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Or less environmentally-conscious investors will step in, take advantage, fill the gap, and keep the equilibrium. Obviously, there is a line where decrease dema
by blago 7y ago
Or less environmentally-conscious investors will step in, take advantage, fill the gap, and keep the equilibrium. Obviously, there is a line where decrease demand for equity will not be compensated but we don't know where it is and whether we'll reach it.
- mikorym 7y agoThis was also my thought. I think the only fail-safe strategy is if renewables are cheaper than coal (or more convenient / popular from the consumer's side).
- Al-Khwarizmi 7y agoExcept that even from a totally selfish standpoint, coal is a walking corpse anyway, the growth is clearly in renewables. Even if I didn't care at all about environment, I would prefer the coal-less products. Maybe some investors will profit from coal in the short term, but many will be left holding the bag.
- OJFord 7y agoIf that were so obviously the case it would tank without any intervention or 'class action'.
- jmcqk6 7y agoWell if you take a look at coal performance in the US, that's pretty much what is happening.
- snaky 7y agoWhat if you take a look at coal performance in China, Asia and Africa?
- Al-Khwarizmi 7y agoI think it will indeed tank in the next few years, and to be honest, my bet is that the main reason for the "intervention" by BlackRock is also that they believe it to be the case. I don't believe it's just a matter of public image, let alone morals. Time will tell.
- Ntrails 7y agoThe reason is unrelated to any views individuals at the firm may have on the profitability of coal. They will not be marked on performance, that is the whole point of passive indexing. You _are_ the benchmark, no judgement required.
- Al-Khwarizmi 7y agoIt's not only passive funds. From the article: "The announcement by BlackRock, the world’s largest fund manager, that it will dump more than half a billion dollars in thermal coal shares from all of its actively managed portfolios".
- Ntrails 7y agoI was responding based on the Matt Levine quotes (GPs) rather than the article. But accede entirely
- conjectures 7y agoThis. Suppose the goal is to buy and hold some index for your pension in 30 years time. It's hard for to imagine that fossil fuels are going to grow faster than the other index components. So I'd rather cut them out.
- notJim 7y agoBut this wouldn't really be a return-maximizing strategy, would it? I wouldn't expect to hold the same stocks for the entire 30 years, rather I would be constantly looking for medium-term gains and then trying to lock them in once I think they've peaked. I.e., maybe I think fossil fuels are going to continue growing for at least a 5-year time frame, and then maybe around them, I would re-evaluate whether that's still true. In other words, the return-maximizing strategy would seem to be to treat them like any other investment.
- conjectures 7y agoThere's truth to what you're saying; assuming one knows where relative medium term peaks and troughs are in multiple asset classes. That's a whale of an assumption. As is the assumption that fossil fuels are going to be higher growth rate over the medium term. Your strategy also requires attention and likely incurs more transaction costs if executing it yourself. I thought I would do a ballpark check. Random first index of oil & gas I found was FTSE 350 Oil & Gas. Start 2010 value: ~7914. Start 2020: ~8253. Return: 1.043. General FTSE350 at the start of 2010: 2718. Start 2020: 4311. Return: 1.59. So we'd have done better buying a fossil fuel divested index 10 years ago. I see no reason to think this trend will reverse. The fundamentals to me are that fossil fuels are likely only see more regulation, divestment and less importance to new technologies. While the upside wildcards in energy are most likely not in fossil fuels.
- praptak 7y agoIt's a tragedy of the commons, one cannot expect it to be solved by decisions of individuals.