Liberal Talk Radio

Over the years we’ve argued that long-term investing could yield more “progressive” outcomes. That is, if you’re only concerned with quarterly profits, you have little incentive to think about the environmental effects of your business. But if you’re looking at being profitable 30 or 40 years down the road, then you have every interest in making sure that there are still natural resources (water, forests, oil) around that you can make use of.

The Professor even went so far as to tentatively argue in favor of repealing the estate tax, on the grounds that business owners might care more about the environment if they could easily pass their business on to the next generation.

Anyway, all of this is to say that it feels pretty good to hear Al Gore making the same argument in a Seattle Weekly interview:

For example, 30 years ago the average holding period for stocks in the U.S. was seven years. Now, the average mutual fund turns over its entire portfolio every 11 months. So Corporate Finance 101 says that 80 percent of the value of a typical company builds up over a business cycle or a business cycle and a half, five to seven years or so. If you as an investor are getting in and out of that stock in a few months, technically that’s not investing, that’s speculating. They have the fancy label, “momentum investing,” which means that they’re trying to outguess the other momentum investors, the other speculators. They try to get an advantage with superior information, but what they’re not doing is actually investing in the fundamental value of the company. And the short term–ism that is often decried in the form of CEOs managing the quarterly reports is even worse in the investment world, because a CEO that wants to break out of the quarterly report insanity will automatically feel pressure from institutional investors who compensate their managers on a three-month basis, or even a yearly basis, asking them, “What are you doing? You’re hurting our rate of return.”

So I’m part of a movement to try to encourage a longer time horizon for investing and, even more importantly, the integration of sustainability values, including the environment, as part of the mainstream investment process. Look at Costco here in the state of Washington. For years they were seen as a poor second to Wal-Mart. And yet, Costco’s unionized, they pay their employees a lot more. You look more carefully at it, and they have much more longevity, much less turnover, much lower retraining costs, much higher employee productivity. They don’t have the lawsuits facing them that Wal-Mart has because they’re respectful of the communities where they do business.

So if you look quarter to quarter, Wal-Mart’s going to look better, but if you look over three or four or five or seven years, Costco’s your bet. Now Wal-Mart, ironically, is under pressure to change its ways, because [its old practices are] catching up with it, and they’re actually trying to behave more responsibly now. Whether it’s greenwashing or whether it’s real remains to be seen.

Exactly. It’s a great interview, and you should read it all. Not because he’s going to run for President (he’s probably not), but because he’s hella smart and unencumbered by inane politician talking points. Good stuff.