukomnik and James P. Hawley, senior ESG advisor at Factset, recently published Moving Beyond Modern Portfolio Theory, which argues that MPT, with its narrow focus on diversification, subjects investors to systemic risk. We met with Lukomnik to discuss the issues with MPT. Read the following edited excerpts to learn more.

Barron’s: Where are we with modern portfolio theory?

Lukomnik: Everyone sees MPT as diversification, but we go back to Miguel de Cervantes in 1690 writing in Don Quixote not to put all your eggs in one basket. Harry Markowitz gave us the math and the rationale for diversification. A host of enabling theories have sprung up around MPT that allow mathematics to work without taking into account the complexities of the real world. The efficient market hypothesis, in its strong version, says that all knowledge is known and rationally exploited by the market, and even in its weak version, that the market will tend towards knowledge-based rationality. The “random walk” theory says you can’t predict things the next toss. All of them are intuitive, logical and autonomous, but they are wrong. Daniel Kahneman won a Nobel Prize for proving that we are not rational: in fact, we are against losses. If the market worked at random, we wouldn’t have contagion. And you can’t avoid a loss if you don’t know what price you paid for a stock. Momentum strategies depend on the path. MPT is not the alpha and omega.

Your book provides yet another review.

MPT claims that diversification works on idiosyncratic risk: Firm A outperforms Firm B. But it doesn’t work on systemic risk, which is a risk to a real system, such as climate change, or systematic risk. , which is an undiversifiable risk in capital markets, often caused by systemic risk in the real world.

So MPT provides us with a tool to deal with what matters least. An obvious example was the global financial crisis, where people tried to diversify poorly underwritten loans but did not face the real problem that underwriting standards had declined. Eventually the risk metastasizes and we have a global financial crisis. So what we’re saying is you can’t diversify systematic risk. If you go back to the real world and try to deal with climate change or the growth of antimicrobial resistant superbugs, you can mitigate the real risks to environmental, social, and financial systems that result in systematic, undiversifiable risk to the markets. capital. Our book is a finance book that ends up looking at why we should care about climate change or gender diversity or any of those issues from a risk and return perspective. You can create huge value by lowering the real-world risk that affects the capital markets as the capital markets revalue, and you can build huge wealth. And then you can apply MPT to a better performing capital market.

Talk about what you call beta activism.

People are aware of traditional activism, when Trian Fund Management or Bill Ackman take on a poorly performing business and try to turn it around. Beta activism tries to manage systematic risk in the real world. It uses stewardship, proxy voting, organization, and political contributions to try to deal with real-world systemic risks that people fear will spill over into capital markets. So what various [investors] do about climate change – it’s not about targeting a sole proprietorship, it’s beta activism. Billions of dollars in assets under management have signed the Principles for Responsible Investment. Climate Action 100 is home to the world’s largest climate change investors: these investors have been very active in pushing governments to adopt climate change mitigation strategies. When we started the book, we thought we were going to detail all the beta activist campaigns. The number has exploded. For example, Domini Impact Investments works on deforestation. There was a very successful mine safety intervention led by the AP funds of Sweden after the Vale mine collapse which reduced their market capitalization by $ 19 billion.

What should the asset management industry do?

Two things. Pay attention to the health of the market in general, not just how your portfolio is performing relative to the market. Second, professionalize things other than trading and portfolio building. I’m going to give you an example. New York City has something called Proxy Access, a way to appoint directors for public companies in the United States. Three economists, including an economist from the Securities and Exchange Commission, discovered that [this system] added 53 basis points of excess return per year. We glorify traders and portfolio managers. Yet we don’t pay those responsible for stewardship, nor do we pay attention to them.

Environmental, social and governance investment has become a force in financial markets. Why is this so important?

There are different strains of ESG: socially responsible investing, ESG integration, sustainability, impact investing. Directionally, and in terms of strength and amplitude, it is this massive, somewhat unruly force rolling in one direction. Over the past three to five years, it has been recognized that value and risk are created in the real world and are reflected in the capital markets. If I were a private investor or a small business owner, I would be keen to create value and minimize risk by dealing with these real world issues. Why, as an investor in the public market, have we arbitrarily sealed them and somehow said that these are not legitimate investments? From a societal perspective, bringing capital markets together with the real world, with intentionality, is appealing.

What do you advise individual investors and advisers who want to protect themselves against systemic risk?

Pay attention to what your asset manager is doing. Many publish reports on sustainability, impact or stewardship. How real are they? What issues do you care about? It’s not simple. Sometimes environmental or social issues collide. Carbon tax without any mitigation is great for the environment, but it’s really bad for income inequality. And communicate. I have been a member of a mutual fund board of directors for 15 years. Do you know how many letters I received from end investors during this period? Zero. Let your asset manager know if you don’t agree with something he’s doing. And if you are an advisor, be aware of the problem. If you are an individual, ask your advisor what they do on ESG issues. What strain of ESG is the advisor following? How involved are they?

Finally, what’s in your personal portfolio?

In fact, I choose individual actions myself. I own a lot of municipal bonds. People forget about them, but they have infrastructure and green aspects. I own

Invesco Water Resources ETF


Cisco Systems


Henri schein
(HSIC), among others.

Thanks, Jon.

Write to Leslie P. Norton at [email protected] Source link

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A “human library” allows users to consult “books” to reduce prejudice Sun, 19 Sep 2021 15:27:03 +0000

Photo: SLPHOTOGRAPHY / DepotPhotos

Most libraries have shelves overflowing with well-worn paperbacks and hardcover books wrapped in shiny plastic. Late fees and frequent shuffling noises are common. In 2000, a group of innovators in Denmark created another type of library: the human library, or Menneskebiblioteket in Danish. What started as an event designed for the Roskilde Festival has since evolved into a global phenomenon where “readers” can consult a human “book” for half an hour. Each “headline” provides an opportunity for dialogue on difficult issues, a process that the library hopes will help us all “get past one another”.

The first human library was organized by Ronni Abergel, his brother Dany and their colleagues Asma Mouna and Christoffer Erichsen. As a four-day event at a festival, the project was experimental. However, over a thousand readers have come to browse the available human books. The books themselves were chosen to represent often misunderstood or stereotypical groups. The initial library was a success that led to the founding of the Human Library Organization, which has since continued lending human books.

There are two ways people can be part of the human library. One can volunteer to be a book and offer first-hand knowledge of an experience or identity. The books are titled simply, actually quite crudely. Among the human library are books titled “Alcoholic”, “Bipolar”, “Depression” and “Convert”. While these titles may seem reductive, the Human Library hopes readers will pick a topic but get to know the book for more than just the cover and title. Volunteer books are willing to share their experiences, a commitment that requires patience, empathy, and a level of comfort in sharing.

Another way to experience the human library is as a reader. Readers consult the books for half an hour and must return them on time. While being respectful, the library creates a space where readers can listen to the stories in the books. Readers are encouraged to ask the tough questions they’ve always asked themselves but never had a chance (or felt was polite) to ask. Specifically, the library hopes it will be “a place where people who would never speak otherwise find room for conversation.”

Of course, no “book” will have exactly the same experience as one that shares its “title”. However, this voluntary human connection offers opportunities to form opinions on issues affecting a community by speaking directly to a member of that group. The Human Library Organization today organizes pop-up events around the world and even has permanent borrow pits in several cities. They also work with businesses as a fairly unique provider of diversity and inclusion training.

Ultimately, we shouldn’t have to meet with a group member to recognize their humanity, learn about their experience, or respect their concerns. However, research has shown that positive interaction with individuals can affect a person’s tolerance and opinions about the group to which that person belongs. As worded by Bill Carney (a human book using the title “Black Activist”) for Forbes, “It’s easy to hate a group of people, but it’s harder to hate an individual …”

He clarified: “I am not pompous enough to believe that a 25 minute conversation with me is going to change anyone. What I’m pompous enough to believe is that if I can just instill the slightest cognitive dissonance, then their brains will do the rest for me. And that will at least force them to ask themselves questions. It is the process of “non-judgment” that is at the heart of the mission of the Human Library.

To learn how to become a book or reader, see Human Library Organization for more information.

The Human Library Organization is a global project where readers can consult human “books” to learn about experiences different from their own.

The mission of the library is to connect people who do not normally meet to discuss difficult subjects on which they have always been asked and thus develop knowledge, tolerance and understanding at the same time.

Human Library Organization: Website | Instagram | Facebook | Youtube

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Iceland’s volcanic eruption the longest in half a century Sun, 19 Sep 2021 13:52:41 +0000

CGTN published this video item, entitled “Iceland’s volcanic eruption the longest in half a century” – below is their description.

For more:–13GTBRsZxv2/index.html

Sunday marked six months since the volcanic eruption currently mesmerizing spectators near Reykjavik first began, making it the longest eruption Iceland has witnessed in more than 50 years. The first lava began spewing out of a fissure close to Mount Fagradalsfjall on the evening of March 19 on the Reykjanes Peninsula to the southwest of Reykjavik. And the ensuing spectacle – ranging from just a slow trickle of lava at times to more dramatic geyser-like spurts of rocks and stones at others – has become a major tourist attraction, drawing 300,000 visitors so far, according to the Iceland Tourist Board.

CGTN YouTube Channel

Got a comment? Leave your thoughts in the comments section, below. Please note comments are moderated before publication.

In This Story: Iceland

Iceland is a Nordic island country in the North Atlantic Ocean, with a population of 356,991 and an area of 103,000 km2 (40,000 sq mi), making it the most sparsely populated country in Europe. The capital and largest city is Reykjavík. Iceland is volcanically and geologically active. The interior consists of a plateau characterised by sand and lava fields, mountains, and glaciers, and many glacial rivers flow to the sea through the lowlands. Iceland is warmed by the Gulf Stream and has a temperate climate, despite a high latitude just outside the Arctic Circle.

Iceland’ gained independence in 1918 and founded a republic in 1944. Although its parliament (Althing) was suspended from 1799 to 1845, the island republic has been credited with sustaining the world’s oldest and longest-running parliament.

Hit hard by the worldwide financial crisis, the nation’s entire banking system systemically failed in October 2008, leading to an economic crisis and the collapse of the country’s three largest banks. By 2014, the Icelandic economy had made a significant recovery, in large part due to a surge in tourism.

Iceland has the smallest population of any NATO member and is the only one with no standing army, with a lightly armed coast guard.

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