UnBalanced Investing

It’s already few years back, but those finance lessons from my MBA are still stuck in my head.  (1)  The right way to value a business is to calculate the net present value of future cash flows.  (2) The safest (least risky) investment portfolio is one which combines fixed income securities (bonds) with equity positions (stock).  (3) It’s tough to beat the market in the long run.  (4)  Mutual funds offer the convenience of various investment profiles without the need for daily personal management.  (5)  Diversity is essential.  Is this how Warren Buffet became so wealthy?

So now we’re getting to the end of the year, and some of us are started to review just how well we did with our personal investments in the past year.  How much of the lost ground from the financial meltdown have we managed to recover?  What’s been my return on investment (ROI) this year?  How many years do I have to work before I can retire?

Investment considerations are also important for IDE.  No, we aren’t taking any risks with our donor funds, but at a certain profound level, we have come to realize that IDE is smack dab in the middle of a community of investors.  If the first case, the farmer customers who purchase our irrigation technologies are fundamentally investors in their farms, families and futures.  If they invest $100 in a drip system, they are calculating that they will receive a ROI several factors greater than their purchase. 

Likewise our donors, for example, the Gates Foundation, is very interested in the social return on their investment with IDE.  They calculate their cost per customer as donors, and are strongly interested in seeing a substantial return.  We are happy to report that many of our projects generate a return of 8 to 10 times when taken over a three year period.

So this adds a dimension to my personal portfolio management.  Without a doubt, I want to be saving and investing for my personal future.  At another level, however, I also have a profound sense that I live in a global community.  In this global community, we are all more secure if all members of that community are doing well.  An “investment” in Zambian and Ethiopian farm families, and a host of other places simply makes the world a more secure place for all of us.  An improving ROI for Indian smallholders is good for all of us.

In the past year, IDE developed five social innovation funds to be used as donor vehicles for those interested in unbundled investing.  Our Bottom of the Pyramid Enterprise Fund is designed to stimulate the sustainable creation of supply chains which use market mechanisms to distribute value rich irrigation technologies.  Our Innovation Fund will invest in the development of new productive technologies to increase food production, hence income.  Our Women in Agriculture Fund recognizes that in many parts of the world female farmers are really the group that does the majority of the work.  Our Rural Finance Fund is designed to provide the credit necessary to make those investments in irrigation and other productive technologies.  Finally, our Leadership Fund is based on the common sense idea that organizations and field programs like IDE are only as good as the quality of the leadership and management behind them. 

The contention of this blog comment is that if my investments are restricted only to my personal future, that is an unbalanced approach to investment.  On the other hand, if I invest in both my future and the future of dollar a day farmers in developing countries, that is balanced.  I am interested in both.

We offer you no advice about your personal savings investments, but we do urge you to consider the five social innovation funds outlined above.  We believe you will like the SROI (social return on investment). Consider it an enlightened approach to balanced investment.

Al Doerksen – December 2010

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About Al Doerksen

I'm sort of a vocational tramp; my working career divides about evenly between non-profit and the business worlds. I have lived in Mexico, India, Germany and Canada, and now USA. I've had the good fortune to travel to 90 countries of which at least half are developing countries. The last 25 years of my "career" have involved significant (and enjoyable) international management challenges: travel industry, furniture manufacturing, food (aid) programming and ultraviolet water treatment among others. I'm now leading a development enterprise called IDE.
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One Response to UnBalanced Investing

  1. Lori Matties says:

    I like this, Al. Another thing I’m thinking is that balanced investment somehow also needs to take into account the poor in our own part of the world. This is more complicated, and more uncomfortable, but just as necessary for the books.

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