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.
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.