Saving Our Planet: What Can Our Generation Do About It?

Student Lounge College Life
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<p>“This type of investing is just playing the markets. There’s no economic benefit. We’re wasting economic growth potential on dead ends because the accounting standards focus on short-term gains.”</p>

<p>Let me ask you a question. In your own words (don’t use wikipedia!) what do you think economic growth is? What do you call an economic benefit? If a trade between a buyer and a seller of a stock is not mutually advantageous, then why does it occur?</p>

<p>Don’t you think that what investors of publicly traded companies are primarily interested in are profits, when all is said and done? I’m not talking about stock <em>traders</em> necessarily (it is through the trade of a product that it is guided away from where it is less valued to where it is more valued), but the investors themselves.</p>

<p>Have you heard of the economic theory that when one particular method for picking stocks becomes the dominant method, then it would be more advantageous to pick stocks at random? And vice versa?</p>

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<p>IMO, the economy grows when there is more stuff created–that stuff can be tangible or intangible. The correct allocation of capital is an important step in making sure that the right stuff is made. </p>

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<p>Let me ask you this: how does an investor decide that trading a stock is advantageous to him/her? Let’s ignore what the markets value the stock at. How does an investor, who has been holding securities for 20 years, suddenly decide it’s time to sell? </p>

<p>There are two sources of revenue for the investor if he maintains his securities: dividend revenue and capital gains. Capital gains is merely the market’s anticipation of a company’s future profits (and thus the resulting dividend revenue). Thus, the only REAL source of revenue is dividends–which come from profits. The rest is simply anticipation of these real revenues. It is not important to the investor that these dividends are being distributed now. In fact, some companies like Google thrive on reinvesting their profits. But if most investors decided that Google will ultimately never be able to pay out dividends, then it’s stock price would crash–Google would no longer be a going concern. The entire stock price is a prediction of these future profits. </p>

<p>If the investor feels that either a) the market believes that profits will increase for this company (capital gains) or b) HE/SHE ACTUALLY believes that the company will be profiting and distributing this wealth (dividends), then he/she may hold on to the stock. But how does an investor know what the future dividend distribution will look like? Not just now, but 20 years from now?</p>

<p>The investor must be able to accurately predict the future profits of a company–especially cash flows. This is a major goal of financial accounting. So let me ask you this: how will estimating the ultimate environmental impact of businesses–and quantifying these estimates in terms of costs (discounted for inflation)–not help investors predict such profits? We are seeing a consumer shift. They are demanding (not yet, but starting to demand) that companies be environmentally responsible, because they are concerned about the long-term effects. Whether these effects are real is irrelevant, this shift affects future sales.</p>

<p>We are a democratic society. I don’t pretend to know anything about politics, but I’m betting that if many people start demanding environmental legislation, then such legislation will eventually pass (e.g. cap and trade). These will place burdens on “dirty” companies, and it will affect their bottom line. </p>

<p>It is no longer realistic for a balance sheet to disregard these potential liabilities. If an individual investor believes this is all hogwash, then he or she is perfectly free to ignore the additional information provided by environmental liability considerations. Like I’ve said, there are many contingent liability estimates that are included in the notes or balance sheet of an annual report–and investors frequently switch these numbers around to suit their own analysis.</p>

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<p>Notice that the reporting of environmental liability may ACTUALLY HELP OIL COMPANIES. There is a certain risk spread to a stock. When a company is highly vested in the effects of liabilities that it hasn’t quantified, then this increases the risk of its stock. </p>

<p>The higher the risk, the higher the discount on stock price. Green accounting will only hurt dirty companies if their potential liabilities are higher than investors anticipated.</p>

<p>Don’t investors have the right to know that their estimates of future environmental liability are different than an insider professional accountant’s estimates using GAAP?</p>

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That is what I am saying. Are you suggesting that it is impossible for what we now consider to be necessities to become considered luxuries? Luxury/necessity are arbitrary terms based on the perspective of the consumer.</p>

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<p>I did qualify that statement:<br>
“Producers set their price based on the scarcity of what they produce (in theory), then there is some compromise involving the demand of consumers but there comes a point where the purchasing power of most consumers is simply not enough to acquire the product.”</p>

<p>By “set their price,” I meant, set the initial price at which they sell the good. That “point” would perhaps be where the good is considered a “luxury.”</p>

<p>Competition does tend to drive prices down, but there comes a point where a product cannot be sold at a certain price and the producer still maintain a profit.</p>

<p>Still, your model seems to assume that there is no such thing as literal scarcity, that the scarcity of the earth’s resources will always be overcome by technology, that people always behave rationally, and that throwing money at problems always gets them solved.</p>