Some investors just want a stable income and pay nominal attention to the value of their portfolio. They accept a volatile portfolio value but not a volatile amount of income. I call them “retirees.”
Some investors have too much cash for FDIC guaranties and must expose some of the assets to the stock market. They don’t love profits as much as they fear losses. I call them “depositors.”
Some investors want “good” companies and then hold them “forever.” Because they don’t sell, they pay little attention to taxes. I call them “Buffett-babies.”
Some investors want their portfolios diversified across various asset classes, which is re-balanced on a periodic basis. They follow the textbooks. I call them “theory-lovers.”
Some investors want their portfolios diversified across various asset classes. They believe re-balancing is over-rated and allocate some satellite portion of their portfolios to their strong convictions. I call them “smart investors.”
Some investors want “wholesome” companies that don’t sell tobacco, alcohol, sugar, or other products that have hidden costs to society. Called Socially Responsible Investing (SRI), doing good is as important to them as doing well. Some advisors call them cry-babies. I call them “conscientious.”
Now, former Vice President Al Gore, of all people (?) is popularizing “sustainable investing.” It is different from the standard SRI. He argues that the value of the stock must reflect the sustainable value of the product. For example, sugar is instrumental to worldwide obesity. At some points, governments will overcome the sugar-lobby and start taxing the product to pay for increased healthcare costs, thus driving down the value of sugar companies. It is just a matter-of-time, they say. Another example would be oil companies, who carry vast oil reserves on their books at market prices. However, since that amount of oil will never actually be pumped out and sold, when fossil-fuels are obsolete, the value on the books is too high. Normally, I would call all this “pollyanna-ish.”
But, give the Nobel Peace Prize winner credit for this — his investment firm has placed #2 in the U.S. over the last ten years! I call that “impressive, very impressive, indeed!”