passive investors, are you destroying your children’s world?

Most of the brouhaha about the rise of passive investing comes from the intuitive feeling that passive investors are only along for the ride, they don’t know or care ‘owt for what the companies they hold passively are up to.  Insofar as they are not engaged shareholders, they don’t guide the companies they own collectively, and the burden of shareholder feedback falls upon a smaller band of active investors.

Most of the argument about this in the FI sphere is a concern on corporate governance and returns, and there are various forms of rebuttal. The dumb passive billions are like the carriages on a train following the remaining active engines, but they switch to a different locomotive depending on the outcome, the fickle bastards. So it comes out alright in the end, is the received wisdom – the passive crew are amplifiers to the results of the active guys, rather than sponsors of their yachts. So the dumb money is safe1, because it follows the smart money.

The Anglo-Saxon business model eats the future, quoth the British Academy

who make the case in an extensive report that the narrow definition of the aims of the corporation in the English-speaking Western world makes companies focus on making money to the exclusion of all else. They are required by law to make as much money as you can for your shareholders. There is an implied “by legal means”, but globalisation means that there is a race to the bottom because what’s legal there isn’t necessarily what’s legal here. That this has been damaging to Western working populations can be seen by the changes in the workplace, particularly since the global financial crash – disaffected Western aspirations voted for Trump, and Brexit.

One of the problems of globalisation is that it has massively reduced the leverage of government regulation. The UK government could regulate to reduce practices that harm the environment, but the activity so discouraged will then migrate to a jurisdiction that doesn’t have such scruples.

On the other side, as buyers we qualify our investments by the desired rate of return. This is marginal enough as it is – the common assumption is a 4-5% real return on investment integrated over decades. The corollary of that is that you need a capital of 20-25 times your desired annual income. Shift that down to 2 to 3% and that starts to become 50 times your desired income; doing that in a 30 year working life starts to look really tough.

A quick spin through the top components of a whole world index fund

Do big firms eat the future? A glance at the undesirable practices of the biggest components of a well-regarded recommendation of world index fund VWRL isn’t happy reading for those with a social conscience:

Apple Inc: Failure to adhere to Chinese labour laws. I’d charge ’em with price-fixing, planned obsolescence, anticompetitive practices, non-replaceable batteries2 and refusal to engage with third-party or DIY repairs. Pictures of workers and pollution here

MSFT: I couldn’t dig up that much dirt. Yesterday’s men, they tried to rule the world and failed, though they were done for antitrust offences ISTR. Bill’s still rich as Croesus

AMZN: So bad Wikipedia has a page dedicated to AMZN criticism. Closer to home they treat people like shit in distribution centres. I think their riposte boils down to ‘treating people like shit is part of our business’ and while it’s true that I left work because I was treated like shit at a critical juncture, it’s notable that for the vast majority of my working life treating people like shit wasn’t a widespread part of my work experience or that of people I know.

FB: Suborning the political process, getting rich on fake news, making sociopaths of us all, aiding and abetting Dominic Cummings, refusing to stop meddling in elections by showing different things to different people. Selling personal data to the highest bidder, lying about it until caught. The problem was manifest from the get-go as the youthful Zuck described his punters as dumb f**s. Evil courses through the company’s veins. If I were God for a day social media is a class of product/service I’d uninvent and rewire human brains so it could never be dreamed up again. Yes, it’s nice that Grandma in York can keep in touch with the grandkids Down Under but the collateral damage in terms of human misery is appalling IMO

JPM: I couldn’t come up with any dirt but they paid a $13bn fine for something to do with the GFC. Presumably they have enough money to pay decent lawyers to get them off the hook, so it must’ve been bad.

Two lots of Alphabet, Google’s holding/parent company: How’s that ‘Don’t be evil’ thing going down with y’all? Oh and this

on Youtube, owned by Google. It’s either irony, hubris or advertising, and I am not clever enough to determine which. Orwell called it forty or fifty years too early with “if you want a picture of the future, imagine a boot stamping on a human face – for ever.” Usual charges against Big Data, suborning the common weal, all that stuff. I’m kinda tickled that the Google search of what’s wrong with Google assumes you have technical problems, rather than searching for the central heart of darkness. Chapeau for the subtle control of framing, guys. What’s wrong with Google? Nothing to see here, move along now.

JNJ: I couldn’t dig up that much dirt.

VISA: I couldn’t dig up that much dirt.

NESTLE: Baby Milk Action. ’nuff said, although the £25 Kit-Kat should get an honourable mention just for taking the piss, I can’t make the case that it’s evil.

It may help me retire early, but I’m not sure I can actually feel good about owning VWRL. Perhaps I can tell myself that’s only 12% of the market cap (and mainly American) and that the levels of evil were dropping as I went down the list to the smaller fry, but to be honest I’m not sure I want to know what the rest of them get up to after this exercise!

On the other hand if you try and stick to being ethical you get slaughtered in the markets. Sin pays. You can read countervailing arguments, but it’s people talking their book. It is interesting to observe that ethical investment screening locks you out of nearly two-thirds of the UK’s largest firms. This suggests ethical passive investing just isn’t possible in the UK market. Passive investing only works if it is representative of the market by capitalisation, and a third just isn’t representative. Turn the telescope round and the British Academy chaps have some point – two thirds of the top British firms are harming the public good somewhere.

Maybe nobody will be able to retire in future if this is cleaned up, the rate of return will be so dreadful you just aren’t going to live long enough to save enough to get out of the rat race. Historically, capital accumulated very slowly across a human life, to the extent that dynastic and ancestral capital ruled society. You still see the background radiation of this in that 25000 landowners own half the UK. and the largest share of a third is the aristocracy, where the land has remained in the same families since William the Conk declared himself owner of all of it after 1066 3.

The problem is that money is power, and power corrupts. Most of these firms get an edge through scale. With the exception of FB, they all provide a useful or valued service, they just happen to cut corners in parts of their operation, and globalisation weakens limits on their ability to cut those corners in dark places. We’ve seen some of this movie before – the robber barons of the Gilded Age, and a lot of the pollution and abusive work practices echo what happened4 in the industrialising West in the last century or two. Tim Worstall would probably say that sort of exploitation is a price worth paying. It worked in the West and it’ll work for the global poor.

Globalisation was good for humanity in general, but not for most people in the West

In the article the crisis of capitalism Milanovic argues that

The western malaise is the product of uneven distribution of the gains from globalisation. When globalisation began in the 1980s, it was politically “sold” in the west – especially as it came together with “the end of history” – on the premise that it would disproportionately benefit richer countries. The outcome was the opposite. Asia in particular was a beneficiary, especially the most populous countries: China, India, Vietnam and Indonesia. In Europe, as in the US, it benefitted the 1%. It is the gap between the expectations entertained by the middle classes and the low growth in their incomes that has fuelled dissatisfaction with globalisation and, by association, with capitalism.

Harvard isn’t noted for being a hotbed of Marxist anti-globalisation thinking, but their Dani Rodrik made a similar case in 1997 in his book Has Globalisation Gone Too Far5, observing that lower-skilled wages have fallen in real terms in the US and then Europe since the 1970s. This fall predated my entry into the workplace. I did not observe this at first, because my experience of the workplace was different from my father’s6. He was a maintenance fitter, I worked in industrial research. The suckout took thirty years to reach me, but reach me it did – I retired eight years earlier than normal retirement age for The Firm to escape this deterioration in the workplace.

It’s quite chastening to see that the pathologies dragging us down now were foretold in 1997, exactly as I reached the halfway mark of my shortened working life. Of course, the problem with working out which portents of doom to heed is that  there are so many of them, most of the things that could go wrong don’t go wrong. The bear case always sounds smarter. It’s still eerie to see that over twenty years ago a forecast of the troubles we  face now was written:

Globalization is exposing social fissures between those with the education, skills, and mobility to flourish in an unfettered world market―the apparent “winners”―and those without. These apparent “losers” are increasingly anxious about their standards of living and their precarious place in an integrated world economy. The result is severe tension between the market and broad sectors of society, with governments caught in the middle. Compounding the very real problems that need to be addressed by all involved, the knee-jerk rhetoric of both sides threatens to crowd out rational debate.

The standard answer to that from Calvinist work-is-good-for-you believers is adapt to creative destruction, get on your bike, or die, suckas. Bollocks to that – life is about more than work, I don’t want to hustle for the rest of my days, because I loathe hustle and self-promotion. Had I been born ten years later, that escape route wouldn’t have been an option open to me.

There’s no good reason to put up with a deteriorating workplace if you can buy manumission from The Man. Arguably the stagnation in living standards since I left work meant I haven’t gotten relatively poorer as a result of rising wages in the time I have been out of the workforce. Observation shows that in the West, and in Britain in particular, work is getting more shit for most people. Rodrik was right.

There’s a case to be made that Brexit was partly a rejection of globalisation, the line that if I am going down, you lot are going down with me. Time will show if they get what they wished for. Let’s hope they like it, eh? They’re not going to get a do-over.

Globalisation is much more popular in Asia than in the West, according to Milanovic

But the dissatisfaction with globalised capitalism is not universal: a YouGov survey showed a very high degree of support for globalisation in Asia, with the lowest support in the US and France.

It stands to reason – it has been a win, particularly for the Asian middle class.

Who has gained from globalisation, 1998 to 2008. Tea-leafed from Milanovich’s report in the Harvard Business Review, “Why the Global 1% and the Asian Middle Class Have Gained the Most from Globalization”

Right-wing nut-jobs like the Adam Smith Institute’s Tim Worstall makes a cogent case that globalisation has been a good thing for humanity in the round. He is probably right in that nobody has experienced an absolute terms retrenchment7, but if I had followed my Dad into a blue collar job and Tim showed up in a bar telling me “chin up old boy, your end of the boat had to go down for the greater good, but though you can’t buy a house your telly’s sharper and your phone isn’t screwed to the wall like your Dad’s” then he might end up with a robust and physical riposte, because I don’t particularly care about humanity if I am feeling shat on. He’s also got an answer to the tosspot8 David Attenborough yammering on about environmental issues and that there is no problem that exists in the world to which the right answer is ‘more human beings’, basically don’tcha worry your little head about that, capitalism will fix that too.

Even on a white-collar income, Dani Rodrik’s declining trajectory is shown in my life. I discharged my mortgage ten years later in life than my Dad did, on his single household income. The arrow of time still points in the same direction, the retrenchment in home ownership9 in more recent generations. Worstall would say so what, Millennials will live longer than previous generations, and they have far more choice in what to spend their incomes on. If he makes the case in some hipster east London bar through a mouthful of smashed avocado on toast, he may be met with some pushback in the form of “as long as those things we can afford don’t include buying a house or having children, yes”.

Is your passive FI/RE dream eating your children’s future?

The British Academy lays out the charge on page 27, Corporate Financing that the arm’s-length passive ownership is not only detrimental to the common weal, but it amplifies the actions of bad actors

Traditionally, corporate financing has been concerned with the interests of investors alone. Stock market listed companies in the UK and US are dominated by dispersed passive shareholders who do not provide the active engagement with companies that is associated with larger share blocks in other countries around the world.

In particular, universal shareholders who hold the global portfolio of shares through index funds have risen to the fore. To the extent that there are engaged investors, they take the form of short-term hedge fund activists who hold blocks of shares in companies for an average of between two to four years.

What is for the most part missing in the UK and US are long-term, engaged holders of blocks of shares who act as true owners of corporate purposes . Since one cannot have a relationship with the anonymous, the absence of identifiable holders of blocks of shares undermines the provision of long-term relationship forms of equity finance. The result is not only insufficient governance and stewardship by investors but also a deficiency of committed owners of corporate purposes.

I am not clever enough to see if they are right, but at least some of that seems to have a grain of truth to it. This bell has been tolling for some time – 8 years ago I watched the programme Finished at Fifty that showed a stark contrast between the lifestyles of a Chinese middle class aspirant in an economy with rising prospects and a fifty-year old Brit who had already been offed from one job, carried too much mortgage for his stage of life, lived high on the hog and wasn’t looking at the road ahead. Some of the anger I had in that post is because I saw myself in him, and I was half-way through extricating myself from that sort of folly. We hate seeing in others the dim reflection of our Shadow, and that was why watching this berk do what I had done two years before got on my tits so much…

The stench of decline in the West has grown worse since that programme, in the English-speaking world it’s names are Trump and Brexit, and they harken back to making America Great Again and its Mini-Me Brexit Putting the Great back into Great Britain Again over here.

Putting the Great back into Britain

It just ain’t gonna happen, guys. Sic transit gloria mundi. Well, it’s going to happen for the better off, but although I am over halfway up the UK wealth scale10  I am nowhere near safe from that firestorm, and I don’t even have the right to live elsewhere any more11 any more because of these nostalgic dreamers of Imperial glories past selling their jingoistic story.

Jacob Rees-Mogg will do all right out of it

Jakes will do all right out of it. Of course he’s not influencing Somerset Capital Management‘s investment decisions since he’s an MP. So that’s all tickety-boo and above board then. But the engine of globalisation is driven by our money as well as his. Perhaps I am closer to Tim Worstall than I like to think. It’s not a good feeling.

  1. I am sure one day there will be someone with enough cash to be able to flush this dumb money by pumping and dumping enough stocks along the index rebalancing cycle, but it hasn’t happened so far that we know of. 
  2. The battery works on a chemical process and has a finite number of cycles before it loses capacity. Once upon a time you could change the rechargeable battery in a mobile phone just like in any other electronic doo-hickey. Apple led the way by glueing the damn thing inside the case, so you get to throw the whole thing in the trash when the battery is knackered. 
  3. The Domesday Book of 1086 is the first and last comprehensive record of land ownership in England. Unlike any other self-respecting European country the cadastral records of the modern Land Registry don’t cover 14% of the country because the aristocracy don’t want you to know how rich they are. Land is their preferred method of preserving capital across the generations. Estates aren’t sold when inherited, so they can do this on the Q.T. 
  4. for instance the Dhaka garment factory fire of 2012 has echoes of the Triangle Shirtwaist disaster in NYC a hundred years earlier 
  5. Yeah, that’s an Amazon link. I am part of the problem, as I’m sure are most of you. Don’t like His Jeffness? Google it…oh never mind 
  6. My Dad retired just after his 65th birthday, having worked at that company for 23 years, but he started work at 14, so he worked for 50 years in total. 
  7. I find this hard to square with the increasing signs of overt poverty in the UK, the increased amount of visible homelessness, the food banks that Iain Duncan-Smith regarded as just the third sector picking up the slack rather than the direct result of his vile disdain for the lower orders not being able to ride out the five-week delay built into Universal Credit welfare reforms pour encourager les autres. But let’s not pick the fight with Sir Tim Worstall, eh? 
  8. If you’re about to pound the keyboard giving me what for about the dastardly disrepect shown to Sir David, may I respectfully suggest to you that your irony detector has failed in service. 
  9. You can make the case that home-ownership isn’t as well suited to modern insecure working patterns. The trouble is that the rental market is too skewed to favour landlords in Britain, with virtually no security of tenure what with the section 21 eviction at short notice without reason, though there are moves afoot to change this. That won’t take things anywhere near the sort of security of tenure German renters have, for instance. 
  10. the median UK household wealth is about £260k according to the ONS 
  11. I suppose I could buy Maltese citizenship but Brexit has shown just how frail supranational entitlements of residency really are. You gotta admire Maltese chutzpah, when the EU gave them a bollocking for selling citizenship they simply raised the price (to more than I can probably afford) and said that that was all right then. Malta’s got other serious problems – it is far too close to obvious geopolitical hazards, the government seems to have issues with journalists who find out too much. Before Brits point fingers at those Maltese fly-by-nights note that the UK government sells citizenship on a sliding scale of £2,000,000 to £10,000,000. Interested? Apply right here on The extra £8M readies buys you three years off the settlement delay, and you can fast-track the application for 500 nuts (on top of the £1600 fee).  We don’t give you all that US bollocks about moral turpitude. Acts of baseness, vileness, or depravity in the private and social duties which a man owes to his fellowmen are absolutely fine with us. As long as you do your crime and skip the country where you perpetrated it within 12 months, or your criminality is more than 10 years ago we’ll whistle a dancing tune and welcome you and your money with open arms. What’s more, unlike those money-grabbing Maltese the money is still yours, all we ask is you lob it in a UK bank and convert it to sterling. Ta muchly. Obviously if you wanted to get EU citizenship you are SOL, but £2mill ought to get you a suitable gated pad with a concierge, so you don’t need to fear the revolting proletariat in the years to come. Toodle pip old boy and the best of British luck in sharing your ill-gotten gains with us investing sagely. 

37 thoughts on “passive investors, are you destroying your children’s world?”

  1. Dear “ermine” I get your arguments, but blaming passive stock investors for “inequality” is quite off the mark. The idea that “corporations should screw everybody else” originated with an Economist called Michael Jensen, but it got wide reception because the upper classes were fed up with the “ungratefulness” and “rebelliousness” of the lower classes, but most crucially it got enabled politically by the vote of millions and millions of real estate owners, the passive investors in property.
    That’s the biggest problem: when median-earning people get £30,000-£40,000 a year of work-free and usually tax-free (and fully redistributive) gains on their property they don’t care about anything else, they write blank cheques to the parties that deliver that much largesse; and if those parties make sure that that is no longer the case that “cheap help is so hard to find nowadays”, so much the better.
    Sure, the passive investors in stocks also enable that, but especially in the UK (and some other countries) it is passive investors in property that provide the mass of votes for right-wing policies. The top 20-40%, not the 1%, is the real problem, and especially the top 10%.
    This is what I call the “mass rentierism” problem, and the “left” have not really engaged with it, the two typical progressive responses have been:

    * Ignore the problem completely, keep singing the “Red Flag”, and blame everything on billionaries with top hats, while the mass rentiers continue merrily extracting whatever they can.
    * Seek the votes of the mass rentiers, advocating policies to favour extracting rents over producing value, and pretend to be still progressive by adopting the splittism of “identity politics”.

    Note: the Michael Jensen story and much else is described in the really very good book by D Henwood that can be downloaded for free:

    The site says “The book is a definitive overview of the financial markets and their economic and political role”, but it is also a very good overview of political economy issues in general. Please make a donation to the author, whose twitter timeline is still entertaining me.

    “I’m still wounded by the fact that having written harshly about Hillary I never got a single ruble from those evil Russians.”


    1. Thanks for the book link, I will have a read. I don’t recall it always being the the case that this ‘make as much money as possible over and above all else’ requirement has been there.

      Re property I may have a blind spot there because my experience of res property is a foul asset class that slaughtered me for ten years. But everybody else seems to think res prop = money tree, and it seems to form a bigger part of the networth of colleagues at work, for instance.


      1. «Thanks for the book link, I will have a read. »

        Most relevant here are the bit(s) about Michael Jensen.

        «I don’t recall it always being the the case that this ‘make as much money as possible over and above all else’ requirement has been there.»

        Legally it has always been the case for managers, but in practice in the “golden age” corporate managers felt that the best *long term* interests of owners (and themselves) meant also giving something to “stakeholders”. This is well documented by statements in the annual reports of most big companies.
        What changed is that Michael Jensen published a very influential argument that giving something to stakeholders was wrong (echoing Milton Friedman), and because of the general political climate and that various rules and laws that made hostile takeovers harder were removed, and hostile takeovers were made quite easy, to “maximize shareholder value”. Since the first thing that happens in a hostile takeover is the elimination of the CEO and top executives of the company taken over, this has given CEOs and top executives a huge incentive to “maximize shareholder value” themselves, instead of waiting for an hostile buyers to do that. There is also the incentive of stock options, but it is quite weak, because stock option conditions are often rewritten so that they are always “in the money”.

        «Re property I may have a blind spot there because my experience of res property is a foul asset class that slaughtered me for ten years.»

        Property in the UK crashes every 15-20 years, and if you buy at the wrong time it is really bad as you discovered. But over the past 35 years the average rate of increase has been 7-10% in the Home Counties and London, *including crashes*. So this is far more typical, from a comment on “The Guardian” in 2018, and it means £43,000 a year on average, for 23 years:
        “I inherited two properties in 1995 [ … ] and the value has gone from £95,000 to £1,100,000”

        «But everybody else»

        Only those with the “merit” to have inherited, or bought a property in the Home Counties or London, ideally in the 1970-1980s. In regions with scarce jobs (and getting scarcer), therefore source of emigrants, property has been doing badly:

        «seems to think res prop = money tree»

        Well, it has been: you put down a deposit of 7-10% of the price, and then the price balloons by 7-10% a year, that is a gross return (ignoring the benefit of paying rent to yourself and the cost of the mortgage) of 100% per year on cash invested.
        And it is entirely upwards redistribution, which means it is a no-effort gain for the owner, someone else has to work hard to earn that gain for the owner.


  2. So the argument is that a small investor would be more socially responsible by giving up a diversified portfolio of ETFs to put one’s meager resources into crap companies like Biovail or SNC Lavalin? Consider me unconvinced.
    As an employee of a multinational back in the day, I had zero influence on company policy. I would expect to have even less as a tiny shareholder.

    Liked by 1 person

    1. I didn’t read their report as saying there was much you could do about it, more that the increase in diffuse passive investment was greatly reducing the role of the shareholder as an influence on the activities of of boards. Partly because of the wide spread, but also because of the hands-off nature of passive owners’ approach to their holdings

      Liked by 1 person

    2. «So the argument is that a small investor would be more socially responsible by giving up a diversified portfolio of ETFs»

      Not even remotely, and I cannot imagine how the post could be so misinterpreted. The argument seems to me that *companies* would be more socially responsible if instead of being owned by “the markets” they were owned by long term blocks of active investors.
      Because small anonymous investors in effect means “fund managers”, and since “fund managers” are rated with respect to a “benchmark”, every year, and they make a gigantic chunk of money every year they beat the “benchmark”, they can be very fickle and sell any shares that don’t beat the “benchmark” in the short term.
      That’s what in practice “maximizing shareholder value” has come to mean.

      There is another mechanism, a political one, however that involves small investors: the most important political study in the last century, published in the 1970s by an english right-wing think-tank, showed that people who own a property, a share-based pension account, a car, vote much more often to the right of people who rent a house, have a DB pension, use public transport, *even at the same level of income*.
      Most importantly, even working class people will often turn Conservative if they get small a slice of equity in a house, a tiny share based pension, a crummy car, because they think they are then in the same class as the Duke of Westminster or Alan Sugar.
      Thanks to that study the Thatcher government gifted large chunks of council housing to would-be tory voters, large chunks of shared to would-be tory voters, and worked hard to undermine DB pensions and public transport.

      Liked by 1 person

      1. We didn’t have the transfer of public real estate to private here in Canada (not that much to transfer, frankly.) But lately we have the belief that it is the right of every citizen to own property within walking distance of work in the centre of the most expensive cities in Canada. That’s coming more from the left but all political parties are giving it some credibility. The current owners of said property will be rather brutally taxed if they own more than one, leave it empty, reside outside Canada etc, etc.


      2. «The current owners of said property will be rather brutally taxed»

        Suppose that (all sums after inflation) you buy a house in Toronto for C$600,000 and five years later you sell it for C$900,000 and the tax is C$300,000: that is paid entirely *by the buyer*, not by the owner, the amount you paid originally is fully untaxed.


    3. Pardon my naivete. I was referring not so much to the academy report but to your comments at the beginning about how the passive investor doesn’t know or care about corporate governance. So what to do? I don’t have the time or energy to investigate every company on the market for sustainability. I have used ethical funds in the past but their definition of ethical wasn’t exactly mine. I agree that whether you invest in an ETF or through an actively managed fund, the problem of passivity on the part of the small investor is the same.
      Even should I decide to get out of the market and just own term deposits and bank accounts, the bank has control of what happens with my funds.
      Right now I am invested via ETFs which I don’t sell except to rebalance. That’s as long term as I can get, and although I have the weeds along with the wheat I feel I do the least harm to myself and the system.


      1. > So what to do?

        I can’t say I found any answers, and it’s sad that my needs of holding financial capital since I have no human capital do seem to crap on others’ interests. Changing this to cause less collateral damage needs addressing at a regulatory level, but globalisation means that’s not easy and may not be possible until/if there is a greater levelling of global living standards. I will not see that day.

        dearieme pithily summed up the conundrum, but it’s no help to those whose end of the boat went down. They’re pissed off and vote for things like Trump and Brexit

        I saw this highlighted because I am shifting the emphasis with my last remaining contributions to my holdings in favour of income. Income has proportionally more sin in it. I admire DIY Investor’s principled stand but I find myself closer to Tim Worstall in action. Sometimes I have to acknowledge my heart of darkness. I care more about me than the countrymen that delivered me Brexit to express their pain with globalisation.

        Liked by 1 person

      2. The owner of a second property (not principal residence) left vacant may be taxed for that reason, and certainly faces a capital gains tax of 25% on any profit if it’s sold. There are also taxes on real estate commissions. In some provinces out of province buyers are also taxed on purchase.
        Here is a pretty good summary.


  3. afaik there are still a few EU countries offering a residency visa (which can be traded up to permanency after 5 years) without having to throw away €650k into a shady one-way Maltese ‘Investment Fund’ – sinking €500k into a Portuguese property, or half that into Greek property will currently get you in, and at least you get to own the property. There are also various options for older folk who have retired, which (I did check it out a while back, but can’t remember the exact details) involve having to demonstrate a certain level of income and buying health insurance. Portugal offers very favourable tax conditions to such applicants for up to ten years, I believe.

    Imho the EU will revisit this before long, and start closing doors. As you point out, it’s hard to know where this might leave anyone who has taken this route.

    The aspect of loss of FoM and right of residence / work in 27 other first world country – along with the rest of the Brexit shambles – still has me clenching and unclenching my fists in anger at the whole unbelievable stupidity of it all, and the perfidy of the 1% who are engineering this for their own interests, against those of the other 99%. In effect a rewind of several hundred years back towards serfdom.

    Liked by 2 people

    1. Interesting – €250k will probably be a rather nice Greek pad 😉 The problem there for me, is that this is the Med. To me that is an obvious front line in geopolitical problems that will/are putting serious strain on those societies, and they are already suffering some aspects of climate change to boot. It always puzzled me how RIT favoured these frontline Med states. I’m not sure that I am old enough to expect to die before those problems get serious, and he definitely isn’t.

      Brexit highlighted just how frail entitlements due to treaty are compared to jus sanguinis or jus soli, which are aspects of something that you are (jus sanguinis), or a historical fact of where you were born (jus soli). Both of these parameters are inalienable, whereas our soon to be gone European citizenship is/was comparatively fragile. Gone in an unforced error by that twat Cameron. There was no great clamour for a referendum other than in the swivel-eyed part of his party, whereas now we will never put that genie back in the bottle whatever happens, because EU membership has been painted as a proxy for all sorts of other ills. Plus the siren song of the return to prelapsarian glory. I remember Britain of the 1970s, the sick man of Europe, and it puzzles the heck out of me why that has become an aspirational goal. OTOH kids walked to school and young couples could buy a house on a single breadwinner’s earnings, and afford to have children, so maybe it’s not totally hard to understand, in a sort of ‘stop the world, I want to get off’ sense

      Liked by 1 person

      1. «Brexit highlighted just how frail entitlements due to treaty are compared to jus sanguinis or jus soli, which are aspects of something that you are (jus sanguinis), or a historical fact of where you were born (jus soli).»

        The “sanguinis” or “soli” aspect are indeed “inalienable”, but the “ius” is far from inalienable, citizenship can be revoked at the whim of the home office for anybody who *might* have a right to a second citizenship, and that restriction only exists because of a *treaty* that says that countries cannot strip citizenship leaving someone with no citizenship, and a lot of english people hate that treaty. There was the recent case of a woman who was native born (“ius soli”) english of naturalized english parents (“ius sanguinis”) and her UK citizenship was stripped on the double by the Home Office because she was suspected of being a potential risk and she was unpopular.
        Indeed in the past in the UK and today in many countries citizenship is a privilege that can be revoked at any time by the government for any reason, the only limitation being that as long as enough voters are left unaffected, they could care less about the rest. A commenter on a blog said that she could not care less as herself and her children were at least 4th generation born in England, so “truly” english, unlike naturalized citizens or the children of naturalized citizens.

        The “rights” of citizens are strictly dependent on being popular, rather than whatever is written on a piece of paper, for example Gavin Williamson (and before him GW Bush, BH Obama, D Trump) has boasted in the press (e.g. “The Telegraph”) for obvious electoral purposes (previous Conservative leader contest) that he regularly signs off kill-lists of UK citizens that are suspected of being future risks, and that he has organized a number of MoD/MI6 junta-style death squads that abduct, torture and execute those potential enemies of the people, and he was roundly celebrated.


    2. I don’t think the EU will clap down on the £250K residency Visas and the like. *It* hasn’t changed its general view that immigration is a good thing, and immigration by richer people certainly is, unless perhaps there are balancing issues about working life versus state dependent life (and every country has different rules about e.g. contribution to healthcare, on which I’m not well-versed!)


    1. > or are these just relatively minor issues?

      No, I’m just showing a lack of general knowledge 😉 I suspected anything to do with mining tends to have dirty hands but Google didn’t pick these up for me.


      1. Indeed. Synapse misfire, I was thinking of Johnson Matthey. It sort of proves the point that this investor in particular knows now’t about what’s under the hood in his VWRL holding! I’ll get me coat and stop digging…


  4. I had wondered whether there could be money to be made by investing in an anti-ESG fund, if ESGs are getting popular. What I thought might swing it is if pension funds either started investing big-time in ESGs, either by being mandated to via regulation or as an advertising strategy.

    Today it just so happened that I had to re-opt out of NEST, and while doing so I thought I’d have a look around (prob unlike 99.9% of NEST pension holders) and low and behold their paperwork is riddled with references to ESG. None of it however looked binding, but its clearly on their mind.

    Has some enterprising soul completely lacking in ethics (anyone in finance I guess) actually built an anti-ESG fund?


    1. Could you not simply buy long a broad-based ETF, and short an ESG fund of the amount it comprises of the ETF index? E.g 30% if you were running the FTSE 100 and used a ESG fund of the FTSE100?

      For an easier life some high-income strategies have a lot of sin in ’em if you’re not purist maximising the anti-ESG 😉


      1. Devious ermine 😉 very devious!

        Other approach is just to buy whatever John Edwards over at DIY Investing UK is selling?


      2. > buy whatever John Edwards over at DIY Investing UK is selling?

        flippin’ heck, he has got it bad, haven’t been over there for a little while. Good for him, acting on his principles, job done within half a year. He is being the change he wants to see. Hats off to the man, though he is eating a shocking rise in his risk level shifting out of global index funds into AIM-listed renewable energy firms, and reducing sector diversification along the way.

        Liked by 1 person

    2. «Has some enterprising soul completely lacking in ethics (anyone in finance I guess) actually built an anti-ESG fund?»

      Apparently investing in tobacco, weapons, oil companies has consistently beaten the market for decades. This may be an urban legend.


  5. When I was young we were told to eat up our food because (rather illogically) we must think of the poor starving Chinese. I’m impressed that someone is brave enough now to suggest that the Chinese should have been kept on starvation rations so that we could trundle on unchanged.


  6. Therein lies a very tricky rub..

    How to deploy assets responsibly (or at least in accordance with your own principles) in a way that is still in tune with your personal risk-profile?

    He has undergone a very rapid conversion and I too wondered how that affects the risks he may be taking.

    I bought a couple of his books recently in dead-tree format. I still think dead-tree is the way to go. My kindle continues to gather dust.


  7. >> “Historically, capital accumulated very slowly across a human life, to the extent that dynastic and ancestral capital ruled society”

    I feel a bit of a dope, I’ve never *quite* realised this before and I actually had a gasp and an “aha” moment when I read it. So thanks for that (and for the links… 🙂 )

    I encountered Dani Rodik *live* a decade ago, and he was kind enough to link to the post I wrote about:

    Kind of wish I’d written more posts like that over the years, but perhaps I’d have even fewer readers haha.

    The “who has benefited from globalisation” graph frustrates me in the way these things tend to. Of course income distributions have been uneven, and as readers who keep calling me a liberal snowflake will attest I think there’s a big problem with extreme wealth/income inequality in the West. Agreed.

    However income isn’t the whole story.

    Thirty years ago a pair of jeans might have cost a couple of weeks wages, a microwave oven a month’s worth, all sorts of stuff has been brought down in price by globalisation. This is, after all, the massive deflationary wave we’ve seen that has allowed rates to stay near-zero.

    Of course that’s good for owners of assets (because it bids up the price of those assets). But it’s also good for people who don’t have much disposable income and have to buy *stuff*. Not to mention they don’t have to work in a sweatshop anymore because someone half a world away is on their behalf (harsh sounding but true).

    Of course bring the environment into the piece and globalisation is just the hamster wheel spinning ever faster to ruinous end. But that’s a different issue. 😐

    Liked by 2 people

    1. «Thirty years ago a pair of jeans might have cost a couple of weeks wages, a microwave oven a month’s worth, all sorts of stuff has been brought down in price by globalisation. […] But it’s also good for people who don’t have much disposable income and have to buy *stuff*.»

      In exchange for cheaper microwave ovens and jeans, which they buy rarely, working class people (and even many middle class ones) are getting smaller wages *after inflation*, 1/3 the pension, much less secure jobs, often have to work while sick, they have to pay 2-3 times the rent every month, 2-3 times for the dentist, or pay 6-8 times more for a house, and have to pay a lot for university fees. Most people don’t buy a new cellphone or microwave oven every year, or need to buy new clothes every month, but they really need a house, a wage, a pension, job security, dental care, the option to rest while sick, and nowadays many more need a university degree.

      The people who have *net* benefited from globalism and thatcherism have been on this side of the world those with a profession or a management position, or those on a property or otherwise fixed income, people like Tim Worstall, and as the ermine admits, himself.

      «Not to mention they don’t have to work in a sweatshop anymore because someone half a world away is on their behalf (harsh sounding but true).»

      Perhaps call centres and sandwich or coffee chains or warehouses or delivery jobs are not as bad as asian sweatshops, but they are still sweatshops, that they are in the service industries does not change much.

      The overall emergent (or perhaps deliberate) plan of the past 40 years has been to move all the dirty industries, infected by trade unions, over to far away countries, where the workers never strike, and to turn many parts of England (and farther away places like Poland and Romania) into reservoirs of cheap help for the service industries and for home use too.

      Liked by 1 person

    2. > to the extent that dynastic and ancestral capital ruled society

      Oddly enough I only realised this when looking at some of the attitudes other landowners held, when we owned the farm. Land in the UK is much more than the means of production, it is an IHT-free store of wealth. The landowning aristocracy doesn’t farm the land themselves, they get contract farmers to do it. The owners don’t even have to get a return on their capital to the degree you’d want a return on the equivalent value of shares or other capital asset. The payback happens once a generation, in the IHT saved. We didn’t have this background or requirement, but it seriously distorts practices. I researched this, and the light-bulb came on.

      Wonder if you have reconsidered some of your disagreements with Rodrik in the intervening ten years 😉

      The obvious answer to your point about the jeans is the response I would have made to Tim Worstall in that hipster bar. You and I can make points like that (jeans for you, I used the £11 DVD player in another article) because we have been able to afford to buy homes. The riposte you will get from many to

      > Thirty years ago a pair of jeans might have cost a couple of weeks wages, a microwave oven a month’s worth, all sorts of stuff has been brought down in price by globalisation. This is, after all, the massive deflationary wave we’ve seen that has allowed rates to stay near-zero.

      is “Yup. Sure. Things are cheaper now, and my phone isn’t screwed to the wall like Dad’s. But the things that aren’t cheaper are buying houses, and the cost of having children”

      Those two and deep existential requirements/urges for many people, and these are much harder and more expensive now than they were two generations ago. I am not informed enough to know if Blissex’s theory of property prices being inflated deliberately to make more people vote to the right is true, but Right to Buy pissed me right off at the time. Why the hell should people in council houses get a free 30% bung to buy their house when I wasn’t getting the same? I still think it was a dreadful error – when I went to school even some white collar parents lived in council houses. Now you have to be a lot poorer.

      Set against that your cheap jeans, more functional smartphones, cheap city breaks etc etc pale into insignificance. The cost of housing hurts more the poorer you are because shelter is a fairly primal requirement. The rate of change and increasing competition is the workplace is also a foul byproduct of globalisation for Western workers. I do take Worstall and dearieme’s point that it’s probably good for humanity as a whole, but it’s not good for a lot of people in the West lower down the income scale. To me the idea that there could be working-class workers in the North of England that consider voting BoJo because he will deliver Brexit seems barmy because of all the austerity inflicted on them. But others like Haidt make the case that this is about identity.

      Haidt’s answer was that these “left behinds” saw politics as about more than money. It was about their families and collective safety, about local and group identity, about faith and a morality seen as personal, not ordained by the state. Yes, they cared about other people and fairness, but they also cared about themselves.

      The direction of travel is towards blood and soil. Hopefully out of my lifetime…

      Liked by 1 person

    3. This is the same argument as the one used by rich people to decry anything that imposes on investment returns – it will hurt retirees who are living off the income produced by their investments. It fails to acknowledge that unless you inherit all your money then you need to earn it first. So your role as a worker is more important than your role as a consumer, investor and retiree as without the working and earning bit first you will never get the chance to take on one of the other roles. That is why policy must be focused on making sure people have the opportunity to have access to decent work paid as well as possible. Only with that in place do the other things then become realistic.

      Liked by 2 people

      1. «This is the same argument as the one used by rich people to decry anything that imposes on investment returns – it will hurt retirees who are living off the income produced by their investments.»

        That’s usually a misrepresentation: about half of USA/UK pensioners have only the state pension, another large chunk have negligible pension funds invested in shares rather than in bonds, and many still have defined-benefit pensions, where the pension is guaranteed by the their employers, not the stockmarket. In practice only a small minority of pensioners derive their income from the stockmarket, and a small minority of the stockmarket is owned by pensioners.

        Liked by 1 person

  8. Hi Ermine,
    Interesting post! Did you look at how the big index fund providers like Vanguard and BlackRock handle corporate governance and the voting rights of the shares they hold on our behalf?

    Here is just the top hit that came up on a web search, I haven’t looked into this in any depth myself:
    “A common misconception about index funds is that fund managers aren’t effectively advocating for responsible corporate governance practices with the many companies in which they invest.”

    Basically, it would be a shame to let those voting rights go to waste, especially when it’s in the interest of index fund holders that their fund provider takes an active role in ensuring good corporate governance, responsibility, etc.


    1. My reading of this is that it addresses the principal agent problem – the tend for management to line their own pockets at the expense of the ultimate owners, and it’s all well and good. That is not quite the same as the wider issues of the company’s effect on the wider world, for instance in the way Hermes Investment management (a pension administrator) actively influence along CSG lines. Their paper is interesting, introduced like this

      I propose in my paper entitled “The Why Question”, that the current ‘professional’ understanding of investment theory which seems to frame the financial world almost as entirely separate from the real world that ordinary investors and beneficiaries live and work in was a main contributory factor to the crises in 2008 and the increasing level of public distrust towards business and finance that resulted from it, and which is threatening the sustainability of the free market model.

      I’m not sure that philosophically a passive investment strategy should engage with environment and social issues. The underlying principle of passive investing doesn’t really have space for that sort of activism, whereas the sort of activism Vanguard describe to keep the CEO’s fingers out of the till is sound stewardship/good accounting.


  9. Hi, Ermine
    Thanks for this. We live in a world where governments and corporations are focussed on short term issues and immediate returns. Some of us, especially those who find ourselves better off than we ever expected at the end of our wage-slave or self-employed years, may have harboured romantic thoughts that at last, as responsible individuals, we could apply our “spare” money to investments which address longer term objectives such as environmental issues. Many hours a day can be devoted to investigations of such opportunities. This time can be viewed either as a defining purpose of life or as another way to avoid actually living a good life. Your article highlights how little impact most of us individuals have on the world. Our behaviours are largely defined by the prevailing trends (we are social animals after all!) and in finance at least the systems are global.


  10. Great article. I must admit that I read everything you write but it’s evident that you spend a great deal of time thinking of what you are going to say.
    I bought a discounted copy of Rodriks book when I was at university and that along with a few others changed how I viewed the world. Thanks for bringing it back to my recollection as I have no copy now and my memory isn’t the best.
    I’ve done alright for myself but that’s by developing an outsiders perspective – it’s unfashionable to be a saver in your 20’s but by the time you are in your 30’s it pays dividends.
    The answer for western democracy or the UK is not up to me to decide all I can do is try to gtf out of the rat race asap. If that means holding vwrl then so be it I don’t really care too much.
    Pensions, house prices, career earnings, job security , education costs, childcare, all things that are worse for the young. These trends were all predicted ahead of time – 20+ years but when the news cycle is 24-72 hours it all gets lost.
    Also there’s not too much benefit from having an informed populace – they think a song can end starvation, running can cure cancer and switching bank accounts can lead to financial independence.
    I don’t believe any of it.

    Liked by 1 person

  11. Ah the perennial agency problem…. I wrote my Master’s thesis on it a long time ago… Well, that and how a country’s legal system ends up shaping its capital markets.
    From what I remember of it, the agency problem in the so-called Anglo-Saxon world is that between the management and the shareholders. Deep liquid equity markets and many small shareholders, mean good access to equity finance and limited accountability of those in charge to the (aka the fat cats) to the shareholders who ultimately keep the cats fat. If only we had larger more influential shareholders to keep the fat cat CEOs in check then it would all be better. So says the conventional wisdom. But many disagree. Or at least did so almost 20 years ago. Because: on the continent the equity markets, at least back then, were comparatively shallow and dry, debt finance more accessible, and the agency problem was still there, only the parties involved were banks vs equity holders (the former having undue influence over the companies operations which could end up favouring risk reduction to the point of stifling innovation) and – hold onto your seats folks – between involved majority / large stake shareholders with significant influence and the small fry investors. In both cases the small fry investors were being screwed over by other interests… Only with less transparency there’s less risk of it being uncovered and hence becoming a ‘scandal’. So then the question becomes, if small investors are going to get shafted by those with more influence over corporate day-to-day operations, which sort of shafting would you pick. And I’d (still, at least for the time being) would choose the US/UK model. Because: neither the Japanese conglomerates nor the European megacorps appear to be pumping out innovation at the same rate as the US and British corporate sector. Otherwise Tesla would’ve been started in Germany. 😉


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