• Podcast

    Marco Vangelisti: Investing Outside Of Wall Street

    Putting your money to work locally & sustainably
    by Adam Taggart

    Monday, November 14, 2016, 6:29 PM

Marco Vangelisti worked in high finance for 25 years before self-ejecting from that industry and dedicating his focus to providing capital to local and sustainable ventures. He is a founding member of Slow Money, as well as a founding member of the National Coalition for Community Capital.

Marco wrestled with cognitive dissonance during his years on Wall Street. Not only did he perceive many of the same risks and abuses in the financial system The Crash Course warns of, but he also noted that the capital from foundations and other 'socially responsible' organizations were often invested in businesses that were ecologically and/or socially destructive.

His entire portfolio now is invested at the local level or in sustainability-oriented vehicles where he has visibility into its direct impact. This kind of investing is a lot more complicated than simply buying shares off of ETRADE with a few mouse clicks, but is worth the effort. By deploying our capital locally into ventures that we value, we use our savings to help create the kind of future we want to live into:

I basically had to stop and say What should be my guiding principal? What is my personal investment compass? I realized that started from two psychological motivators for me. One is biophilia which is the love for everything that is alive and the other one is empathy. And so the way I deploy the capital from that point is to say Is an investment in agreement with those two principals? And if yes, let’s establish a relationship with either the person that is managing the fund or the entrepreneur that is seeking capital and only after I have a relationship in an alignment in terms of values with this person will I consider investing. And so a lot of my investments are local. I have full transparency as to what I am investing in. I know exactly who is the end beneficiary or the end user of my assets.

And I have some things like peer to peer lending and I have some of the new opportunities that have opened up because of the Title 3 of the jobs act which has made offering to the job public more available. But basically 100% of my portfolio is aligned with my values. Everything else is really outside Wall Street and outside the stock markets and bond markets. I do own some municipal bonds for projects I know exactly what they are funding. If there are some schools for example or some you know upgrades of some infrastructure the county or municipal level those are the type that I might have.

There's a good portion of my portfolio for which I think I will get a positive return. And there is a slice of 'deep impact' things that I really care about and I am prepared to have maybe a slight negative financial return over all, but that's fine because I view the known financial return of that part of the portfolio as building the world I want to live in and build the community I want to live in. 

Click the play button below to listen to Chris' interview with Marco Vangelisti (50m:00s).


Chris Martenson:     Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson and it is November 8th 2016. It’s election day in the United States and the polls have only just opened on the West Coast as we are recording this. Here we are with extreme disillusionment, if not dissolutionment of the core principles, institutional structures of the United States to hear both sides looking at this and the intensity is amazing. But, if we take a very large set of steps backwards, the major predicaments of the nation and the world will prove to be utterly immune to various leanings, and various minor, even major policy tweaks and wiggles, because – drum roll please – the world has a math problem or, rather related or inter-related math problems, which collectively in many cases sum up to equal a predicament. Remember, problems have solutions, predicaments only have outcomes.

This election is of vital importance or not important at all depending on your timeframe and the amount of meaning you assign to the larger context. The point here today is not to cover and recover endless, it seems, the world’s major predicaments, but to get to the question of what we should do in response and if we dare to we might even go a bit further into the more nebulous territory of determining what we should be in response. What we do, what we would be. Both are valid. Let’s start with what we should do and see where that goes.

Now, here at Peak Prosperity we often begin with financial steps, because those are discreet and doable, and also often a blocking function to next steps. If you got financial anxiety and paralysis, that usually proceeds and prevents the next steps. So, let’s start there and go a bit deeper into a subject we covered before – local investing. To help us both go deeper and gain clarity on that subject today, we have with us Marco Vangelisti. Marco came to the US as a Fulbright Scholar in mathematics and economics at the University of California at Berkeley. He worked in finance for the last 25 years and for the last six in the investment management industry before, as he says, a profound cognitive dissonance settled in and he took a hike. He is a founding member of Slow Money and in the leadership team of the Slow Money Northern California Network. He is also a founding member of the national coalition for Community Capital. Welcome, Marco.

Marco Vangelisti:     Thank you, Chris. Thank you for having me.

Chris Martenson:     Marco, I briefly mentioned. Wonderful story you have got. Your origin story. I mentioned your cognitive dissonance as you walked away from a very lucrative position in the financial management business. I’d like you to start there. Explain what you meant by that cognitive dissonance and how it is that you came to walk away.

Marco Vangelisti:     Yes. So I’ve been all my life a very dedicated environmentalist and proponent and passionate advocate for social justice. I worked in finance for a number of years. At a certain point I had to deal with cognitive dissonance. I am sure this is not coming as a surprise to a lot of your listeners. Specifically, I was working for a very well regarded, very ethically and professionally managed private investment management firm. I was part of a team managing 20 billion dollars in emerging markets equities. And most of our clients and I was very happy about that where environmental foundations, foundations, endowments, pension funds in other words institutional investors in some of them were devoted and in fact were started for the purpose of addressing some of the social and environmental problems we are facing as a society. Now, we were doing great. We were in fact the best performing fund in that category with the 10-year track record. The best performing emerging markets equity fund with a 10-year track record and our clients loved us. Now remember that particular year we had like a spectacular return. Something like 40% in one year, which is for a long only unleveraged fund of that size was quite spectacular.

The method we were using was very quantitative, so computers that we programmed were selecting stocks, but at a certain point I asked myself how did we generate such fantastic return. And when I looked closely at the largest holdings and best performing holdings that we had, those were palm oil companies in Malaysia that had just destroyed 10s of thousands of acres of rainforest and had basically planted a monocrop of palm oil plants and also obtained a lot of carbon credits for planting trees. And at that point I realized, wow I am an environmentalist. I donated money to very well known environmental foundation. I am now finding myself managing their money and I’m putting it into something that destroys the very things the foundation was trying to protect. The orangutan habitat was largely destroyed by palm oil plantations. As you might imagine, that is a big cognitive dissonance. I remember asking the chief investment officer of this environmental foundation are you not concerned? The money of your foundation is invested through us in something that is destroying the very habitat your foundation was created to protect, right? That is kind of the key issue I think in finance is that we are just paying attention to risk and return and liquidity and we are blind mostly or unaware of all the other non financial impacts that our investments are creating.

So at that point, and you know the chief investment officer actually had a good reply, given his position; he said “Look, I am on the investment side. And my task is to maintain the assets of the foundation in perpetuity. Notice that we don’t afford the 10,000-year-old rainforest, right but once we have financial capital that is what we are trying to do. And I need to grow the foundation’s assets enough to cover its expenses and its operations and its wonderful programs, including trying to save the habitats of the orangutan.” So, you can see that at that point I had no choice, once I understood how things worked, to walk away from the financial industry and from a very high paid job at that. That was 2009.

Chris Martenson:     I get that absolutely.

Marco Vangelisti:     That was not an easy time to walk away from a nice job.

Chris Martenson:     No. No. Very hard. Very hard. There is courage obviously involved, which I hope we can get to in a second in jumping off. Something I have done as well. We have a similar sort of an origin story, you and I. This cognitive dissonance really important, though, and you are talking about it at your personal level. I am talking with somebody who is trained in math. I have to take this opportunity let me run this by you. Let’s start really on the outside of this world of investing, and let’s imagine now we get to choose. The world is composed, say, of only the most ecologically minded, socially conscious investors anywhere, and they have access to only the most amazing companies with amazing ecologically friendly products. And speaking to this story of talking with the CFO of this organization, let’s replicate this person’s interest across all of these investment funds. So, if these investors, if they are all expecting a total, let’s make a number up across the globe, they are saying a 7% return. If we can just make year in and year out a nice 7% return, we can fund our operations and do these wonderfully, socially and ecologically conscious things. That’s all. In aggregate, we want 7%.

What they are saying when we unpack that slightly is they are expecting to double the size of their portfolio every 10 years, which means the companies that they are invested in have to be worth twice as much every 10 years, which, using the few fingers toes and a distressingly short series of doublings, we have a math problem that I opened with. I mean, isn’t this sort of lurking there cognitively dissonantly under the entire industry no matter how socially responsible, which is we can’t all be expecting exponential returns forever.

Marco Vangelisti:     Well, that is a very good point. And a point that I am actually making. You are referring to a couple of things. One is what is called financial intensity. The financial intensity of an economy is what is the value of the stock market and liquid bond market relative to its GDP, right? So, that is a first good starting point. So, we say if you take, for example, the GDP of the world in, let’s say, 2012. That was 70 trillion dollars, right? And then you look at the liquid financial capital. This is stock markets and bond markets. It is not the entirety of the financial capital, just the liquid one. In those two asset classes there was 212 trillion dollars, which is three times the size of the GDP. That is called financial intensity and 300% financial intensity worldwide was the highest number we have seen in the history of humanity, and since then we have exceeded that. So, there is one angle that says how much of the economy or the assets in the economy are tradable and are part of the stock and bond market. And then, the other question is where does the money come from in the first place? In other words, what is the process by which we had, for example, a few trillion dollars worth of liquid capital in the 50s, and now we have more than 300, or certainly more than 200 trillion dollars?

This is another point that maybe you have done – you, maybe in your book. I am doing it in a slightly different way. We go to the same fundamental crux of the matter, which is money; is an accounting entry. Money is created in the process of banks and central banks expanding their balance sheets. And this is a very hard thing for people to understand, that money is not a thing, but there is an accounting entry. As an accounting entry, there is no limit as to how much of it we can theoretically create. Banks create money when they make loans. They just book as an asset the promise of the borrowers to repay, and they create brand new money in the form of their own IOU, which is the checking account that they create for the borrower; and that is how new money enters into the system. And so we have the conflation between -- at a certain point -- we will have to reckon this, you know, impossibility. We have a bio geophysical planet that is limited, on one hand. On the other hand, we have a construct, which is an accounting construct that has no physical limitation, which is the amount of money in circulation, which can be expanded and extended through the process of lending.

Now, we are in a situation where there is an unprecedented amount of debt, both private and public, and we have an unprecedented level of liquid assets and what is called the excess savings that are trying to chase returns around the world. And one has to recognize that the money in the stock market and the bond markets and so on is not as real as we think. And maybe I will give you one example to make things concrete, so to understand both the process of money creation and the process with investment capital out there in the world chasing limited investment opportunities.

I worked for a brief period of time as a consultant for a[n] impact fund that was buying conventional farmland and converting it into organic farmland. It was an interesting fund. I was engaged for a couple of months with them. And they were approached by this financial company in Tokyo in Japan called Orix. They were mostly in real estate, but they were planning to deploy 5 billion dollars into a particular asset class in the United States, which is farmland, and they were trying to invest a fairly large amount into the fund. I got to talk to them, and found out something very interesting. Orix has stock that is trading on the stock exchange in Tokyo, and it is worth about $20 billion. They went to one of the Japanese banks; I don’t know whether it was Nomura and they basically said can you leverage us 5 to 1. Can you lend us $80 billion? They were more than delighted to do so. So that process created $80 billion of brand new money. The bank basically booked the promise to repay by Orix at the tune of $80 billion as an asset of the bank and they created brand new money. On the other side was money that now was leveraging the $20 billion they had into $100 billion now looking for a return around the world. If you think about that, that is the same thing that is happening right now with the repurchase of stock by corporations. They are using the very low interest rates to borrow money very cheaply and buy back their stocks. Right? So, in other words, some of the money that is acquiring and setting the price for stocks is money that has been created in the process of lending by banks. And could actually go into reverse, in case finally markets hit some turbulence and start recognizing the underlying value.

This is kind of a big picture thing, but I think it is important to – for people to grock that money is really a construct, is an accounting construct, and so is investment capital. And maybe to tie that last – if I have another minute or so, tie it to another study that links money and economic activity to the geophysical limit of the planet. You probably know of an entity called the Economics of Ecosystems in Biodiversity -- is a group under the UN that applied environmental economic techniques to quantify the value that we receive from nature for free. In other words, the natural asset, the natural capital that we are using like water, land, so on; the market doesn’t see the value of that, and so we tend to kind of exploit it, because we don’t have to pay for it. So, they went through a 15 year study to quantify in dollar terms what was the value of six externalities like land and air pollution, water, greenhouse gas emission and so on, and to put a price on it. What they found is that globally around the world, and this is data from 2009, we were using 7.3 trillion dollars worth of unpriced natural capital in our economic activity, which at the time was $60 trillion. So, the overall economic activity in the world in 2009 was $60 trillion, but $7.3 trillion came as a subsidy through our destruction of the natural capital. That was basically subsidizing both economic growth, which has been in the three to four percent, and the financial return we collectively get from our accounting construct called money.

Those data points, I think, point to a fact that we have to, at a certain point, reconcile that money is not as real as we believe, and that geophysical limits will at a certain point serve themselves even in financial markets.

Chris Martenson:     Marco, I completely agree. And this is the point, that money being an accounting entry that is true; and debt based money systems are really powerful money motivators of behavior. So, really just an accounting entry, the money itself was driving behaviors. So, you are noting somewhat, I consider, the human traits. One is our tendency to overlook stuff if we don’t have to pay for it. So, the services that nature provides, that $7.3 trillion -- we have to sort of wrestle that into view to become aware of it and say “Oh yea, I guess that is there.” And then, on the other side, of course, we are consuming non renewable natural resources and those are a cornerstone of much of our economic activity. You introduce the concept as financial intensity. That is the point I wanted to bring up here is that it is not possible for everybody to grow their claims on the world exponentially forever: A. the world is finite. B. What you are doing if you are claiming these things from the earth in the first place if they are non renewable is you are drawing down a depleting balance. There is a principal balance in this being depleted, like Saudi Arabia. Classic case, right? How do we even measure the GDP of that country?

Well, look at the flow of money. In truth, that flow of money is sitting on a spring that is bubbling out of the earth that is going to go dry someday. It is [a] very different proposition at that point. And so, there is a larger inconsistency here between our system of money in this world we live on; and that, I feel, is what is coming to a fore here in this moment. Echos of that political system as people are increasingly uncomfortable, but maybe not for the reasons they originally recognize. [That] you are grounding and coming from the environmental side mirrors mine. That is where I started my life. So, I have a rooting in that that I can’t let go of that say[s] “gosh, if we wreck that, what is the value of anything?”

Marco Vangelisti:     Right. You know, the other thing is another way of saying the fact that we are using $7.3 trillion of natural capital every year to subsidize our economic activity is to say that we are treating nature as a business in liquidation, right? We are taking the assets and call that economic activity and financial returns and everything else and progress, but in reality we are actually liquidating the very existence, you know, the very ecosystem of which our existence depends. So, those are very big issues. But I guess extracting from that and moving beyond the narrow lens of conventional finance when I talk about the financial system and local investing, I always start from the big picture and say: “Don’t think that your well diversified portfolio is as safe as it is, but also go beyond the risk and return narrow lens of finance.” Finance only looks through the lens of risk and return only in financial terms. We actually need to pay attention to the fact that our investments are actually building the world we are living in and so, if we don’t like the world that we are seeing, in part that is due to the type of investments we have been making. So, the idea of moving beyond the narrow lens of conventional finance and bringing in known financial considerations when we make investments, this is what you would call impact investing, right?

So to say, yes, we are trying to get a return. You make a very good point that we cannot all get a return on this capital, because it’s too much and cannot grow forever. At a certain point there is going to be some reckoning in the financial markets of that reality, which could potentially be a situation similar to the one that Japan is going through, which is a balance sheet recession, where, to reduce the excessive amount of debt, you have a grinding, you know, deflationary spiral in which the economy finds itself. So, we can see that. And obviously when there is deflation real assets lose value, also. There is that to consider. The other one is why don’t we use our investments to build the type of world we want, and what better way of seeing the known financial aspects of an investment than to invest locally where we can taste and see and appreciate and feel the known financial benefits of it? And maybe I will give an example, because this concept can feel very abstract; but there is a restaurant here in Berkeley called Gather Restaurant. It was started by a friend of mine, Abby Durfall and his partner Eric Venture, in 2009. They had two young entrepreneurs, this big dream and they – that was their first restaurant. Their plan was to use recycled material for building the material, to source organic food from local organic farms and so on. I have been involved in slow money, so I am all about supporting the local food shed and food producers that are taking care of the land and the people. I love the project, but you know, from a financial standpoint you know that 80% of the restaurants fail. Especially a restaurant that is started by someone who has no restaurant experience, right?

From a financial standpoint, I was looking at the big picture and saying okay 80% chance I will lose everything I invest in. And 20% of the chance I will have a good return. Good for a restaurant that just distributes the profit, maybe 20%. This means that my expected return was minus 76%. That is, basically, if you do the math that is what I expect. If you go to a financial advisor and say what do you think about this the financial advisor will say forget it, right? But I didn’t in any case, because of the known financial benefits to me; and one is, you know, I get 1% of what I invested every year in food at the restaurant, so that is cool. If I stick around for 100 years I get my investment back in food. The other one is I want to feel part of the Berkeley community. I want to support this young entrepreneur friend of mine. I want to support the farms that are supplying to the restaurant. I want to feel the psychological juju of inviting my friends from out of town to my restaurant. Right? You see what I am saying.

The fact that we are talking about a local investment allowed me to appreciate sufficiently the known financial aspects of it, so that I can overcome the strict math and accounting that would tell me this is not a good investment. So, I think that perspective should be one to entertain with at least a part of one’s portfolio, especially because I wouldn’t be as secure about the financial returns that the conventional portfolio can deliver.

Chris Martenson:     Let’s talk about that transition, then, to connect these dots. You left this world of, I will call it, high finance. Now, here you are. First, how long did that process take and two, second, did you – how much of your funds did you move from that world of what I will call traditional investing into this world of local investing?

Marco Vangelisti:     That is another good question. Here is the funny thing – and I have to make a little confession here. I left my job in 2009 and that was a very large financial loss for me, as you can imagine, right? And I am not super rich. I do have some savings, of course; but whatever return is generated from those savings, it has -- it is like a couple of orders of magnitude smaller than the type of salary I was receiving every year or every month. But it took me an additional three years to align my investment portfolio with my values. I kind of sat on it. I left a job, so it was very easy for me to align my livelihood with my values. But I sat on that portfolio for three years until I realized I really need to get my act together. What I did at that point is -- I sold everything and liquidated everything for which I didn’t have complete transparency and understanding of what it was doing out there in the world; which basically meant liquidating the entire portfolio; and what I did at the beginning is I put it all with RSF Social Finance. It is a wonderful social finance company in San Francisco and they have a fund called the Social Investment Fund, which is kind of almost like a money market fund. I mean, it has a three month liquidity, pays a little bit of interest, but the good thing is that it invests in a number of really cool companies and social enterprises and nonprofits in three sectors: food and farming, the arts and education.

I started there. Then, I basically had to stop and say: “Okay, what should be my guiding principal? What is my personal investment compass?” I realized that really started from two psychological motivators for me. One is biophilia, which is the love for everything that is alive, and the other one is empathy. And so, the way I deploy the capital from that point is to say as an investment in agreement with those two principals and if yes, let’s establish a relationship with either the person that is managing the fund, in this case RSF Social Finance, that I have known for a long time, or the entrepreneur that is seeking capital; and only after I have a relationship in an alignment in terms of values with this person may I consider, you know, investing. And so, a lot of my investments are in local. So, I think I have about 30% of my portfolio -- is in Northern California. A lot of it is still with RSF Social Finance and they invest in the United States, so it is more broad based, but I have full transparency as to what I am investing in. I know exactly who is the end beneficiary or the end user if you want of my assets.

And I have some things like peer to peer lending, and I have some of the new opportunities that have opened up because of the Title 3 of the Jobs Act, which has made offering to the job public more available. But basically, 100% of my portfolio is aligned with my values, which means I only have one stock that I kept, which is Interface, you know I don’t know if you remember Ray Anderson. He died a couple of years ago. He was a pioneer in a sustainability and he had a very innovative carpet company that was a closed loop cycle, both in terms of material and energy and they were selling tiles – they were actually selling floor covering services, as opposed to carpets and would replace tiles that were worn out and blah, blah, blah. Anyhow, it is a great leader in sustainability and that is the only stock I own. Everything else is really outside Wall Street and outside the stock markets and bond markets.

I do own some municipal bonds for projects I know exactly what they are funding. If there are some schools, for example, or some, you know, upgrades of some infrastructure the county or municipal level, those are the type that I might have.

Chris Martenson:     Alright. So Marco, I want to dive into what some of those might be. But I can hear the question lurking out there for people listening right now is: “Okay, so you walked away from Wall Street investments to this other universe. What kind of returns are available in this other universe?” That is here is the subtext of that question – am I going to have to take a hit on my expectations over here?

Marco Vangelisti:     Well, there are a couple of things. One is what are your expectations? If you believe that there are things called market rate of return, you might be sorely disappointed.

Chris Martenson:     People used to believe in those things. I don’t know that anybody does anywhere, anymore. But keep going.

Marco Vangelisti:     The first question is, well, what are your expectations. If you go to a financial advisor, you go to an asset wealth manager, they have some standard pretty similar capital market expectations that say, oh, the US stocks will probably deliver 6% in the long haul. Some people might have 8, some people might have 6. Bonds, all depending on their maturity, might deliver well. now they realize the interest rates have been taken down a lot by the federal reserve, both on the long and short hand of the yield curve. They might believe a 3 to 4%, depending on which bonds you are looking at, right? International equity might be 6%. Well, that very much depends on which period you are looking at. If you are looking at a 100 year period, guess what. Those returns are not that high. If you are looking at the last four years, they are very high. But I would argue those reflected a period that is not going to look at all like the next 40 years or the next 20 years. So, that is the first question -- is when people are asking the question of, well, what are the returns available in local investing, they have a preconceived notion of what they think they are going to get from the stock market, the bond market and other asset classes, and I would question those. In fact, I do that. Maybe I will get to talk about it. I do offer a day long workshop where we actually cover all of these topics. One of the things we do is challenge the capital market expectations and say, you know, after the massive liquidity maneuvers of central banks and repurchases by corporations, you have both the bond market and the stock market positioned at values that are going to deliver a much weaker, if not negative return over the next, whatever, five to 10 years, relative to what they have done in the past.

That is the first challenge that I would offer -- what are your expectations really for the traditional investments. And in terms of local investing, the answer is local investing is so heterogeneous that it is not an asset class. And so, the return pretty much depends on your trade off between the heart and the head when you are looking at a business. In other words, when I looked at Gather, if I just used my accountant hat I would say -76% bad investment. But I also did it because of my heart. I went ahead and made that investment. Does that mean that all local investments are negative expected return investments? Absolutely not. There are a lot of the investments I make [that] will have a positive return, albeit a smaller positive return than usual. That is a part of, for example, in the slow money world we do mostly loans and the interest might vary from, let’s say 0 to 8%. But an 8% loan might be to a company that is in the more early stage of its development and may warrant a higher, you know, compensation for risk. Nevertheless, 8 might be okay and if they do well we get 8%. It very much depends on what is your trade off between heart, mind and gut when you are looking at something.

In the case of my portfolio I have gone whole hog, so the entire portfolio is aligned. I have about half of it for which I expect a positive return, and I think I am going to get it like in things that are very safe. For example, Northern California Community Loan Fund is a CDFI that has a revolving loan and does funds, low income housing and property acquisitions for non profits. They never lost a penny for their investors in 30 years, and I think I am going to get the 2 or 3% that they promised. Now in the case of RSF Social Finance, the same. I have something in equal exchange notes. It is a $60 million fair trade company that is working around cooperative that has been really at the leading edge of what a good business is -- a business that is supporting the third world and doing good things out there. So, there is basically a good portion of my portfolio for which I think I will get a positive return. And there is a slice that is kind of deep impact things that I really care about and I am prepared to have maybe a slight negative return over all once you take everything into consideration, but that is fine because I view the known financial return of that part of the portfolio as building the world I want to live in and build the community I want to live in.

There is two things there when I walk downtown Berkeley and I see the various businesses that I have supported with my investments I am actually enjoying already the fruits of my investments now, and unless you are in the positional gain of saying you know I want to keep up with the Jones’ and beat them by a little bit, then your money is really there, not just to see it grow until you die with the largest possible amount of money, but it is there to fund your life experiences and your retirement. And if that is the case why don’t you take some of that now and start improving the very world in which you live, in which you will retire. A very long convoluted answer to your simple question.

Chris Martenson:     I just wanted to make sure that this wasn’t some opposition the world you came from said, well, we look at return and risk and liquidity we plot these three things. Hey look we’ve got efficient frontiers all makes a lot of sense. I just want to make sure you weren’t over here plotting, what did you say, heart, mind and gut and coming up with an inefficient frontier or something like that. It is not in opposition to regular investing. It is a different take on it entirely. So, it involves what you just did there with that, as you said, long, convoluted answer begin to redefine investing, which is something we support at Peak Prosperity a lot, which is hey you know there – the simple thing is I put X amount of money in I get Y amount of money out. That is what the return is, and of course people have been wrestling with this for a long time. People, planet, profits, triple. Bottom line, however, you want to look at that. I think that what you are saying is that for the people listening who want to begin using their money, they should decide for themselves what they really value. And if all they value is money, it is very one dimensional and that is a neither truly fulfilling, because, let’s face it, you get to the end of life and you are on your deathbed the pile of money you have is probably going to not be much of a consolation to you in that moment anyhow, right? And none are as poor as those who only have money. What are those other things we want to bring into our life? So, local investing gives us a chance to begin to wrestle with that, and that is our own wrestling, right? What do I really value? So, I have heard what you really value coming through. I think a lot of us would share many things, and we might have some different things, and all of that is good.

This is the other part of local investing that we have heard, and we get from people is-- God, it is not easy. Not as easy as obviously opening up my Ameritrade account, clicking a button and saying I am now the proud of owner of a few shares of IBM. Local investing takes more work is sort of the perception people have. So is that fair?

Marco Vangelisti:     Well, let me just get back to your first comment, which is the efficient frontier versus the inefficient frontier. I would say, if all you care is risk and return then the efficient frontier is the way to go, and you might have to deal with the consequences of that decision in the form of no financial risks, like economic instability and social instability and turmoil and maybe major disruptions in societies down the line. It very much depends on how expanded is your utility function. All I am saying is that my portfolio is perfectly efficient. I am just adding two or three more dimensions to it. I am just adding some more valuables, including living in a nice environment with a viable local economy and good food and good air. That is a value to me, and I can make you know decisions about investing that includes those considerations. From my standpoint, my portfolio right now is much more efficient than the one I had before, because before I was narrowly focused on just financial risk and return.

But nevertheless and the other thing to ask, I think, is more fundamental -- is what is the money there for? In other words and this is really key – your audience needs to have this conversation with themselves. Why do I need the money? Is it because the positional game where by if you buy your 50 foot yacht and your neighbor has a 70 foot yacht, all of a sudden you need a 100 foot yacht, right? If you are in the positional game, there are a couple of bad news for you. One is you will never feel financially secure, because your financial security is tied to your pecking order in society, and there is no limit as to how high that ladder can go. And the other thing is you will never have enough. But if that is not the case; if you are not; if you are fortunate enough -- let’s say you are the 5 or 10% of the population that is not engaged in that positional game, then the money is there to be used in some form, whether it is to leave to your kids or to use it in retirement or to enjoy life. In that context, you are not here just to grow it. You are here to steward it, of course and to make it last until you last and to fund the things you want. To a certain extent, I see my negative return on a slice of my portfolio as taking a little advance of that retirement cash that I would be using. I am just using it now. Right? I am using it now to build a community and an environment where I am enjoying living and that, you know, will be good for not only me, but also people around me.

But to answer your final question, which is: “Iis it hard to do local investing?” And I want to look to talk about an analogy. Think about the food system and think about how we are feeding ourselves, let’s say, 50 years ago. Again, I understand the role of women and how that has changed, and I am not harking back to the good old times. The reality is that if you look back 50 years ago, most of the meals were prepared at home and we were much healthier then. We would spend 15% of our disposable income in the 60s in food as a nation, and about 8% in healthcare. Now we are spending 9% for food and about 18% of our GDP in healthcare. So what has happened? Provisioning food and feeding ourselves has become super easy, right? You go to the shop. You buy a TV dinner. You slap it in the microwave oven; in 30 seconds you have your dinner ready. You eat it in front of the TV and then you don’t have to wash dishes. Just toss the whole thing away. Great convenience. Very easy. Like, go on Schwab and buy a share of IBM. Fantastic. Now that had costs. And the cost, as I mentioned before, are healthcare costs. This has been really cheap and really easy to feed ourselves. So now we can have everybody in the household working, by the way. Maybe 50 or 60 years ago one of the two would stay home and cook and take care of things.

But nevertheless there are other conveniences that came at a cost. What I am suggesting now, I am not suggesting that people go from TV dinners to cooking every single meal at home is very unrealistic, but one thing we can do is to say: “Let’s cook one meal at home and invite a few friends and turn off the TV,” which is something maybe that right now or in the last couple of months would be very healthy for us, and let’s have a conversation. And I would say: “Is that inconvenient?” Sure. It is a little bit inconvenient, but the benefits are enormous, right? Because if you go to the farmer’s market, you get some air, you select a couple of things, you learn a recipe, you cook it, you invite the friends and you eat it. Not only you have a better social life, but also you are working on your health. And yes, it is a little bit inconvenient. The same thing is for local investing. I would say: Don’t overwhelm yourself,” but you can do local investing starting very small. The smallest you can start is you can go to Kiva Zip find the local either food entrepreneur or entrepreneur that is bringing some money in your community and lend them $25 at 0 interest rate. Okay, how hard was that, right? You already have. You can have a portfolio of four local investments with $100 and then you can follow. You can stop by and see how they are doing. You can try their food. You will recognize them at the farmer’s market. This is just a starting point.

Now, if you want to graduate to the next level and that is some of the things we are going to be talking at the workshop shop I’m offering on the 3rd of December is we are looking at another 20 investment opportunities open to everybody, and a number of them are based in the Bay area. Those might be available for an investment of, let’s say, either 1000 or 100. Some are actually as low as $100, so you can actually look at one of them and see if it is something that tugs at your heart, if you actually care about that particular business and want to support it and then you can look at you know the perspectives if you have never done that. The funny thing is that when you bought that share by the end you are supposed to read the 250 page perspectives. If you look at the fine lines when you said yes buy this share one of the things one of the disclaimers is I have read the perspectives of IBM. And nobody does. Nobody does that. Right? But we are supposed to do that.

And so in the case of local investing maybe you will get to look at some financial numbers from a business. Maybe you get to look at a prospectives. Maybe you get to look at an offering document or in very small amounts you might just do a character loan. You know a person. They have been around in the community. They need a thousand bucks to buy a new bread making machine just loan them the money. It is a whole spectrum both in terms of the amount that you are using and the level of “due diligence” you are interested in doing and the effort involved and you modulate that.

Chris Martenson:     Now Marco, this sounds really useful. Tell us, first of all more specifics on the seminar coming up in December I think you said Santa Rosa. Just some details so people  can follow that and let’s point them to a place they could follow that if they were of a mind to go to that and then second what are the sorts of things when you say we will be looking at 20 local investments what is the structure? Like how do you look at them? What are the elements in there to give us a sense of what that process is?

Marco Vangelisti:     Well so first of all as part so the class is called Align Your Investments With Your Values. It is really about local investing. It is December 3rd at 9:00 am. It is day long in Santa Rosa and the others is 8 53rd Street. The best way to find out about it is to go on EventBrite and look for Align Your Investments With Your Values and you will find it there. Otherwise go to EK4T.com which is my website. Stands for essential knowledge for transition the 4 is just a number and then look at events and there is a link there as well.

But so the arc of the day is a little bit of what we have done here. Kind of challenge, look at the big picture, challenge the capital market expectations. In other words, don’t think you are going to get what you think you are going to get from the traditional investments and then develop your own investment personal investment compass. In other words, what are the things you really care about? What are the things you don’t participating with your investments and then we look a little bit at portfolio management and trying to assess what percentage of the portfolio is prudent to allocate something that may be risky like investing in Gather restaurant. You want to do that with open eyes. And finally, we look at a number of opportunities there are four funds, there are about five or six equity deals and about the same number of debt deals, and maybe a royalty structure. Anyhow, there are a number of things that we can talk about how do you approach assessing both the financial and known financial aspects of this. How close are these businesses to what you really care about. And then how would you go about evaluating them and assessing the level of riskiness and what to expect in terms of return. So that is just the practice where people would actually go and if there is perspectives. Read the perspectives. Get some information out of it. Understand how to do that and have a discussion on the reason why people pick something and what they learn from the process and how much would they invest in it if they wanted to?

Chris Martenson:     Well, fantastic. Have you by chance does any of this exist in written form, where your people could tap into that if they can’t make it to the seminar?

Marco Vangelisti:     What I’m planning to do next year is offer this in webinar formats, so we can break the content in individual webinars. I just need to set it up, because my website is a little bit old and I need to kind of upgrade that and figure out how to do it. But the – they can come to my website. There are a lot of resources in terms of local investing at EK4T.com which is essential knowledge for transition and if they go into the resource page they have a lot of resources there. Including my own story the one that I mentioned a little bit. And there are other resources like funds and other articles that I wrote on the topic.

Chris Martenson:     Well fantastic. That will be a hot product when it comes out. We will have a lot of people I’m sure who are very interested in a webinar format who otherwise can’t make it to Santa Rosa on December 3rd, but would be very interested to find out how to go down this path. Of course people who have become disillusioned and all that it offers now. And it is time to align our hearts and our minds and our cuts and our money and so I want to thank you for your work in doing this and with Slow Money we have been a big advocate of. We had Woody on here on the show before and want to thank you again for today. Your time today and wish you all the luck in the world with your investments.

Marco Vangelisti:     Great. Thank you, Chris. Likewise.

Chris Martenson:     Thank you.

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  • Mon, Nov 14, 2016 - 11:06pm


    Adam Taggart

    Status: Platinum Member

    Joined: May 25 2009

    Posts: 7555



    For those interested in learning more, here's the link to the upcoming seminar in Santa Rosa, CA on Dec 3rd mentioned in the podcast.



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  • Tue, Nov 15, 2016 - 1:40am



    Status: Bronze Member

    Joined: Feb 05 2013

    Posts: 149


    Loved the chat! This really

    Loved the chat! This really brings into focus some important aspects of the new ecology economy. Also I love the new adware, temple of the light for those that haven't looked it's worth your time and the experience is remarkable. In times of such emotion, fortitude is central. 

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  • Tue, Nov 15, 2016 - 4:32am



    Status: Bronze Member

    Joined: May 03 2014

    Posts: 534


    212 trillion liquidity to 70 trillion GDP. Hmmmm!

    Where are you going to invest? What should one do with their liquidity?

     How about moving in with your kids? A friend of mine recently sold his home. His daughter and son-in-law, have purchased a place in the country (4 acres). They’re pulling in a good income and asked their parents if they would be willing to move into a basement suite of close to 1100 sq. ft. in the new building.  The building will be slab heated, situated for maximum solar gain, expandable PV system, rain water collection system, aerated septic system, and treed with a large garden area. He figures the pay back should be around 10 - 15 years. The parents are going to float the kids a “forgivable” demand loan with a rate considerably less than market rates. The principle and interest on the loan will be less than the rent would be on one of those “retirement villas” and would be applied to the mortgage.  It won’t be located an hour’s drive away from the grandkids, yet will provide a familial connection (and  I would imagine free day care and babysitting services). The house design allows adequate isolation so that no one is in each other’s face all the time and would provide a natural environment for the benefit of all involved.

    The concept looks good on paper, and knowing the individuals, shows a lot of potential. I don’t know the financial particulars or tax situation of these folks, but both parties seem to be doing pretty well. As far as a local investment goes, I think they may be on to something. Of course there may some risks associated with this arrangement, but is it any more risky than a 401k, retirement income fund, or pension? The area has a majority of young families that appear fairly stable with one other family in the same arrangement.  

    Is anybody else out there trying something like this?  Is this resilience and/or social experiment? Not much different than what some of my ancestors have gone through. Food (home grown) for thought?

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  • Fri, Nov 18, 2016 - 11:33pm



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    - social experiment and elderly parents

    One area to cover with such an arrangement would be elder care. Our new president in the usa has indicated that a change in the tax law is on his agenda. One idea is an elder care Health Savings Account. I would prefer to keep Uncle Sam and his fine print away from the money.
    If parents finance an expanded living space one of the moving parts will one day likely be elder care. This should be discussed and put in writing if needed. Such extended family arrangements are not usual in our modern social contract.

    I have elders and in my family who are house bound due to health. Their granddaughter now has their car with expenses paid in exchange for weekly help with shopping and medical visits. It's not easy from an emotional perspective to convert love and duty to money, but it is not much different than parents with kids working to provide. This is the extended family version of the reverse mortgage. It also preserves a family's wealth!

    As we move forward this will be the better approach for family security. I can.remember visiting afront I friend as a child. The house was in a rough area. As we came up to the house he hollered out to his grandfather sitting in the front porch rocking chair with a shotgun across his knees. "Pops is hard of hearing", he said. Extended family security! This is the future.

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  • Thu, Dec 08, 2016 - 2:13am



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    Joined: Sep 23 2008

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    Still looking for local investment whose product are wellpriced

    I love the idea of investing in local economies...but I have yet to find a enterprise whose product I would buy with any regularity. Opportunities tend to be for companies that make value added products that are dearly priced.  Bone broth for $15 a quart, $15 dollar jars of jams and pickles, $10 chocolate bars, weekly subscriptions for variety of cuts of meat selling at 2-3x the price I pay per pound direct from the ranch, which I pick up once a year and freeze. 


    What I mean to say is: you are paying a huge premium for fancy packaging, sometimes a bricks and mortar store, a cute website, and the convenience of having raw ingredients made ready to use. It all adds to the overhead. Which is fine, if you have the money.  It is analogous to the high overhead some funds carry with high investment and brokerage fees. If you have the time and know how, you can make all of the above for less than half what is being charged, plus the added satisfaction of being a "maker" yourself, not a consumer: a huge benefit IMO. 

    I am not interested in supporting a food based company that relies on an affluent consumer to keep its business model afloat. What happens in a down turn, when their customers may not be able to afford the product any longer?  I want to support a company that sells a no frills healthy raw material/product that someone of average means can afford.  Like a bean CSA (pinto, navy, black).  I already grow the stuff I could get at a local CSA.  

    Same with material goods. I have seen kickstarters for companies that make all sorts of things locally: fancy bags, xmas ornaments, high end clothing, body care products, candle holders, wall art.  Who cares?  Really not necessary, its the fluff that cheap oil provides. It will go away.  

    Would love to hear about local slow money investments for things we really need: medicine, health care, shelter, clean water, transportation, affordable healthy food. 

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