The
Key to Investing Heaven
Importance of
investing and why we should take risks while investing
in stock markets.
The late Carl Sagan, besides being
a renowned cosmologist, was also an ‘activist’.
Ann Druyan wrote incisively about scientific activism
while writing on Sagan: “What should we expect
from the scientist who grasps a danger brought about
by science? Should he/ she hides silently behind the
protective wall? Most of rests of us are scientifically
illiterate. We are conned. All governments lie, and
few of them ever demonstrated a concern for the future
beyond the next election. If the scientists must refrain
from activism or even public education, how can we
hope to successfully avert these dangers?”
The parallels between scientific activism and shareholder
activism are many. Corporations, like governments,
often lie. Many long-term minority investors- scientists,
for instance- do not have a sense of their own responsibility,
and choose not to have the time or the energy to play
an active role in corporate governance. Investors
must become ‘citizens of the corporation’,
and not refrain from activism when needed.
One specious argument made is that investors in publicly
quoted companies can always vote with their feet,
and sell when their concerns do not find a receptive
corporate ear. But what is individually rational is
collectively irrational. This behavior is appropriate
for investors who view themselves as short –term
riders, not as owners.
Richard Feynman, one of the twentieth century’s
most brilliant physicists, recounted an anecdote in
his book The Meaning of it all: “Once in Hawaii,
I was taken to see a Buddhist temple. In the temple,
a man said: ‘I’ m going to tell you something
that you will never forget.’ And then he said,
‘to every man is given the key to the gates
of heaven. The same keys open the gates of hell.’”
The power of ownership given to every shareholder,
if used judiciously, can lead to investing heaven.
And when not used at all, it can lead to investing
heaven. And when not used at all, it can lead to investing
hell.
What are the primary reasons behind poor corporate
governance and apathetic shareholder response? Charlie
Munger, Warren Buffet’s partner in Berkshire
Hthaway, illustrated the importance of psychological
principles when it came to stealing, and felt that
the same principle could be used to answer the above
question: “A very significant fraction of the
people in the world will steal if (a) it’s very
easy to do, and (b) there’s practically no chance
of being caught. And once they start stealing, the
consistency principle will soon combine with operant
conditioning to make stealing habitual.
“It’s very, very important to create
human systems that are hard to cheat. Otherwise you
ruining your civilization, because these big incentives
will create incentive-caused bias, and people will
rationalize that bad behaviour is OK…Then, if
somebody else does it, now you have got at least two
psychological principles: incentive-caused bias plus
social proof. Not only that, but you get Serpico effects:
if enough people are profiting in a general social
climate of doing wrong, then they will turn on you
and become dangerous enemies if you try and blow the
whistle.”
Corporations determine far more
than any other institution the air we breathe, the
quality of water we drink, even where we live. Yet
they are not accountable to anyone.
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