Seth Holehouse, who owns an auction house in New York City, has focused his investments on renewable energy and recycled products. He has done so for the last five years — despite steadily losing money on the strategy.
“I’d like to say that it’s been phenomenal,” said Holehouse, chief executive and co-founder of Fortuna Auctions, which specializes in estate jewelry. “But it hasn’t been great overall.”
It is passion, not profit, that guides him. And he is not about to let up. Instead, he is prepared to keep losing money in the near term with the expectation of gains down the road.
“We’re in it for the long haul,” he said. “This philosophy is how we’d like to invest in 20 years.”
Investing with a guiding passion isn’t the same as being an impact investor, who aims to effect social change while earning a solid return. Passion investing is purer — if not puritanical. And seeing how people who embrace it deploy their strategies shows just how hard it is to follow a passion in investing without some level of compromise.
Its better-known cousin, impact investing, tends to attract people who are pragmatic. They are looking for the best possible investment in a sector, based on established criteria.
In terms of its volume of greenhouse emissions, for example, a consumer packaging company will most likely score much higher among environmentalists than every company in the oil and gas sector. But a certain type of impact investor might look for the oil and gas company that has improved its business practices the most or is as environmentally responsible and progressive as such a company can be.
Instead of swearing off whole sectors, this type of impact investor is looking to make a practical accommodation between today’s reality and tomorrow’s aspiration.
Passion investors spurn such accommodations. They are driven by a belief in the primacy of a cause — animal rights, climate change, reducing waste — and try to apply that desire to all investment types. It’s not easy.
“I have a conversation about this quite often,” said Mark Doman, chief executive of the Doman Group, an investment adviser. “Clients talk about how their ethics and morality guide their portfolio. I tell them it’s a very slippery slope to find companies that meet their ethical bar while keeping in mind their goal is to grow their assets.”
Doman added, “If you can find me a morally and ethically pure blue-chip company, that’s more the exception than the rule.”
Royce Pinkwater, a real estate broker in Manhattan, is trying to find such companies that align with her passion — reducing pollution — but are also profitable. She has taken to analyzing individual securities through the lens of pollution. This has led to tough choices.
She had been earning solid returns investing in Amazon when she began to be concerned about the company’s relationship with its vendors and how those vendors sold and packaged products. Was Amazon monitoring how they did business? How concerned were Amazon and its vendors with reducing the waste caused by their packaging?
These questions prompted her to sell her stake in Amazon and buy stock in Nike, whose practices she also scrutinized. To her way of thinking, “Nike is much more responsible with its suppliers,” she said. “They’re very transparent. They’re dropping factories that aren’t compliant. They have a huge new set of standards they’ll comply with by 2020.”
When people make private investments guided by passion, the risk can seem higher. Losing all of your money in any private investment is always a possibility, particularly in early-stage ventures.
But when people assess a private investment primarily on their perception of its underlying merit, it also narrows their options. Their passion, in effect, has limited what may already be a small field of suitable investments.
Hewson Baltzell, who made his money founding a research firm called Innovest, which rates publicly traded stocks, bonds, mutual funds and exchange-traded funds on environmental, social and governance criteria, takes a fatalistic approach to his private investments, which are guided by his passion to avoid waste.
“I have to be willing for the money to go down the drain completely,” he said.
Some investors have put parameters in place to stay focused on their passions while not going broke.
A strategy that loses money for years, like Holehouse’s focus on renewables, is not one any professional investor could sustain and still be in business. But he said he and his wife did not need their investments to live. And being tied to the jewelry business, he said, has allowed them to invest in gems and rare metals that regular investors cannot access.
“Kashmir sapphires have gone up 500 per cent in the last decade,” he said. “Thankfully, it gives us more room to let our conscience drive things.”
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