Somehow being labeled a “progressive” has become a pejorative in certain circles, but I’m not concerned.   One definition I found and how I like to consider my thoughts on the subject is “favoring or advocating progress, change, improvement, or reform, as opposed to wishing to maintain things as they are”.  My belief is that a progressive agenda pushes the envelope on the innovation that grows the pie whereas wishing to maintain things as they are keeps the pie the same and leads to fighting for a bigger piece in a zero-sum game.  This could result in limited opportunities for self-actualization.  Alright, those who know me probably have a hard time putting Stephen Lulla and the spirituality of self-actualization in the same thought and you are right.  But…whatever, I’m going with it.

I can’t recall if it was high school or college, both being roughly 40 years in the rear-view mirror, but it was then that I was first taught about the unaccounted-for costs of environmental degradation and the healthcare costs of certain products, the drumbeat of which has grown louder with each passing year.  I hear people grumbling about subsidies and favoritism for carbon-free sources of energy and transportation. Given the environmental costs of coal and oil, not to mention the sunken military costs of protecting our interests in the Middle East, specifically the pipelines of exportable oil, it seems to me that these subsidies were and are a small price to pay until renewable energy is cost competitive.  And they have become cost competitive without even considering the aforementioned costs.  Equally important, if the United States doesn’t take the pole position in advancing semiconductor manufacturing, electric and hydrogen vehicles as well as solar, wind and hydro energy sources, our competition will and the resulting decline in our relative standard of living will not be pretty.

Having said all that, I don’t completely regret our past use of fossil fuels which helped industrialize our country and raise the standard of living for Americans.  That prosperity funded what was the best educated and trained workforce in the world for decades which resulted in a virtuous cycle of increased standard of living and better education for the next generation.  However, we seem to have gone off the rails (not the magnetic ones that bullet trains use… cool stuff that we are also behind on) and must recognize when it is time to move on from what did work to what will work. Our educational system has been in relative decline and that does not bode well for my children’s prospects.  Many countries are putting out more and better prepared STEM (science, technology, engineering and math) students than the United States.  Fortunately, our technology companies have recruited many of them (I won’t get into immigration policy here as I’m not sufficiently knowledgeable) which has helped keep much of the wealth generated from these valuable companies here in the United States accruing to shareholder/owners.  That won’t last forever and the competitive economic and military threat and global influence from China may be our country’s greatest challenge in the coming decades.

Yes, we do have huge budget deficits and increasing them to fund an expanded definition of infrastructure should be carefully considered.  Personally, I think our deficit is getting out of hand, and while interest rates are presently at historical lows and the debt service seems manageable, I think it naïve to believe that will always be the case.  Budgets have two sides, money in (taxes) and money out (spending or consumption).  That said, I view investment very differently than consumption.  Yes, I’m pushing 60 and who knows how long any of us have, but smart and efficiently implemented investment in traditional infrastructure (roads, bridges, etc…), next generation infrastructure (broadband, EV charging, updated electrical grid) and education is something I believe will indeed make for a better future for our children and grandchildren.  I do not believe in equality of outcomes for all.  I may be progressive, but I’m not a socialist!  However, I do believe in equality of opportunity through great education and think it the best way to avoid the welfare state that no one wants, whether recipient or sponsor of those benefits.  The productivity loss from those left behind is tragic for all of us.  Recall growing the pie from the first paragraph.  I’m tying it all together now!

I know you are thinking by now, what is Steve’s real point and how does it relate to his focus on managing client’s money.  Last fall I penned a piece titled “Investing in and for the Future” (http://maidstone-wm.com/index.php/2020/11/12/investing-in-and-for-the-future/).   As I discussed, I consider myself a “value” investor and it is often hard to align that with company valuations in many forward-looking industries.  Value themed portfolios are typically laden with companies in industries like oil, banking, defense, drug makers, retailers, consumer goods and cigarettes manufacturers because many money managers look at low Price/Earnings multiples and tangible assets in determining value.  I look at value through a different lens that incorporates many more considerations.  Yes, I do hold banking, pharmaceutical, consumer goods and brick and mortar retailing companies in client portfolios because some industries are either way too cheap, can’t be replaced, or have great brand recognition and are adapting to competitive forces.  But I also consider the value of intangibles in forward-looking companies and industries which are profitable today but will provide even greater profitability for years to come.

I hope you are all healthy and enjoying the reopening of society. 

If you have any thoughts or questions about this commentary or anything else related to your financial life, my line is always open.

Best regards,

Steve