As the world becomes more transparent and connected, the truth about how companies treat their various stakeholders (whether it be their employees, customers, business partners, communities, or the environment) will be exposed. This will create a high level of fragility for companies who derive their competitive advantage through exploiting their stakeholders as for the first time ever, the exploited have a voice and are empowered to join together and fight back. This will result in the fragile companies having a much higher risk profile and lower than anticipated future growth profile which from a discounted cash flow perspective, will lead to a double negative multiplier effect, leading to accelerated erosion in value. On the positive side, this will create a high level of antifragility for companies with heart and soul that have built up strong relationships and have established a high level of trust with their stakeholders. As Taleb states “word of mouth is a potent naturalistic filter. Actually, the only filter.” These antifragile companies will have a much lower than assumed risk profile and higher than anticipated further growth profile which from a discounted cash flow perspective, will lead to a double positive multiplier effect, leading to accelerated creation in value.
I am still baffled about how little attention the investment community gives to soft qualitative factors such as a company’s culture, core values, and its relationships with its stakeholders. I just returned from a three-day Institutional Investor Conference sponsored by a major brokerage firm. After a three-year hiatus from the Street, it was another wake-up call to me about how it is just all about the hard cold numbers – as of the twenty-five plus company presentations I sat through, only two of the CEOs actually made mention of their values and their company culture. Taleb seems to be critical of this as well as he states “A corporation does not have natural ethics; it just obeys the balance sheet. The problem is that its sole mission is the satisfaction of some metric imposed by security analysts…”
When you think about it, our newly launched Customer Value Index 200 is based on Taleb’s concept of antifragility. Whereas Social Responsible Investing is focused on reducing exposure to companies that create negative externalities, thereby creating a less fragile or resilient portfolio, our strategy is to increase exposure to companies that generate positive externalities. By screening for companies with superior competitive strength that are transparent, authentic, and engaging in terms of their core values, culture, and community, we have tried to identify those antifragile companies that will thrive and prosper as the Social Revolution shakes up the soil of the corporate root system. It’s exciting as since we launched the Customer Value Index 200 on November 15th, it is up 13.0% versus 11.1% for the S&P 500, an outperformance of 290 basis points, the majority due to stock selection. However, it is important to keep in mind that we are looking for our social capital investment thesis to play out over the next decade as we see a widening gap between the fragile and antifragile. As Taleb states “few realize that we are moving into the far more uneven distribution of 99/1 across many things that used to be 80/20: 99 percent of Internet traffic is attributable to less than 1 percent of sites, 99 percent of book sales come from less than 1 percent of authors…Almost everything contemporary has winner-take-all effects….”
- More Here and treat yourself by reading Taleb's new book Antifragility:Things That Gain From Disorder
I am still baffled about how little attention the investment community gives to soft qualitative factors such as a company’s culture, core values, and its relationships with its stakeholders. I just returned from a three-day Institutional Investor Conference sponsored by a major brokerage firm. After a three-year hiatus from the Street, it was another wake-up call to me about how it is just all about the hard cold numbers – as of the twenty-five plus company presentations I sat through, only two of the CEOs actually made mention of their values and their company culture. Taleb seems to be critical of this as well as he states “A corporation does not have natural ethics; it just obeys the balance sheet. The problem is that its sole mission is the satisfaction of some metric imposed by security analysts…”
When you think about it, our newly launched Customer Value Index 200 is based on Taleb’s concept of antifragility. Whereas Social Responsible Investing is focused on reducing exposure to companies that create negative externalities, thereby creating a less fragile or resilient portfolio, our strategy is to increase exposure to companies that generate positive externalities. By screening for companies with superior competitive strength that are transparent, authentic, and engaging in terms of their core values, culture, and community, we have tried to identify those antifragile companies that will thrive and prosper as the Social Revolution shakes up the soil of the corporate root system. It’s exciting as since we launched the Customer Value Index 200 on November 15th, it is up 13.0% versus 11.1% for the S&P 500, an outperformance of 290 basis points, the majority due to stock selection. However, it is important to keep in mind that we are looking for our social capital investment thesis to play out over the next decade as we see a widening gap between the fragile and antifragile. As Taleb states “few realize that we are moving into the far more uneven distribution of 99/1 across many things that used to be 80/20: 99 percent of Internet traffic is attributable to less than 1 percent of sites, 99 percent of book sales come from less than 1 percent of authors…Almost everything contemporary has winner-take-all effects….”
- More Here and treat yourself by reading Taleb's new book Antifragility:Things That Gain From Disorder
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