Ask Us Anything: Is ethical investing worth it?

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0:50Hello, welcome to our mini episodes where we answer your biggest questions on finance. So Matt writes, I've always been interested in investing and have never really understood stocks i ended up putting some small amounts into collections pre-covid put a bit of money into pokemon cards which exploded and are now worth thousands what's your the attitude towards investing in these things versus stocks i'm wondering if it's a better financial decision to sell my collections to fund some more traditional means of investing i got an interesting story about pokemon cards um so my my son likes pokemon cards uh my bank doesn't but i took we went into a shop the other day near where he lives it's like a card shop um and we went in and he's there talking and he's like you know he's a he's a he's a young lad and there's like some adult there that's like dead into them i could just tell that the adult was looking down on my son going you know whatever mate like you don't know pokemon get out the shop you're wasting my time and and my son was like we'll be back tomorrow with my collection and when we went out he was like he wasn't very nice to me was he i was like no son he wasn't so he's i'm gonna take all my cards in and show him so we went in the next day with a stack and the guy was like this kid's got some serious cards and i was like yeah and they valued the collection at three thousand pounds yeah yeah like he i mean everything he's at every birthday he gets every christmas it's just pokemon cards and he he puts them all in the packets and protects them he knows all about them he knows like there was these ones called dittos where you can it's a it's a ditto and you rip it off and it evolves he knew to keep the sticker on that because he was like that's going to be worth money so he sealed that up and now it's like hundreds because everyone's just ripped the sticker off the front this kind of leads to my point of he knows that space inside out and he knows what's worth money unless you are like my son i know it inside out i don't really see much point in buying collectibles people who know the collection make money in the collectibles i was actually going to say exactly the same thing um i can't remember who the investor is which is really annoying but he coined a type of investing called fastidious investing right where you basically invest in something that you know everything about and you don't touch anything else.

2:58So if he picked a stock, it would be a company that he's researched for like two years. He knows everything about it. And then he's like, I'm going to buy this stock and buy it, but keep buying it. And so, for example, I used to be a wine, one of my many jobs. I used to be thousands of jobs. I used to be, I was like, that should be the title of your book. That should be a t-shirt I used to be. I used to be a fine wine broker. So like investment wines, and it's a great investment if you understand the market, just like crypto, just like Pokemon cards. That's what I would say. If Matt knows Pokemon cards better than he knows the stock market, then I guess he can make that decision.

3:32But yeah, I say always invest in, if it's an alternative investment, if that's your forte, you understand it, you know it in and out, you know the value, you know the risks, you know how the cards appreciate over time, then yeah, go for it. If that's your area of expertise, because you have that advantage on anyone else who's buying Pokemon cards. You might just buy a stock and then lose all the thousands you've made in Pokemon cards in two days because you bought some electric car that someone told you was going to be amazing and then it's just disappeared. The reason I talk about broad cheap indexes is because they allow people to participate in the stock market with a level of ignorance in a sense of like it's quite passive and easy and the benefits are clear and it's proven over say 100 plus years.

4:15Whereas buying individual companies requires like a lot of skill. Remember when we talked to Sasha and it was just kind of like, yeah, F that. Forget all that. Like 20, 20 hours a month or something. Yeah, yeah, yeah, per stock. And then like, I get mates all the time that are like, oh, I'm considering investing in whiskey. And I'm like, do you like whiskey? No, but like the advert says it's a good investment. And it's like, maybe if you understand whiskey, it's a good investment, but why would you be buying a barrel of whiskey in Scotland? You don't even drink the stuff, you know? So for me personally, that's how I view collectibles.

4:46If you're an expert like my son and you've got a clear advantage and you can like look at something and go, that's worth money because of these reasons, then yes, maybe you've got an edge, but for, you know, just to buy it because other people buy it, I don't think so. They don't produce income either. I like income producing assets. Yeah. Is it tax free? I don't even know, mate. No, I think there'll be a capital gain surely. Because on wine, there's no capital gains tax. Oh really? Yeah, because it's a perishable, consumable item. So yeah, you should look into whether you have to pay tax on Pokemon cards.

5:21But yeah, these are things that you need to know if you're gonna invest in these areas. Yeah, Matt also here says that he's, I don't know if he's just in Pokemon cards, but that seems quite risky to me. Oh, definitely. Because Pokemon cards had a resurgent because Logan Paul basically spoke about them. And he had a Pokemon card worth one point something million. Yeah, Charizard, base set Charizard, 500 grand or whatever. But you know, easy come, easy go. It's like - But then again, if you don't, again, if you're buying poker cards, you don't know, you're like, yeah, I'll swap you this one for this one.

5:52And then you swap one that costs 500 grand for one that's cost 20 P. You don't know because you don't know that area. So yeah, it's definitely know what you're doing. And yeah, don't like me, don't be like T and put all your money in crypto. You want to diversify and like, you know, hedge your bets a little bit. I have like 10 % of what I invest for speculative investments and rolling the dice. 90 % of everything is into a global index. and I think that just provides a real nice foundation and it means like long-term I should be okay and then the 10 % I can do whatever I want with. That might be buying individual companies, that might be buying Pokemon cards.

6:29Eating in China asks, am I shooting myself in the foot by choosing an ESG ETF for the S &P 500? You know, they're basically asking, I think, is it even worth buying the ESG? will it underperform and all of that stuff do you know what esg stands for

6:51environmental social governance yes doesn't work

6:59wills rub the batteries out of it hasn't he you've been smashing it there you go yeah environmental social governance yeah um i do have um a good point on this um obviously i work in venture capital and a lot of companies looking for funding are either in AI or ESG. So it's things like solar panels or renewable energy or biofuel. And one of my clients said the other day that everyone's thinking about risk. They think about wars. They think about, or I don't know, whatever it is, wars, oil, but they don't think about like the biggest risk could be climate change and emissions and things like that.

7:32So for investment point, I'll let you handle it. I personally, I used to invest in ESG funds, but I mean there's a lot of attention especially in Europe and say like in the Middle East as well to combat climate change and emissions and things so it could be profitable and it is something that we need to think about in the future we should do an episode on ESG maybe one day but um as for an investment vehicle I personally am not in it myself but it's definitely something that we all need to be aware of for the future and it's a huge area and there's a lot of money flowing into it from venture capital investments, investing in sustainable cars, sustainable fuel, sustainable whatever.

8:08Yeah, so the money flowing into it is the point I wanna start with. What people need to realize about fund providers is they sell funds. So they're in it to sell you funds because they charge a management fee, right? So what they want is stuff that you pick up off the shelf. And ESG, as you pointed out, like AI, like, you know, when AI started, when ChatGPT came out, there was an explosion of funds that were like AI funds. They're trying to capitalize on that buzz, get assets under management so that they can charge you a management fee. ESG is both a really important conversation to have, but also a buzzword.

8:45You know, greenwashing is the term where they basically say, oh, this has been ESG'd. It's, you know, now ethical. So, you know, pay us a little bit more money to invest in it. My issue is what are ethics or more importantly, what are your ethics? What is your version of environmental, social and governance? You might think, I think fossil fuels are bad, but then you might also think that social media is bad. But most of these ESG funds will contain some form of social, will contain the social media companies because they have a low environmental impact typically. So it's not good enough just to say, this is an ESG fund.

9:29You really need to know what the criteria for the E, the S and the G is. And you need to weigh that up with your own morals. My partner is vegan and I liken it to her circumstances in the sense of if you want to be good in this world, if you want to do the quote unquote good thing or the thing that's good is a bad word, sorry. What I mean is if you want to do something that means that you align with a specific set of morals, it's always going to be harder. It's going to cost you more probably. And it's going to mean that you're going to have to make a conscious effort to be like that. It's easier just to eat meat, right?

10:04It's harder to go out and like be vegan. It's the same with ESG in the sense of if you want to be ethical in your investing, you're going to have to work harder to achieve that. You're gonna have to define what those morals are, look for the funds that meet them. You're probably gonna get charged more for it because there's a screening element there as well. And shooting yourself in the foot But from a returns perspective, maybe, but the whole point of this is it's because you want to be moral. It's not just about returns, is it? If you were all in on returns, you would just be buying loads of weapons companies.

10:41You know, that's where you would be. I think it's important that people say, what do I want from investing? Yes, I want a return, but I also want those investments to represent my, like morals. For me, as an example, I buy the global, I buy the whole planet, even though the S &P 500 has produced the best returns now for like over a decade. Am I shooting myself in the foot by buying the whole planet? Yes, kind of. But the return that the global investment offers me is enough for me to hit my goals. My, you know, 9 % a year on average is great. And secondly, I just want to back the world. I don't just want to be this person that goes only America's got anything to offer the planet.

11:25I like the idea that the UK might sort itself out. I like the idea that India could become a powerhouse China. And I want a part of that. I'm a global citizen. I'm not just, you know, looking at America. Does that make sense? Yeah, it does. I mean, I think there are two things you touched on. One is investing just for the returns. And there are some people that will say, oh, I'll invest in this ESG fund because I think it's going to give me better returns. But what you're saying is that the data shows that they don't really - I don't have that data. What I'm saying is that there's narratives. So one thing that I'll point out is there was an emergence of like electric vehicle companies.

12:02And you might say that they're ESG, right? Then they're not necessarily ESG. And there's a strong argument that a lot of these electric car companies do more damage than the other ones because of the amount of stuff they're pulling out the ground. But I think people have these narratives that they latch onto of like, oh, everyone's gonna be driving an electric car. So I'll buy electric car companies and that'll make me rich. But if everyone's thinking that it's priced in, the ESG thing is a separate thing of like, this fund has been approved as meeting certain standards. Okay. I was doing an analysis on people's pensions the other day, workplace pension schemes, the auto enrollment schemes.

12:39And I went through a lot of the funds that were in there. And most of them have an ESG component. I actually think that we'll enter a world where if you're not ESG, you won't survive in a sense. that everyone will demand that of businesses because it's going to shift from a, oh, it's nice to be green to be like, if you're not green, if you're not sustainable, your business model is flawed because if you can power yourself off renewable energy that's cheap, why would you be buying oil? So I do think that we'll shift to that eventually, but you're probably going to find that if you buy ESG funds, certified green, in the same way that if you buy a vegan burger, even though it's just made of plants, it costs more than the meat version.

13:21You know, it's the same thing. They charge you more for it because it's niche and because they can. Yeah. I mean, organic food, vegan food does cost more. I went vegan for a month, lost a lot of weight, didn't work out. I was trying to get weight, gain weight. So yeah. But the thing is like with everything, electric cars, they say it's really good for the environment. But if you're using fossil fuels to charge the electric car, you're burning coal so that you can plug in your car to charge it. It defeats a purpose. A lot of vegans, they like avocados, but apparently to get, I like avocados. I had some this morning.

13:50But apparently you've got to kill like millions of bees to create. I don't think you're murdering the bees. Apparently they kill bees and they're coming through. Cut them to each avocado. But apparently it's damaging to bees to like harvest avocados and beacons love avocados. I'm pretty sure any form of crop that we harvest is damaging. I think it's like a great, a good thing, right? Exactly. But then even with like manufacturing companies and companies that do transport logistics, some of them say, oh, we've got a renewable warehouse, a solar panel powered warehouse, but then their trucks are driving all over the country and they're not renewable.

14:18So even though they say ESG for a company to be fully like have no carbon footprint or to be fully net zero is really hard. So yeah. And they say it because it's like, you know, at the minute, every company needs to have some kind of exposure to AI. So they're all just slapping out these crappy AI products and features that mean nothing when it's like, just get on with your core business. I don't need Greg's to have AI enabled pasties or pasties as you like to call them. Do you know what I mean? Like, but I think ESG is the same of like, it's this sticker that everyone wants to stick on their products because it makes them think, oh, well we'll attract a certain audience.

14:55There's a large part of the world now, especially the younger generations care about the environment. So by saying we care about the environment, you get to sell more of your pasties. These are your current and future shareholders. So you wanna make sure that they're happy. But do they actually care or is it a profit driven thing? There's also an argument of like, well, actually profits will drive that revolution. Because if people care, then the businesses will make the changes to meet that need. Are you shooting yourself in the foot to come back into the question? You're probably getting charged more, you know, so from that perspective, yes.

15:33But you might influence change within businesses that reflect your morals. All I would encourage you to do is look at what the ESG fund is doing and don't just buy a fund because it says it's ESG. you need to dig into what that means.

15:49This is not financial advice. Like we say a lot on the podcast, investments can fall and rise. In fact, it's almost a guarantee. Remember, past performance is no guarantee of future results. So your money is at risk with investing. Also, remember other fees may apply.