In the late 1960s, during cultural times protesting the Vietnam War, a rock musical by the name of Hair: The American Tribal Love-Rock Musical (commonly referred to as “Hair”) was running on Broadway. In that musical was a song or really a little ditty called “Initials”
There are some initials in the investment market which this edition of MGF will focus on:
- AI – ARTIFICIAL INTELLIGENCE – this is a hot topic in the investing world. AI is computer programming designed to replicate the human mind and body (either by computers or robots). If anyone watches the NBC series Chicago Med, you might recognize the computerized surgical tool referred to as “2.0” That is an application of AI. Technology cognoscente are debating whether AI poses severe risks to society. Members of Congress are contemplating passing regulations to curb the extent to which AI may be used. They are all worried about the “dark side” of AI. Despite these protestations, firms such as Nvidia (NVDA), Microsoft (MSFT) and C3.AI (AI) are all making heavy investments into AI. Needless to say, the horse has left the barn and I have followed those firms into making AI investments.
- ESG – ENVIRONMENTAL, SOCIAL AND GOVERNANCE – This is the updated woke version of SRI (Socially Responsible Investing). This philosophy of investing places greater weight and priority to a corporation’s management of climate, societal and corporate governance issues over that of traditional investment criteria such as earnings, dividends, business models, liquidity, and fiscal strength. Over a decade ago, I penned an article titled “Is Socially Responsible Investing, Responsible Investing?” I arrived at a few conclusions: a) One person’s socially responsible investing may not fit the criteria of everyone’s socially responsible principles. A great example is that of beef consumption. Some meat eaters see animal meat as part of a healthy diet. Others believe that it is cruelty to animals while some people equate cattle ranching as toxic to the environment; b) There are natural conflicts with ESG/SRI. For example, suppose that a company develops a cure for cancer by performing testing on dogs. Is that being socially responsible or not? and C) There is no evidence that SRI investing outperforms non-SRI investing. By the simple fact of banning sin stocks (alcohol, firearms, gambling and tobacco) you may be excluding certain stocks that outperform your benchmark index, which for most people is the S&P 500. My conclusion is that ESG investing is detrimental to your portfolio returns.
- FOMC – the FEDERAL OPEN MARKET COMMITTEE – This is the banking body which is responsible for overseeing the Federal Reserve System. Of primary importance is the FOMC’s setting of interest rate targets. One such meeting to do so is being conducted Tuesday, May 2 – Wednesday, May 3. Expectations are for the FOMC to raise its target Fed Funds rate by ¼%. Furthermore, given recent economic data point releases and the problems in several regional banks, the FOMC may signal that no further interest rate hikes may be forthcoming in this tightening cycle.
- SPAC – SPECIAL PURPOSE ACQUISITION COMPANY – commonly referred to as “blank check companies” These were popular just a few years ago. The concept was to raise capital via a SPAC and banking that capital for future acquisitions. This turned out to be a financial fad with most capital never being deployed.
- ETF – EXCHANGE TRADED FUND – mutual fund-like instruments which are traded on a stock exchange. They also differ from mutual funds in that they have lower cost structures and are transparent. The most popular and oldest ETF is the SPDR S&P 500 ETF Trust or “Spyders” I use ETFs across many strategies with some frequency.
Do you have any initials in the investment world which you would like for me to explain? Please send me an email and I will be happy to do so.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLCwas long AI, MSFT, NVDA, SPY, SSO & SPLX - although positions can change at any time. The mention of stocks are not recommendations and may not be suitable investments for your individual situations.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
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