A Musk Inspired Anti-ESG Takeover Wave?

It’s fun to see memes advising Elon Musk to buy Alphabet, Amazon, Coca Cola, Disney, Meta, Netflix, YouTube, and more, but of course he can’t afford them. But We To be able to. We, I mean investors value. Musk’s purchase of Twitter has validated my critique of ESG-based investments (environment, social, governance) (see here, here, here and here), which currently has a weak financial record of nearly $ 2.7 trillion worldwide. And it demonstrates the potential strength of the anti-ESG fund, which I call the Friedman Fund after Milton.

An anti-ESG Friedman fund would, firstly, small companies be overvalued due to capricious or government-directed ESG metrics and buy undervalued companies due to the said metrics and secondly, buy the controlling interest of potentially valuable companies that are breaking even, Earnings, because they woke up, as Mask and his investors did recently.

The goal of the fund will be average risk-consistent returns, earning over a period of time.

The effect of the fund will be to increase financial market efficiency and economic productivity by punishing deviations from the process of rational valuation and rational business decision making.

The first method is widely called value investment. Although commonly understood by investors since at least the 18th century, Benjamin Graham popularized and measured the method in the first half of the 20th century. The bottom line is buying stocks when their market value falls below their reasonable price and selling or shortening them when their market value exceeds their reasonable price. Price investors tend to buy and hold, as long as the market price is close to the reasonable price, ignoring the price that the stock will look at in anything going to a skilled market.

The value of a stock may deviate somewhat from its reasonable value because investors like or dislike the company because of what it makes, or how it is made, or who runs it, or what its executives say or do. In other words, shares of “good” companies may benefit from the “hello effect”, while shares of so-called “bad” companies sometimes stagnate due to the “devil’s horn effect”. Some investors overestimate the importance of those soft factors over other investors, which makes them value the stock higher (hello) or lower (horn) than rational investors.

ESG funds and ESG ratings – directly or indirectly regulated by the Securities and Exchange Commission through bond rating agencies – can create significant halo / horn effects that value investors can exploit for their own gain while reducing the fragility of the financial system in the process. Since the ESG represents a political and essentially thematic concept, the ESG rating can be significantly detached from reality. If prices are not checked by investors, they could easily become bubbles (excessive investment in certain assets, such as dot com or mortgage-backed securities) or anti-bubble (very low investment in certain assets, such as fossil fuels).

ESG bubbles can be particularly costly because the extra investment can go to companies that actually harm the environment or the poor. As a scholar, writer like Ozzie Zehner The green illusionArguing, and Michael Moore has tried to explain the progressives, including in his 2019 documentary The human planet, Very few “green” technologies provide net environmental benefits because they are inefficient, rely on tax subsidies, require rare earth metals to operate, have major environmental side effects and much more. Similarly, as recently indicated by Harvard Business ReviewESG ratings are not related to good environmental or labor regulatory compliance!

Moreover, many social justice initiatives in large corporations, such as many government programs, help Democrat politicians but do little or nothing to help American Indians, blacks, Hispanics, women, or the poor. Once exposed, ESG darlings can become dogs overnight, hurt investors and lead to potential financial crises.

The second method that the Friedman Fund can take is usually frowning. Under the so-called Wall Street rules, investors who do not like management decisions should sell instead of adding flavor. This is a good rule of thumb because corporate management is usually well-received. Most stockholder proposals fail because managers dominate corporate choices due to proxy mechanisms and control over employee-owned shares.

Increasing voting, secret ballots, proxy mechanism reform, and changes to a few common rules, such as larger board members and executive stock holdings, will make pressure management easier for individual shareholders and institutional investors to maximize long-term stockholder returns. Business decisions, such as not isolating their middle customer to please vocal extremists.

Until then, the Friedman Fund must be willing to buy underchewing companies such as Twitter through controlling stakes, tender offers or proxy votes through stock market purchases. Yes, such strategies are often ridiculed as “corporate campaigns” but the poor state of corporate governance can make such campaigns economically necessary. In the 1980s and 1990s, funds led by corporate riders like Carl Eichan took over poorly performing corporations, and leverage buyout firms such as Kohlberg, Kravis, and Roberts revived the U.S. economy by forcing rational changes in stagnant or inefficient companies.

It was no accident that the classic film on corporate takeover, Other people’s money, Hit theaters in 1991. Its famous climax is Garfield Investments’ Lawrence “Larry the Liquidator” against Garfield (played by Danny Divito) and Andrew Jorgenson (played by Gregory Peck), the biggest employer, the head of the failed New England Wire and Cable Company. In a small Rhode Island town. At the company’s annual stockholder meeting, Jজrgenson, like other followers of the corporation’s “stakeholder” theory, argued that “a business is worth more than its stock price. This is where we make our living, where we meet our friends, our dreams.”

After ridiculing Jorgensen as a greedy, big-city corporate rider who “does nothing” and basically “kills”, Garfield responds:

This company is dead. I did not kill. Don’t blame me It was dead when I came here. It is too late to pray. Even if the prayer is answered, and a miracle happens, and the yen has done it, and the dollar has done it, and the infrastructure has done other things, we will still be dead. Do you know why Fiber Optics. New technology. Obsolescence. We’re just dead. We just didn’t break down. And you know the sure way to go break? Keep getting a growing share of the shrinking market. Tube down. Slow but sure.

You know, dozens of companies must have made boogie straps at one time. And I bet the last company was the one that made the best goddamn boogie strap you’ve ever seen. Now how would you like to be a stockholder in that company? You have invested in a business and this business is dead. Let’s keep the intelligence, keep the decency of signing death certificate, collect insurance and make some investment with the future. A

Me. I’m not your best friend. I am your only friend. I will not make anything? I’m giving you money. And lest we forget, that’s the only reason any of you became a stockholder in the first place. You want to make money! Don’t worry if they grow her and cables, fried chicken, or tangerines! You want to make money! I’m the only friend you have. I’m giving you money.

Take the money. Invest it somewhere else. Maybe, maybe you will be lucky and it will be used productively. And if that is the case, you will create new jobs and provide a service to the economy and, God forbid, even make some money for yourself. And if anyone asks, tell them you gave it to the plant.

That’s right, the mask game on Twitter is a bit different. Unlike boogie whips, microblogging is still not a ruined industry. But obviously, despite the great advantage of its first mover, Twitter was losing market share to direct competitors like Parlor, as well as new “social media” concepts like Clubhouse and Mastodon, as it was alienating many customers through its over-the-top censorship. Clearly true “misinformation” and opaque account closure and throttling. That’s what Musk meant when he told Twitter’s board that he could unlock the value of the platform in his offer letter. And it turns out that Twitter has increased its user base to over one million!

Many other companies have downplayed their potential in the name of progressive politics. When executives and board members earn large salaries but own little stock, they have strong incentives for small but vocal and even rogue progressive cables to downplay the value of their share price. If incentives cannot be better aligned between management and stockholders from the inside, then someone from the outside, such as Larry the Liquidator, Mask the Magician, or the Friedman Fund, must take steps to avoid the huge cost associated with the economy’s unused resources. .

Thanks to professional licensing rules (e.g., Series 65), various regulations and other startup costs, I can’t start a Friedman Fund myself. But I can and will invest in an efficient leadership, as many others are interested in benefiting Adam Smith and making him proud by reducing economic irrationality.

Robert E. Right

Robert E.  Right

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research.

He is the author (or co-editor) of more than two dozen major books, book series and edited collections, including AIER. Best of Thomas Payne (2021) and Financial exclusion (2019). He has also written numerous articles for (including) important journals, including American Economic Review, Business History Review, Independent review, Journal of Private Enterprise, Money reviewAnd Southern Economic Review.

Since taking his PhD, Robert has taught business, economics and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, University of Virginia and elsewhere. History from SUNY Buffalo in 1997.

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