Longreads + Open Thread
ESG, Short Selling, Russia, Sanctions, Kazakhstan, Tisch
Andrew King and Kenneth Pucker at Institutional Investor look at the many complexities and inconsistencies involved in arguing that ESG investing produces alpha. An ESG-flavored investment can certainly be good for the world, and many of the companies that screen well on these metrics are quite profitable (if you don't need many physical inputs to provide your services, you can be both low-emissions and high-margin). But alpha comes from finding things that a) drive better performance over time, b) aren't recognized by the market, and c) don't get that extra return from taking additional risk.
Also in II, Michelle Celarier on short seller Carson Block questioning some negative academic research on short sellers. As a general rule, if you're going to go after shorts in a data-driven way, you need to be absolutely meticulous—you're criticizing people who have chosen a job where they constantly double-check numbers, question assumptions, assume the worst about their interlocutor, and then go out and find evidence that they're correct. Even erroneous short theses are pretty bruising, and in this case Block's case seems quite strong.
Kamil Kazani asks: how did Russia get so big? One important element was that the early growth of Muscovy, the predecessor state to Russia, was not primarily military. Vologda, for example, was annexed gradually over a period of more than a century, with Muscovy's influence rising throughout. Russia has ended up being a military power in part because its historical borders have mostly been hard to defend, and any country powerful enough to defend all of those borders can have the ability to attack along one of them. As Czar Alexander III put it, "Russia has only two allies: the Army and the Navy."
T. Greer at Scholars Stage notes that the response to Russia's invasion puts us in uncharted territory. This is, in one sense, necessarily true: invading a country in order to annex it used to be more common, so we have more experience with the act than with the consequences of trying to stop it through non-military means.
Fin Depencier at Palladium looks back at what happened in Kazakhstan in January. This is timely: since energy and food costs are rising, more countries will have to back down subsidizing those products, and that will precipitate more unrest. But, as the article notes, the elimination of fuel subsidies was a catalyst, but was not the underlying reason.
The King of Cash: The Inside Story of Laurence Tisch: Larry Tisch had a phenomenal record as an investor and operator from the 40s through the 80s, but his holding company has disappointed since then ($). This book is partly an illustration of just how many valuation dislocations there used to be in the market—great assets often sold for cheap, and some large companies were seriously mismanaged for long periods until new owners stepped in. (As an aside, this is the third book I've read in the last few months that profiled a media figure and used a monarchial title: Apparently Barry Diller was the King of Media, Sumner Redstone was the King of Content, and now former CBS head Tisch is the King of Cash. Why do these people in particular get tagged with that kind of title?)
Drop in any links or thoughts of interest to Diff readers.
What I'm thinking about this week: the long-term consequences of Russia's invasion of Ukraine are hard to predict, but the long-term consequences of the response may be easier: that situation is less fluid, since no one wants to be first to start doing business with Russia again after publicly stopping. Aside from the first-order effect that Russia will try to make more of what it needs internally, what are the second-order effects?
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