I appreciate your concern for the effective use of philanthropic funds. And I would be remiss if I did not take pause when the previous #1 trader on Manifold and a generally successful investor disagrees with me. But brilliant people have been fantastically wrong on some things historically, and I think youâve missed the mark regarding your assessment of Profit for Good.
First, regarding your BOAS claims, I will leave Vin to address that, if he elects to do so.
Your comments regarding Profit for Good generally do not engage with the arguments we have made. As youâve indicated, a perpetual stream of funds can be unlocked through an index fund or a sufficiently diversified set of assets. This is not what we mean by a philanthropic multiplier. We assert that, in expectation, a set of PFG equities should outperform an index fund.
According to our theory, the reason for this outperformance is because the stakeholders whose activities are relevant in business performance have a nonzero preference for the charitable cause. That is to say, if all else is equal (same price, same quality, same convenience and other relevant factors), people would rather money go toward saving a kid from malaria than enriching a random investor. This theory would apply not just to potential buyers of the product, but to other stakeholders such as potential employees, media, suppliers, and government. And unlike other forms of business, ownership of a business by a charity or charitable foundation does not necessarily negatively affect operations whatsoever. So while other forms of social enterprise often entail costs that make them less competitive (i.e., fair trade coffee costs increased supply costs to consumers), there is no inherent operational disadvantage to being owned by a foundation (indeed, in our current economy, most stock ownership of mid to large size businesses is passive).
So, the financial case for a PFG is that of operational parity (or no structural disadvantage) in conjunction with an advantage from stakeholder preference. I would emphasize that I have never contended that this stakeholder preference is large in all contexts. In fact, research shows that, by and large, people are not willing to pay significant premiums for ethical products (hence Fair Tradeâs market cap). But where people do not have to pay premiums or otherwise sacrifice for ethical products, adoption happens quickly. Because PFGs method of doing good is through ownership rather than through operations, there is no structural reason they cannot offer relative parity of choice.
You might be interested to know that I have been working on a research compilation to support this thesis over the past several months. I have researched behavioral and reported preferences across a variety of stakeholder categories (consumers, employees, media, suppliers, procurers, governments, etc.). I have also researched PFG performance across the limited span of them that exist. I have researched product adoption patterns and the relationship between product adoption and price/âquality parity, and other matters.
The research supports the common sense assertion that people prefer buying in an ethical way when it doesnât cost them any more. That employees would rather their work have a purpose and are often willing to accept slightly lower pay to have a job full of meaning (also, much lower turnover). That media happily amplifies the stories of businesses that work for charitable rather than shareholder enrichment, enabling greater reach with lower advertising spend. That governments put socially beneficial businesses, of which Profit for Good businesses generally qualify, in privileged positions when considering contracts.
And these advantages compound. When Humanitix saves significant labor costs because of industry-leading labor retention, it can pass on savings and charge less. Similarly, it can save money on marketing spend when Sam Harris endorses them on his podcast. When you add the stakeholder advantages across the categories, it is the ingredient for capturing market share from competitors who cannot replicate it.
I hope to have the compilation complete in the next few weeks, though I canât make any promises. I will be using it in the book I am drafting on Profit for Good as a promising tool philanthropists could use to better the world.
I donât really know what our cruxes are, Marcus. I suspect that it has to do with the degree of stakeholder preference (I think you put it at zero, and I think itâs generally positive and the degree of which significantly differs depending on context). I anticipate you saying that it is drowned out by other factors and I would agree that other factors are more important. But there is no reason that the balance of other factors would incline toward non-PFGs rather than PFGs and it is smart to play with a coin that is even slightly weighted toward you. And further, I think that intelligent consideration of where stakeholder preferences could make the biggest difference will make the compound advantages much more compelling than a slightly weighted coin.
You say that we should get the âsign from the marketâ, but this is not a market that philanthropists have historically participated in. Historically, theyâve separated their business holdings from their philanthropic activity. Where there has been external investment in PFG, such as with Humanitix by the Atlassian Foundation, for instance, it has paid off magnificently. Thankyou, a PFG in Australia has been a category leader. When it tried to get capital to expand, it could have got it from private investors in exchange for significant equity in exchange, but philanthropists did not want to take advantage of this opportunity. The Profit for Good game is just one that philanthropists has not been playing and no one has been measuring stakeholder preferences and performance implications.
It isnât that âthis has been tried and the market has spokenâ. It has, generally, not been tried. Which is a damn shame given what it could do if we are right and you are wrong.
Hi Brad, appreciate the praise though itâs unnecessary :). Iâll reply to your points here. If there are some others you particularly want me to address, feel free to let me know.
We assert that, in expectation, a set of PFG equities should outperform an index fund.
I donât think this has been shown. For example, the largest and most profitable companies in existence are normal for-profit companies.
That is to say, if all else is equal (same price, same quality, same convenience and other relevant factors), people would rather money go toward saving a kid from malaria than enriching a random investor.
Maybe, though I havenât seen much/âany evidence for this and I think things are very rarely ever equal like this.
In the next bit, you give several anecdotes. I think those are very easy to give. You probably donât show the failures (most of which you probably donât know of!) and I could give you millions of anecdotes about the free advertising, preferential treatment, etc. of other businesses. I agree, people wish the world were more charitable, but they donât want to pay for that.
Actually, I think there is a real-world example where what you are hoping for didnât happen, Glo dollar. Theyâve been around for a while with a current Mcap of ~3M circulating, which is basically nothing (they canât even cover operating costs). Stablecoins are as close as one gets to a commodity/âundifferentiated good, where, according to my understanding of PfG theory, they should have been able to dominate the market. The best talent should have flocked to develop Glo dollar. Stablecoin holders should have been more than happy to hold Glo dollars instead of USDC/âUSDT, since itâs just a change of who gets the interest from treasuries. There should have been several compounding advantages and such.
I suppose my overall point about PfG would be that we should basically invest in good companies insofar as our discount rate is less than our expected returns, and we should seek to invest in good companies that will maximize our (risk-adjusted) returns. Focusing on so-called PfG companies will cause us to deviate from good investment strategies because people are going to see imaginary gains.
As a thought, why do we need to âstart new companiesâ with this strategy, why canât we just buy up the stock of a random public company and then tell people, âyou will further our philanthropic goals if you choose company A over company B since philanthropic holders own company A stockâ?
@Marcus Abramovitch đ¸ we should absolutely do what you say in your last paragraph, and we also call that PFG. We just have to make sure this is locked in governance (e.g. foundation owned, steward-ownership). I would love to buy existing businesses and turn them PFG, or invest more in existing PFGâs (e.g. I think a philanthropist should give Humanitix dozens of millions to try and dominate the American ticketing market).
Thereâs pretty good evidence on foundation-owned businesses outperforming their competitors (I donât want to seem like I will pick and choose evidence, so start by looking at peer-reviewed data on foundation owned businesses yourself). Thatâs somewhat amazing considering PFGâs are mostly not allowed to exist, so I didnât expect this evidence to even be able to exist. Philanthropists and investors have always deprived PFGâs of necessary capital, sometimes intentional, but often unintentional. That Rolex, Bosch, Newmanâs Own, Carl Zeiss, Patagonia, AFAS, Rituals and Humanitix have all outperformed in their industries is a very encouraging sign. Itâs a shame itâs so far missed by philanthropists. I invite everyone to find as much evidence against PFGâs as possible, and I agree Glo hasnât been able to be successful.
Marcus,
I appreciate your concern for the effective use of philanthropic funds. And I would be remiss if I did not take pause when the previous #1 trader on Manifold and a generally successful investor disagrees with me. But brilliant people have been fantastically wrong on some things historically, and I think youâve missed the mark regarding your assessment of Profit for Good.
First, regarding your BOAS claims, I will leave Vin to address that, if he elects to do so.
Your comments regarding Profit for Good generally do not engage with the arguments we have made. As youâve indicated, a perpetual stream of funds can be unlocked through an index fund or a sufficiently diversified set of assets. This is not what we mean by a philanthropic multiplier. We assert that, in expectation, a set of PFG equities should outperform an index fund.
According to our theory, the reason for this outperformance is because the stakeholders whose activities are relevant in business performance have a nonzero preference for the charitable cause. That is to say, if all else is equal (same price, same quality, same convenience and other relevant factors), people would rather money go toward saving a kid from malaria than enriching a random investor. This theory would apply not just to potential buyers of the product, but to other stakeholders such as potential employees, media, suppliers, and government. And unlike other forms of business, ownership of a business by a charity or charitable foundation does not necessarily negatively affect operations whatsoever. So while other forms of social enterprise often entail costs that make them less competitive (i.e., fair trade coffee costs increased supply costs to consumers), there is no inherent operational disadvantage to being owned by a foundation (indeed, in our current economy, most stock ownership of mid to large size businesses is passive).
So, the financial case for a PFG is that of operational parity (or no structural disadvantage) in conjunction with an advantage from stakeholder preference. I would emphasize that I have never contended that this stakeholder preference is large in all contexts. In fact, research shows that, by and large, people are not willing to pay significant premiums for ethical products (hence Fair Tradeâs market cap). But where people do not have to pay premiums or otherwise sacrifice for ethical products, adoption happens quickly. Because PFGs method of doing good is through ownership rather than through operations, there is no structural reason they cannot offer relative parity of choice.
You might be interested to know that I have been working on a research compilation to support this thesis over the past several months. I have researched behavioral and reported preferences across a variety of stakeholder categories (consumers, employees, media, suppliers, procurers, governments, etc.). I have also researched PFG performance across the limited span of them that exist. I have researched product adoption patterns and the relationship between product adoption and price/âquality parity, and other matters.
The research supports the common sense assertion that people prefer buying in an ethical way when it doesnât cost them any more. That employees would rather their work have a purpose and are often willing to accept slightly lower pay to have a job full of meaning (also, much lower turnover). That media happily amplifies the stories of businesses that work for charitable rather than shareholder enrichment, enabling greater reach with lower advertising spend. That governments put socially beneficial businesses, of which Profit for Good businesses generally qualify, in privileged positions when considering contracts.
And these advantages compound. When Humanitix saves significant labor costs because of industry-leading labor retention, it can pass on savings and charge less. Similarly, it can save money on marketing spend when Sam Harris endorses them on his podcast. When you add the stakeholder advantages across the categories, it is the ingredient for capturing market share from competitors who cannot replicate it.
I hope to have the compilation complete in the next few weeks, though I canât make any promises. I will be using it in the book I am drafting on Profit for Good as a promising tool philanthropists could use to better the world.
I donât really know what our cruxes are, Marcus. I suspect that it has to do with the degree of stakeholder preference (I think you put it at zero, and I think itâs generally positive and the degree of which significantly differs depending on context). I anticipate you saying that it is drowned out by other factors and I would agree that other factors are more important. But there is no reason that the balance of other factors would incline toward non-PFGs rather than PFGs and it is smart to play with a coin that is even slightly weighted toward you. And further, I think that intelligent consideration of where stakeholder preferences could make the biggest difference will make the compound advantages much more compelling than a slightly weighted coin.
You say that we should get the âsign from the marketâ, but this is not a market that philanthropists have historically participated in. Historically, theyâve separated their business holdings from their philanthropic activity. Where there has been external investment in PFG, such as with Humanitix by the Atlassian Foundation, for instance, it has paid off magnificently. Thankyou, a PFG in Australia has been a category leader. When it tried to get capital to expand, it could have got it from private investors in exchange for significant equity in exchange, but philanthropists did not want to take advantage of this opportunity. The Profit for Good game is just one that philanthropists has not been playing and no one has been measuring stakeholder preferences and performance implications.
It isnât that âthis has been tried and the market has spokenâ. It has, generally, not been tried. Which is a damn shame given what it could do if we are right and you are wrong.
Hi Brad, appreciate the praise though itâs unnecessary :). Iâll reply to your points here. If there are some others you particularly want me to address, feel free to let me know.
I donât think this has been shown. For example, the largest and most profitable companies in existence are normal for-profit companies.
Maybe, though I havenât seen much/âany evidence for this and I think things are very rarely ever equal like this.
In the next bit, you give several anecdotes. I think those are very easy to give. You probably donât show the failures (most of which you probably donât know of!) and I could give you millions of anecdotes about the free advertising, preferential treatment, etc. of other businesses. I agree, people wish the world were more charitable, but they donât want to pay for that.
Actually, I think there is a real-world example where what you are hoping for didnât happen, Glo dollar. Theyâve been around for a while with a current Mcap of ~3M circulating, which is basically nothing (they canât even cover operating costs). Stablecoins are as close as one gets to a commodity/âundifferentiated good, where, according to my understanding of PfG theory, they should have been able to dominate the market. The best talent should have flocked to develop Glo dollar. Stablecoin holders should have been more than happy to hold Glo dollars instead of USDC/âUSDT, since itâs just a change of who gets the interest from treasuries. There should have been several compounding advantages and such.
I suppose my overall point about PfG would be that we should basically invest in good companies insofar as our discount rate is less than our expected returns, and we should seek to invest in good companies that will maximize our (risk-adjusted) returns. Focusing on so-called PfG companies will cause us to deviate from good investment strategies because people are going to see imaginary gains.
As a thought, why do we need to âstart new companiesâ with this strategy, why canât we just buy up the stock of a random public company and then tell people, âyou will further our philanthropic goals if you choose company A over company B since philanthropic holders own company A stockâ?
@Marcus Abramovitch đ¸ we should absolutely do what you say in your last paragraph, and we also call that PFG. We just have to make sure this is locked in governance (e.g. foundation owned, steward-ownership). I would love to buy existing businesses and turn them PFG, or invest more in existing PFGâs (e.g. I think a philanthropist should give Humanitix dozens of millions to try and dominate the American ticketing market).
Thereâs pretty good evidence on foundation-owned businesses outperforming their competitors (I donât want to seem like I will pick and choose evidence, so start by looking at peer-reviewed data on foundation owned businesses yourself). Thatâs somewhat amazing considering PFGâs are mostly not allowed to exist, so I didnât expect this evidence to even be able to exist. Philanthropists and investors have always deprived PFGâs of necessary capital, sometimes intentional, but often unintentional. That Rolex, Bosch, Newmanâs Own, Carl Zeiss, Patagonia, AFAS, Rituals and Humanitix have all outperformed in their industries is a very encouraging sign. Itâs a shame itâs so far missed by philanthropists. I invite everyone to find as much evidence against PFGâs as possible, and I agree Glo hasnât been able to be successful.