More Than Money
Issue #15

The Human Side of Investing

Table of Contents

“Personal Stories”

Investing With Friends

Over ten years ago, I was invited to join twenty-one other women and start the Washington Women's Investment Club. The group has been meeting regularly ever since.

At the beginning, none of us had much experience investing, but we were eager to learn about money and accumulating more wealth. We were like-minded young professional black women. None of us felt that we could reach our financial goals on the strengths of just our salaries. By joining together, we thought we could teach ourselves the ins and outs of investing, share the risks, and buy into some investment opportunities that few of us could afford on our own. We also hoped to have fun and make new friends.

Unlike most investment clubs, we haven't just stuck to stocks and bonds, but have also invested within our local community. Our first venture capital investment of this sort was a start-up sports/entertainment management business with a good business plan and solid funding. The lawyers, bankers, and accountants in our group all recommended that we invest, so we unanimously agreed--excited to finally be investing in our community.

The business folded, however, and we lost all the money we had in it. At first, there was some angry finger-pointing. Some members had felt pressured to join the investment recommendation; now those who had suggested it felt unfairly attacked.

We had to hold a retreat and have a long, uninterrupted talk about our goals as a group, our risk tolerance, and how we could better communicate with each other.

Talking about money is an intimate activity, but pooling resources and choosing investments together requires even more trust. Ultimately, we came out of the retreat stronger than ever.

This growing trust ultimately changed how we worked as a group. Instead of making every investment decision as a group, we delegated this responsibility to two committees--an equities investment committee and an entrepreneurial/ventures committee. This allowed us to respond more rapidly to changes in the market, and to decrease the work load for most members. Most of us are married now and have families and demanding jobs.

The whole group still offers guidance though. We decided as a group, for example, not to invest in tobacco or liquor companies, nor to invest our portfolio in companies doing business in South Africa during the economic embargo.

By freeing up more members' time, our group has found other creative ways to support our local community. For several years, we organized an annual art sale to highlight the investment value of art and the work of emerging African-American artists. We've always donated a portion of the proceeds--one year to a homeless women's shelter for a mural project, another year to a local public performing arts high school. We've also promoted the idea of investment clubs in the black community by speaking to groups, getting national television and press coverage, and by publishing a manual on how to start an investment club.

This excites me. I've received a lot of opportunities in my life, and I want to give back and help provide others the chance to prosper.

- anonymous author

Beginner's Pluck

Neither my husband nor I really have time to evaluate our investments, so we leave these day-to-day decisions in the hands of our financial manager. For us, trust in our manager is key. We selected our investment firm because it uses a broad range of social screens to evaluate investments. Once our money was placed there we knew our investments would be supporting the kind of corporate responsibility we were looking for. Now our money is supporting companies like Whole Foods Market and ICC Technologies and we've experienced no significant loss in our return since starting to screen our stock.

Our financial manager called a while back and proposed a slightly more radical idea--putting some of our money into higher risk, slightly lower than market return investments in low-income housing. That made sense to us. We felt that if we could still make some money while offering opportunities to communities that needed of capital, then so much the better. As a result, we've invested in a number of projects, including the Boston Community Loan Fund, the Mercy Loan Fund, Accion International, Shared Interest, and the Institute for Community Economics. In addition, we have purchased CDs from two community economic development initiatives--the Self-Help Credit Union in Durham, North Carolina and Elk Horn Bank in Arkadelphia, Arkansas.

It's true that if we earned the highest possible rate of return, we would be able to make slightly bigger contributions to various community organizations. But, if our investments directly produce housing and jobs for people, isn't that as effective as giving away a little more grant money?

- anonymous author

Serving God, Not Mammon

My investment philosophy is based on deep confidence that, ultimately, there is no real risk. God loves us all, rich and poor, saint and sinner. While it is a great blessing to have assets, money comes and goes. I have many other assets: health, education, energy, and self-confidence.

I always ask, "Does this investment of my time, money, knowledge, or love serve God's purpose?" For years I've had social screens on my investments, and this does a lot of good. But I've decided to do more to act out my faith in my economic life. Now I put most of my money into community loan funds and emerging businesses I believe in, even though the former offer below market returns and the latter are high risk. For me, these investments offer a chance to answer God's call and be where I think He wants me to be.

Here's a success story: a food bank in Western Massachusetts was given some land. After a few years of growing vegetables on it to give to the hungry, they wanted to develop a large-scale farm that would sell food to the community--by individuals becoming "subscribers"--as well as provide produce for the food bank. They found prime farm land, but it cost $900,000. That's when the farmer, who knew me from a different project, approached me about helping them out.

To understand how this opportunity hit me, you need to know that I spent my youth thinking I'd be an organic farmer, and a fair portion of my adulthood exploring ways that agriculture might help other social-improvement endeavors. I supported the farm purchase in three ways: I guaranteed the loan (which didn't cost me a cent); I bought a below-market rate CD for the loan amount from a socially-responsible bank, so the bank could turn around and offer the farm a lower mortgage rate; and I bought the farmhouse (over which I retain ownership), so the farmer could live right on the property. These were not gifts, they were investments. My primary contribution was absorbing all the risk.

The food bank raised enough to pay off the loan in just four years, partly because the state bought the development rights which cut the cost in half. The farm now has 400 paid subscribers and provides 100,000 pounds of organic vegetables a year to the hungry of Western Massachusetts. I often go out to the farm, tickled that hardly anyone there knows the role I played.

Even though my wife supports this type of investment, she sometimes worries that we won't always be able to afford this nice roof we have over the heads of our two baseball-crazed sons. It's something we've had to talk about, and I've reassured her that what I'm playing with in venture capital is indeed play money, not what we need for basic security.

Some people think that having wealth is contrary to the Christian spirit, but I don't think so if you wake up every morning thinking about how to spread it around. If we don't ponder that, we might be in deep trouble, because wealth raises the stakes and makes it harder to get into heaven.

- anonymous author

Freeing South Africa

How people invest their money can not only change corporate practices, it can help topple governments. I know this firsthand from my years organizing with the anti-apartheid movement in the United States. I've seen the effect of having individuals and institutions divest from companies doing business in South Africa.

The democratic movement in South Africa didn't limit itself to moral appeals for change. They reasoned that only if the South African government felt the strain on its pocket book would it stop denying equal participation to the black population. Thus they called on the assistance of anti-apartheid organizations around the world to create international pressure to isolate and weaken South Africa's economy.

Over a period of years, the divestment wing of the international movement convinced employees, stockholders, and consumers that they had the power to send a message. This pressure took different forms. One strategy targeted portfolio managers, universities, religious institutions, employee pension funds, and individual stockholders, convincing them to divest themselves of stock in companies doing business in South Africa. Another identified banks which held loans to the South African government, demanding that they not follow previous practices of "rolling-over" loans when they came due, but rather demand repayment and refuse new loans.

While just one facet of the overall campaign to weaken the government, these strategies were key to bringing it to the negotiating table. Apartheid became too expensive and the government started looking for alternatives. This movement ultimately led to Nelson Mandela's election as President of South Africa.

While we should certainly celebrate this stunning political victory, those of us who care about South Africa must now find effective strategies to reinvest and help rebuild its economy. On my trips to the country, I've seen the hardships imposed by divestment. Without an economic recovery that can provide basic necessities for its citizens, South Africa's political victory remains vulnerable.

This next phase is in many ways harder. Creating jobs and stimulating economic development in disadvantaged communities is a challenge for any government. If South Africa is to truly reach its potential, initiatives which effectively make the economy a tool of empowerment must be identified and supported by investors. Only through creative reinvestment can the dream of a non-racist, non-sexist, and democratic South Africa become a reality.

- anonymous author

Patient Capital

After stints as an entrepreneur and a technical writer on international food policy, I was hired by a small venture firm in the early 1980s. I had some success, some luck, a few good deals, and I was in line for a partnership.

Yet I always felt a little out of step with my colleagues. They had an unquestioned faith that profitability was proof of social value and that the rising tide of free markets would lift all boats. As a technical writer, I had seen the effect of global markets on local culture. Sometimes profitable businesses are a great boon to a community; other times they can have devastating impacts.

So, after about five years, I set out on my own to start a $25 million venture fund dedicated to socially and environmentally responsible companies. This was in 1989, the nadir of the venture industry. While I was not able to reach the necessary capital threshold to launch the fund, the process put me in touch with numerous individuals--foundation officers, family investment advisors, high net worth individuals and others--whose enthusiasm and concern convinced me that the need for new approaches to venture capital investing was deep.

When faced with the decision of going back to work for a traditional venture fund or going "forward" into the unknown, I chose the latter. We sold our house in Connecticut and down-scaled to a much smaller home in Massachusetts. My plan was to give myself a sabbatical year before jumping back into the business. During that year, I was fortunate to be contacted by a search firm that was looking for a new member of the Finance Committee for the Jessie Smith Noyes Foundation.

The fit between my concerns and those of the Foundation were strong. A family foundation with over $60 million in assets, the Noyes Foundation was wrestling with its own moral dissonance--the irony of supporting alternative agriculture with their grantmaking while owning stock in pesticide companies like Monsanto. I helped the foundation design a new investment strategy with three key components: 1) social screens on at least 80 percent of the portfolio, 2) using our influence as shareholders to improve corporate policies, and 3) putting five percent of our assets into venture capital investments related to our mission. This last part of our strategy became my job. I soon started working as an investment management consultant to the Foundation.

Our venture assets are invested in four partnerships (which are essentially like socially screened mutual funds for venture investments) and ten businesses with whom we have direct relationships. These businesses include a company that makes organic yogurt, an energy conservation business, a company that produces leak detection systems for underground storage tanks, and a distributor of alternative energy products for the home market.

All of these businesses have established sales records and solid prospects for growth, but none of them would ever be invested in by traditional venture capitalists. The reason? Traditional venture capitalists are looking for companies with the potential to grow from start-up to $100 million in sales within five years. This scale and speed precludes, by definition, the universe of smaller, slower-growth companies where we put our money. It precludes the notion that small and slow can be beautiful (some might say organic).

I have come to see our work at Noyes as part of a larger picture--the emergence of a genuine movement toward stakeholder capitalism. We are still at the beginning of this tremendously challenging and exciting project. Can we recapture the power of financial markets and reassert the primacy of people and place? Can we reconnect investors to the ultimate consequences of their investments? Can we free up even small amounts of patient capital from our enormous financial institutions?

These are the questions that keep me going. It is my hope that as our work progresses, more foundations and individuals will join the fray, so that we can increase the amount of patient capital available and enhance the work of all of those who are seeking to reshape our economy from the ground up.

A particularly rewarding part of the job for me is providing moral support to CEO's. I know how important it is for entrepreneurs to have at least a few investors who share their values, who can be patient, and who can remind them, over and over, that they are not crazy for trying to create businesses that contribute to a sustainable future.

- anonymous author

A Higher Rate Of Flow

I am a "money flow artist." If you've got more than you need (and I've learned I don't have a lot of needs), it is fun to give away money or invest it in ways that make the world a better place. Some people worry about their security and think this is a gamble, but I love to gamble.

Back in the 1970s, I won a teaching award for my work at Boston University. With a few thousand dollars from "my winnings," I set up an interest-free, revolving loan fund for BU students. I'd tell all the students in my classes that if they, or any of their friends, needed emergency money they should see me for a loan. I did not want these kids suffering for lack of a little money in a pinch.

Hundreds of students have borrowed from the fund over the years--to pay for rent increases, therapy, telephone bills, abortions, travel back home to visit a sick parent--you name it. I ask the students to sign a simple promissory note and tell them, "When you get rich, send me what you would have owed me for the interest." In all these years, I've only had three people not pay the money back. The fund has even grown because many people have sent in their "interest payments" years later. They all write the same thing: "That little loan made such a big difference in my life at a very difficult time. I want other students to have the same opportunity I had."

Loans are one of my favorite forms of investing. I frequently offer them to friends, to organizations I support, and, occasionally, to complete strangers who have a compelling need. Each year I loan the War Resisters League money to print their annual peace calendar; after the sales money rolls in, they pay me back and keep the remainder of the income to fund their work. I "lose" a little money in interest this way, but I still count this as a good return. Some of my loans are geared towards making money, however. I've lent to Co-op America, which offers me eight percent interest, and Common Courage Press, a progressive book publisher which offers me seven percent interest and two free books for every thousand dollars I lend. Soon, I'll be swimming in great books.

- anonymous author

Investing In Dreams

When I was young, I received $750,000 in stock from an aunt who I only met once--for about fifteen minutes. My investment strategy was just to put the stock in a shoe box and go on with my life. In a few years, the stock was worth 2.5 million dollars!

At this point, I started investing money in my dreams and those of my friends, not expecting any financial reward. For ten years, I managed the Firehouse Theater Company in San Francisco and covered any fundraising shortfalls. Later, when there weren't any good high schools to send my eldest daughter to, I bought a couple of Greyhound buses, gutted them, and put in a kitchen, library, and bunk beds. We recruited teachers and students, and created a school on wheels. We took the kids to Mexico, the Florida Keys, and hundreds of other places. Our young people grew worldly and wise. I was satisfied with my rate of return.

Eventually, I made a dream investment, hoping to yield a solid financial return. I bought a fifteen acre boys camp in West Marin County for $600,000, and spent another $500,000 converting it into a retreat center. We had small Japanese-style cabins with fresh flowers and sitting cushions as well as a hot tub and swimming pool. I was not earning much on my capital, but the center was covering its costs, and the future looked good. Every few months, I turned down offers to buy the property for over a million dollars, figuring I couldn't go wrong with the real estate, no matter what happened to the conference center.

I was wrong: the Marin real estate market crashed. When I needed to refinance my loan, interest rates were 20 percent--up from the nine percent of my first loan! And gas prices were so high that many people couldn't afford to drive to our center (an hour from San Francisco). We suddenly had no customers, higher expenses, and no buyers to bail us out. By the time I shut down operations it was costing me $10,000 a month just to own the property, and I was facing bankruptcy. Worse, my sweat, blood, and tears had come to nothing. I felt emotionally bankrupt.

The property was finally bought by a drug rehab center for $600,000. It's where Jerry Garcia breathed his last breath. I go back sometimes and walk the grounds and turn it all over in my mind. Investing two million dollars this way taught me that I am more of a poet than a businessman. I now make about $70,000 a year as a writer and "corporate culture" consultant. You'll often find me in the wilderness taking engineers and managers on vision quests and helping them build a sense of teamwork and community.

I still invest in dream projects, but now I make it a rule to team up with other investors. By pooling resources, spreading the risk, and bringing all our expertise to bear, we have a much better chance of success. I've been an investment partner in a publishing venture, a corporate training company, and a movie production company. This way I am learning to be a poet and a successful businessman.

- anonymous author

Pioneers

Some people think shareholder activism got started in the late 1960s, but my brother Louis and I have been doing this since the early 1930s. We've been called the pioneers. Louis passed away in 1993, but I'm still going to close to 50 shareholder meetings a year--asking questions, saying my piece, and sponsoring resolutions. I like to keep management on their toes. After all, they are my employees!

I guess we got into this work because of my mother. She bought us stock in Woolworth's and a few other companies when we were kids. Louis and I liked owning shares in different companies. We felt part of what made this country great. As Louis liked to say when he got older, "I am alternately a railroad man and an operator of ocean liners. I am a manufacturer of tobacco, steel, glass, typewriters, rubber, rifles, business machines, automobiles, cosmetics, and airplanes. I am a builder of bridges and tunnels."

In 1933, Louis became curious about stockholder meetings. When Consolidated Gas had a meeting in New York that year, Louis went. Shareholders today wouldn't recognize that meeting. There were only a few dozen people in attendance. There were no proxy statements. No printed annual report. No comments from the floor. No auditors present to answer questions. Everyone was asleep. When the chairman was finished reading his statement, people woke up and started to clap. Louis tried to ask a question, but the chairman laughed at him and adjourned the meeting. This got us mad. Our country was in the middle of the Great Depression. Obviously management wasn't doing so well on its own.

We had enough money from our investments to live comfortably. This gave us the freedom to become full-time corporate watchdogs. We bought stock in over a thousand corporations, researched the companies, attended hundreds of meetings a year, and started pushing for reforms. We wanted to keep management salaries in line, increase shareholder participation in annual meetings, make boards more responsive, and have the auditors present at meetings to answer questions. One thing just led to another. Soon we were publishing an annual report on our shareholder activities. We even started our own nonprofit organization, Corporate Democracy, Inc., to encourage other shareholders to get involved.

Between my brother, myself, and a handful of people such as our associate Wilma Soss, we turned the heat up on American management. The Securities Exchange Commission even started seeing things our way, and in 1942, they passed a rule requiring companies to print and distribute shareholder resolutions at the company's expense. The companies, of course, hated this, and we had to go to court to make the regulation stick.

In 1945, the president of TransAmerica refused to include our shareholder proposals in the company's proxy statement. The SEC came to our defense and sued Transamerica on our behalf. Most of the shareholder resolution fights that people are familiar with today wouldn't have been possible without this suit. It forced companies to honor their responsibility to publish and distribute shareholder resolutions. This makes launching shareholder campaigns much easier.

My motto in all of this is to hit management hard and then leave them laughing. I've dressed up as Sherlock Holmes to protest a company's lack of disclosure of important information, and I've worn a red clown nose when speaking up for a resolution. The Ringling Brothers Circus even made me an honorary clown for my meeting antics.

- anonymous author


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