Are You A Good Capitalist?
Cam Hui | Jun 19, 2014 12:42AM ET
Are you a good investor? Do you believe in the supremacy of free markets? Let's test your convictions.
I have always believed that investors should be politically agnostic about their market views. While I have my own political beliefs, I try to keep them away from the way I invest, because allowing political views to influence how funds are deployed can be detrimental to a portfolio. The better question should be how a specific approach or event is likely to affect the risk and return characteristics of a portfolio.
How socially responsible?
I offer two examples, one as a criticism of the Left and the other of the Right. The first is a board or the staff of a fund, whether pension, endowment or other, to consider socially responsible investing for political reasons. Unless the owners of the fund have explicitly specified a social theme to the investing process as part of the investment mandate, the board could be in breach of their fiduciary responsibility for venturing into socially responsible investing, as such an approach is likely to deliver inferior risk-adjusted expected returns compared to a similar unconstrained portfolio.
Knee-jerk reaction to Iraqi developments
The second example is the reaction by the talking heads to the military gains by ISIS in Iraq. The reaction falls into two categories, both wrong. The first is a knee-jerk fear of a cutoff in oil supply:
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