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Gennady Favel
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Gennady Favel is the Chief Investment Officer at ESG Integrated Solutions Inc, a financial technology firm that provides asset managers the ability to analyze their clients' portfolio for ESG risk as well as tailor an investment strategy to each client's individual ESG philosophy. In the past... More
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ESG Integrated Solutions Inc
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  • What Apple Inc. Looks Like From An ESG Perspective…

    What Apple Inc. (NASDAQ:AAPL) Looks Like From An ESG Perspective…

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAPL
    Jun 05 10:49 PM | Link | Comment!
  • ESG Analysis Is Like Doing A Background Check On Your Portfolio

    Most companies when hiring new employees will conduct a background check on all potential new hires. In addition to the standard reference check many companies will also conduct a criminal and credit check and depending on the position might talk to past colleagues and supervisors. Combining all these factors together gives them a score as to how trustworthy this person is, how reliable, and based on their criminal past - the likelihood of a violent outburst. By avoiding people with low background scores, companies hope to decrease the chances for serious situations which might bring liabilities and instability into the company.

    Instability is known by another name when we are dealing with a securities portfolio: volatility. As investors we have two financial objectives, increase returns and decrease volatility. The standard tools for decreasing volatility have been diversification, investing into larger cap companies, and investing into companies that have predictable and stable profits, and now there is another tool: ESG analysis.

    ESG analysis is the background check that rates the Environmental, Social, and Corporate Governance performance of a particular company. For example, just like a business might want to avoid an employee with a violent criminal record, an investor would hope to stay away from a company that has, for instance, a poor environmental record. Why? Because aside from polluting, such a company will be at a higher risk for an environmental disaster that could cost investors dearly. Likewise, a company with a low social score will be at a higher risk for litigation based on regulatory violations, which again creates volatility for the company and it's investors.*

    On the other side are companies that are best in class and have high ESG scores. These companies not only behave in a socially responsible manner but also demonstrate the superior competence of their executive teams. Companies with high ESG scores will be more appealing to costumers, have an easier time with regulators, and in the end, decrease the chances of a negative company-specific event. As ESG information becomes more widely available we also believe that the company's ESG score will become more highly correlated with it's stock price.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    May 01 1:34 PM | Link | Comment!
  • Defending Wall Street In All The Wrong Places
    True story.  It was 2006, and I was taking the Q train from my job in Manhattan to my home in Brooklyn.  I was sitting, reading an investment book the title of which I can no longer recall. As the train pulled into a station and the doors opened, in walked a rather shabby looking gentleman.  His cloth, hair, and general appearance indicated that he had experienced financial and perhaps mental hardships and from first impression seemed like he wasn’t “all there.”  He smiled and then sat right next to me.

    Over the next few minutes I noticed that this man was curiously studying my book, glancing at the cover, and trying to read the words printed on the pages.  At that point I knew that it was only a matter of time before he tried to strike up a conversation.  Sure enough a few moments later the man asked what it was that I was reading.  I answered politely that it was a book about the stock market and investments.  Since I don’t remember the exact words spoken between us, bellow is a paraphrased summary of our conversation:

    MAN: Why are you reading that garbage?
    ME:  I work at a fund where we trade a lot.
    MAN:  Gee Wiz.  All that stock market stuff is @#&!  It’s all luck
    ME:  My company seems to be doing okay, and has been for some time, I don’t think it’s luck.
    MAN: So were all those mutual funds that went belly up after the 2000 market crash.  They were doing well also, you saw what happened.  
    ME:  Well, I think some investors get lucky and some have special skills.
    MAN/; No!  It’s all a huge scam.  They are just gambling.

    At this point I launched into a hastily thoughup, metaphor-filled speech about consistently profitable poker players, Warren Buffet, and superior returns of high frequency trading.  But as hard as I tried to convey my point, the man stuck to his survivorship biased argument claiming that all these winners simply got lucky, and although I tried, I couldn’t come up with a convincing argument to prove him wrong.

    Five years later, after yet another market crash that wiped out many of Wall Street’s top performers I remembered that conversation I had on the train.   I still believe in my metaphors, and Warren Buffet, and that stellar market returns are possibl, and with high frequency trading, even likely.  But if I were to run into this same shabby-looking gentleman once again it would be him and not me that had the new talking points.  Not that I don’t believe that I am right, but as someone once said about the stock market “it sure is hard to love someone when they keep breaking your heart.”

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    May 17 6:06 PM | Link | Comment!
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