By Erika Karp, W’85
Managing Director, head of global sector research, UBS Investment Bank
Great investors often demonstrate an extraordinary sense for the rhythm of the markets. Great entertainers seem to have precisely the same skill in their business.
In seeking strong financial returns for the long run, though, the short-term strategies that seem so prevalent today might undermine the efforts of an investor. I argue that we can learn a lot about successful investing from Lady Gaga.
Her extraordinary performance isn’t predicated upon following the consensus path. In her dancing, for instance, she moves on the one and the three beat, rather than on the usual two and four. It’s different, nontraditional and certainly strikes the right chord for her audience. It’s fair to say that the success of her performance can’t be matched by that of most portfolio managers. So maybe investors can take a lesson from her differentiated approach.
The different approach I’m referring to for capital-market participants is called “sustainable investing.” The greatest, single impediment to this investment discipline is that short-term, consensus thinking. This is unfortunately propagated by suboptimal incentive structures across industries. Like Lady Gaga’s music, sustainable investing is most suitable for those with the courage of their convictions and the patience to think about the needs of all the diverse stakeholders. These stakeholders are not just those with the loudest voices in the crowd. In times of economic stress in particular, all voices need to be heard, though ultimately their roar could become deafening.
In other words, the well-being of all the customers, employees, suppliers, communities and minority shareholders from which and for whom companies generate their ultimate success should be cared for in a manner that will lead to truly sustainable business performance. In fact, attention to all these constituencies should be considered a proxy for quality business management, strategy and execution.
Sometimes taking a different approach can lead to amazing results. Companies and financial analysts who don’t get such fantastic results might consider altering the nature of their investment analyses and changing their rhythm. They ought to try asking different questions and digging deeper to look for signals about the sustainable drivers of business growth for the long run. An analysis into corporate performance around issues relating to environmental, social and governance (ESG) practices can yield a great deal of predictive insight into the ultimate outcomes for earnings, cash flows and share prices.
We can only hope to find shares that show even a modest portion of the meteoric rise of Lady Gaga’s stock. Perhaps we could even find ourselves on the “Edge of Glory.”
This article first appeared online on the Wharton Blog Network, our open forum of ideas about business, entrepreneurship, leadership and more. Contributors include Wharton faculty, administrators, alumni and students. To read more, visit http://www.whartonmagazine.com/blog