Typology: since not elsewhere disambiguated, divestment will be considered a form of shareholder activism in this article.

The aim of this call for information is to identify under what conditions shareholder activism or divestment is more appropriate. Shareholder activism referrers to the action and activities around proposing and rallying support for a resolution at a company AGM such as reinstatement or impeachment of a director, or a specific action like renouncing a strategic direction (like investment in coal). In contrast, divestment infers to withdrawal of an investment in a company by shareholders, such as a tobacco or fossil fuel company. By identifying the important variables that determine which strategy is most appropriate, activists and shareholders will be able to choose strategies that maximise social and environmental outcomes while companies will be able to maximise shareholder value.

Very little published academic literature exists on the consequences of divestment. Very little published academic literature exists on the social and environmental consequences of shareholder activism other than the impact on the financial performance of the firm, and conventional metrics of shareholder value.

Controversy (1)

One item of non academic literature, a manifestos on a socially responsible investing blog (http://www.socialfunds.com/media/index.cgi/activism.htm) weighs up the option of divestment against shareholder activism by suggesting that divestment is appropriate as a last resort, if considerable support is rallied, the firm is interested in its long term financial sustainability, and responds whereas voting on shareholder resolutions is appropriate when groups of investors are interested in having an impact. It’s unclear how these contexts are distinguished. DVDivest, a divestment activist group (dcdivest.org/faq/#Wouldn’t shareholder activism have more impact than divestment?) contends in their manifesto the shareholder activism is better suited to changing one aspect of a company's operation whereas divestment is appropriate when rejected a basic business model. This answer too is inadequate as a decision model since one companies can operate multiple simultaneous business models, own several businesses, and one element of their operation may not be easily distinguished from the whole system - the business. They also identify non-responsiveness of companies to shareholder action as a plausible reason to side with divestment.

Controversy (2)

Some have claimed that resolutions that are turned down have an impact. It’s unclear how to enumerate that impact and others. The enumeration of impacts is itself controversially and of course methodologically challenging.

Research Question(s)

Population: In publicly listed companies

Exposure: is shareholder activism in the form of proxy voting, submitting shareholder resolutions and rallying support for shareholder resolution

Comparator: compared to shareholder activism in the form of divestment

Outcome: associated with outcomes  - shareholder resolutions (votes and resolutions) and/or indicators or eventuation of financial (non)sustainability (divestment) and/or media attention (both)

An easy win for rationalists is to avoid actively managed mutual funds.  As a NYT article points out:   

"High fees, often hidden from view, are still enriching many advisers and financial services companies at the expense of ordinary people who are struggling to salt away savings....even for retirement accounts that are to be covered by the rules, many advisers are not required to act in their clients’ best interests. This means that they are legally entitled to look out for themselves first and recommend investments with higher fees, to the detriment of those who have asked for help....even when fund managers succeed in outperforming their peers in one year, they cannot easily repeat the feat in successive years, as many studies have shown. That’s why low-cost index funds, which merely mirror the performance of the market and don’t try to beat it, make a great deal of sense as a core investment....With fees included, the average actively managed fund in each of 29 asset categories — from those that invest in various sizes and styles of stocks to those that hold fixed-income instruments like government or municipal bonds — underperformed its benchmark over the decade through December. In other words, index funds outperformed the average actively managed fund in every single category....Investors who believe they have found honest and skillful advisers may still want to understand all of this. Not everyone truly has your best interest at heart."

Raison d'être

My original reason for risking my money for more, and the reason I tell myself, is that the marginal value of losing just about any amount of my money at the moment is negligible. I am fairly austere in my consumption habits and have no big ticket debt. Though, having lots and lots of money would certainly improve my options in life.

History

I am a bad gambler, better and investor. I lost thousands using the Martingale betting strategy which seemed to work on short-time line simulations that I tried, but failed to work in real life. I now understand why it doesn't work fortunately. I lost thousands on poker, which I’m awful at. Now, I’ve lost thousands on speculating in stocks.

Insight

I understand why I lost money when I gambled. It’s less clear to me now as a speculator. My consistent failure has resigned me to avoid any active management of my money making by investing for the foreseeable future because maybe I'm just a gambler and rationalizing all my irrationality in finance away. I was hoping someone here could help me understand what’s going on?

Strategy

My current stock portfolio is down 6000 dollars. My prior is that I have just been the liquidity in the market. My basic strategy has been buying mainstream stocks whose price has tanked for one reason or another (in the hope of a turnaround, or capitalising on people’s fear causing them to dump the stock below its actual value. And, to buy a few biotech stocks that seem high potential. This is all on the ASX cause it’s a hassle to open accounts to trade internationally:

Performance: underpriced

* BHP Billiton crashed due to low oil and an environmental disaster in brazil

* Slater and Gordan crashed due to getting class action law-suited by its own investors (ironic, since slater and gordan specialises in just that) through its main competitor

* Woolworths crashed due to price war with competitor and weaker profits

Growth: High potential, tractable and neglected

* Bionics limited is putting through some psychiatric medications in trials and I thought it would almost be good philanthropy to sponsor it since it’s quite novel compared to existing treatments

* Integral diagnostics is mainly owned by doctors who own clinics that order the machines so I feel like it’s undervalued by people not connected to it

* Regis healthcare gives me cheap exposure to the aging population market

* Tissue Therapies sounded like it was about a wound healing thing from a superhero comic but turned out to just be some niche diabetic product

* Donfang modern agriculture grows mandarins or oranges in China, and I wanted exposure to China and thought it was interesting that they’re listed on the Australian stock exchange

Portfolio optimization

Outcomes

I’ve either made a significant loss on each of these, over the course of a month, or basically no change in the price. The exception is tissue therapies that I bought ages ago and lost lots on too. I was going for long term appreciation anyway, so maybe things are okay? Help me become stronger! The first stock I picked I did extensive quantitative research on the fundamentals. However, I couldn't integrate all the information I collated into a single indicator for what decision I should make and I still don't know what that would look like so I just had to go with my gut. I made a loss anyway despite having found evidence that the team involved were actually quite pathetic because I already did all the research and thought it sad if I didn’t participate (plus shorting seemed to complicating!). I know technical analysis is bullshit, and I don’t see how any inefficiencies in machine learning of stock data that I could replicate in a timely manner with my average brain haven’t already been taken advantage of by existing quants.

Let's suppose you start with $1000 to invest, and the only thing you can invest it in is stock ABC. You are only permitted to occupy two states:

* All assets in cash

* All assets in stock ABC

You incur a $2 transaction fee every time you buy or sell.

Kind of annoying limitations to operate under. But you have a powerful advantage as well. You have a perfect crystal ball that each day gives you the [probability density function](http://en.wikipedia.org/wiki/Probability_density_function) of ABC's closing price for the following day (but no further ahead in time).

What would be an optimal decision rule for when to buy and sell?

Follow-Up to: A Guide to Rational Investing Financial Planning Sequence (defunct) The Rational Investor 

What are your recommendations and ideas about financial effectiveness? 

This post is created in response to a comment on this Altruistic Effectiveness post and thus may have a slight focus on EA. But it is nonetheless meant as a general request for financial effectiveness information (effectiveness as in return on invested time mostly). I think this could accumulate a lot of advice and become part of the Repository Repository (which surprisingly has not much advice of this kind yet).

I seed this with a few posts about this found on LessWrong in the comments. What other posts and links about financial effectiveness do you know of? 

Rules:

• Each comment should name a single recommendation.
• You should give the effectiveness in percent per period or absolute if possible.
• Advice should be backed by evidence as usual. 

General Advice (from Guide to Rational Investing):

Capital markets have created enormous amounts of wealth for the world and reward disciplined, long-term investors for their contribution to the productive capacity of the economy. Most individuals would do well to invest most of their wealth in the capital market assets, particularly equities. Most investors, however, consistently make poor investment decisions as a result of a poor theoretical understanding of financial markets as well as cognitive and emotional biases, leading to inferior investment returns and inefficient allocation of capital. Using an empirically rigorous approach, a rational investor may reasonably expect to exploit inefficiencies in the market and earn excess returns in so doing.

So what are your recommendations? You may give advanced as well as simple advice. The more the better for this to become a real repository. You may also repeat or link advice given elsewere on LessWrong.

http://www.theguardian.com/world/2013/nov/12/occupy-wall-street-activists-15m-personal-debt

A collection of Occupy activists recently bought over $14,000,000 in personal debt for $400,000.

Normally, debt-buying companies do this with the intention of collecting the money from the debtors--Occupy did not, and I was struck by the lopsidedness of the figures.

A number I see often in the high-impact philanthropy world is $2300 to save a life (with plenty of caveats). At Occupy's rates, that would buy roughly $80,000 in debt--enough to get two or three families out of a hole that would otherwise render them bankrupt.

By itself, this isn't enough to be better than mosquito nets or deworming. But the thing about personal debt is that, thanks to interest payments and stress, it prevents people with high earning potential (compared to an average African) from making decisions that would optimal were they debt-free--like finishing college or buying a used car so they can take on a higher-paying job.

My idea, though it's a tentative, spur-of-the-moment thing:

Why not found a charity that acts like a combination of Vittana and Giving What We Can, freeing people with good prospects from debt in exchange for their signing a contract to donate a small portion of their future salary to charity?

A few issues that come to mind:

1) Occupy bought a lot of medical debt, which this company wouldn't, and other types of debt might be harder to buy.

2) People who have decent earning potential have more valuable debt, since they're more likely to pay it off later. (On the other hand, freeing them of interest payments might help them get into a better position for repayment.)

3) The idea is a lot like micro-lending, and organizations that offer that service don't have a great track record (though some have been successful).

4) People just freed from debt might not be in a position to donate much salary/might be unreliable. (Deferred payments until college is finished/the new job is had could be helpful here.)

5) There might be (well, almost certainly are) difficult legal issues with finding information on people in debt before you actually own their debt.

Are there any other obstacles you all can think of? Other features of the charity that might make it more effective? How does it sound as an intervention that increases the world's productivity in the long run, stacked up against other such interventions?

First off, note that I am not in possession of any of the licenses that entitle me to call myself a financial advisor. However, the approach to investing I will present in this article is endorsed by many economists, Warren Buffet, and Vanguard. I personally follow it, and you can too.

What is the goal of investing? To turn money today into money tomorrow. There are several ways to do this, and people on Wall Street are constantly inventing new ones. What is more, you have professional competition in this activity: people who want to make money today into more money tomorrow then is otherwise possible. You are producing a commodity, and the better you understand this, the better investing decisions you will make.

What are the ways to make money today into money tomorrow? There are many ways. But we want to make money today into money tomorrow in the most efficient way that involves the least amount of worry.  After all, we have specialised in some other area of human activity, and are not good at this area. So we should pick an investment that requires no upkeep, no worry, and good returns. This rules out real estate entirely, and the last criterion rules out letting money sit there.

So how does money today turn into money tomorrow? First you pay taxes on the money today, then give the money today as a loan (called "buying a bond")  to someone who needs it to do something that will be profitable. Or you can purchase a bit of an enterprise that makes money (called "buying stock") and let it make money, and pay you in the form of dividends or appreciation of shares, as the company grows. Then you sell what you have or get payed back and get taxed again.

But what if they don't pay me back or the company fails? Then you are screwed.

So what if I put a little bit of money in each loan and each share? Then the failure of each one won't hurt you that much.

Okay, I'll do that! Got a few million lying around?

Nope. So I can't do that? Nope, you can't. Bonds come in units of $1000 face value, and stocks in lots of 100.

Wait, what if I got a bunch of my friends together, and we pooled our money? That's called a mutual fund, and you can buy them. But the person who manages the fund charges you money, and that comes right out of the money tomorrow, and sometimes out of the money you put in.

So I should try to minimize these charges? Exactly!

Someone promises me higher returns for his fees! He's lying: academic research has shown no evidence of after-fee returns beating the market in general. After all, wouldn't you keep this secret for yourself if it really worked? He gets paid the same even if you lose all your money.

So what is the fund with the lowest fees? Well, the Vanguard Admiral Shares S&P 500 has fees of 0.05% of your money. Check out the prospectuses before you invest: they list out all the things that can go wrong.

But I don't like the risk! Remember bonds? You are more likely to get paid back, but the price is lower returns.

But I want diversification! So buy a bond mutual fund as well. And as usual there are fees you want to avoid.

Do I need anything else? According to CAPM, no. (We can talk about international stocks, but the S&P 500 do business worldwide, and there are lots of details about the costs of diversification etc.)

But how much do I put in each? That's a research question. But there is plenty of advice on this one question, and it doesn't cost you anything.

What about taxes? That's between you and the IRS. But sign up for a 401(k), maximize it, put as much into an IRA as you can, consider carefully the Roth IRA, think about which bonds you want to hold, and don't trade!

Don't trade? Don't trade: remember, you have competition. Trading hurts retail investors: it is expensive and they aren't good at it.

But I have a really good idea! Then work on Wall Street and risk someone else's money. Best part: you get paid either way.

But I want to change which mutual fund I hold to one that got more returns! Don't do it: the high returns don't last. Reversion to the mean is a powerful force.

I want to move to bonds as I get older! Still don't do it: you get taxed on the realized gains. It's easier to buy new then to sell old.

So what should I do? Think of your portfolio as one thing, and think about how to minimize taxes and fees as you go from where you are now to where you want to be. Then do it. But think first! Buying doesn't destroy the basis the way selling does, and overbalancing in tax-deferred accounts cancels out imbalanced non tax-deferred accounts.

------

Sources: http://www.vanguard.com/bogle_site/sp20051015.htm, 

http://online.wsj.com/article/SB10001424053111904583204576544681577401622.html

Buffet endorsing the index fund http://www.berkshirehathaway.com/letters/1996.html

http://johncbogle.com/wordpress/wp-content/uploads/2011/09/The-Professor-The-Student-and-the-Index-Fund-9-4-11.pdf

Similar sources exist everywhere. Ask your local economics professor what his investments are, and I will be willing to bet 10:1 odds that they are majority placed in an index fund.

Robin Hanson wrote, five years ago: 

Very distant future times are ridiculously easy to help via investment.  A 2% annual return adds up to a googol (10^100) return over 12,000 years, even if there is only a 1/1000 chance they will exist or receive it. 

So if you are not incredibly eager to invest this way to help them, how can you claim to care the tiniest bit about them?  How can you think anyone on Earth so cares?  And if no one cares the tiniest bit, how can you say it is "moral" to care about them, not just somewhat, but almost equally to people now?  Surely if you are representing a group, instead of spending your own wealth, you shouldn’t assume they care much.

So why do many people seem to care about policy that effects far future folk?   I suspect our paternalistic itch pushes us to control the future, rather than to enrich it.  We care that the future celebrates our foresight, not that they are happy. 

In the comments  some people gave counterarguments. For those in a rush, the best ones are Toby Ord's. But I didn't bite any of the counterarguments to the extent that it would be necessary to counter the 10^100. I have some trouble conceiving of what would beat a consistent argument a googol fold.  

Things that changed my behavior significantly over the last few years have not been many, but I think I'm facing one of them. Understanding biological immortality was one, it meant 150 000 non-deaths per day. Understanding the posthuman potential was another. Then came the 10^52 potential lives lost in case of X-risk, or if you are conservative and think only biological stuff can have moral lives on it, 10^31. You can argue about which movie you'll watch, which teacher would be best to have, who should you marry. But (if consequentialist) you can't argue your way out of 10^31 or 10^52. You won't find a counteracting force that exactly matches, or really reduces the value of future stuff by

3 000 000 634 803 867 000 000 000 000 000 000 777 000 000 000 999  fold 

Which is way less than 10^52 

You may find a fundamental and qualitative counterargument "actually I'd rather future people didn't exist", but you won't find a quantitative one. Thus I spend a lot of time on X-risk related things. 

Back to Robin's argument: so unless someone gives me a good argument against investing some money in the far future (and discovering some vague techniques of how to do it that will make it at least one in a millionth possibility) I'll set aside a block of money X, a block of time Y, and will invest in future people 12 thousand years from now. If you don't think you can beat 10^100, join me. 

And if you are not in a rush, read this also, for a bright reflection on similar issues.