Speaker 1 (00:00):
Hi guys, Tim Melvin here with a better way to wealth. And I really hope all of you guys were watching and were with me last week. When we talked about sports gambling in the United States, you may recall, I gave you three stock picks that I liked, or then DraftKings to profit off of the sports gambling trend. Well, guess what guys? I think the folks at draft Kings, I think they were watching the video because this morning they announced they’re buying golden nugget, online gaming GLG, and yeah. Who jumped on that stock last week when I told you to buy it are now up about 50% in just a few days. And guys, here’s why it’s so important when we’re talking about investing to focus on numbers and not just your feelings, you know, it’s a gambling stock and gambling doesn’t fit in real well with what they call ESG scores today that stands for environmental, social, and governance.
Speaker 1 (00:57):
And they rank companies based on, you know, how they feel about the environment and climate change and how much water they use and how much carbon based fuels they use and what they’re doing with green energy and then the social stuff, right? Yeah. And it’s not enough on the social stuff. They don’t just pay attention to are you giving money? That’s, you know, you have to give it to the approved social causes or ESG score down. It’s insane. And you know, they’re ranking you on diversity in your workforce and just a whole bunch of stuff that really doesn’t matter when it comes to making money. It’s just whatever the hot social issue of the day, isn’t this corporate governance, okay. I’m a big fan of corporate governance. That’s looking at ethics trends, parents. But you know, we figured that score out all by ourselves.
Speaker 1 (01:46):
And anytime there’s a company with really poor governance, you eventually end up with an activist investor in there forcing them to make the proper changes. But yeah, ranking companies on environmental and social scores makes exactly zero sense to me. If we followed that we would have missed a really quick 50% gain in golden nugget, online gambling. I don’t really care that much about what business my companies are in. As long as it’s a good business with great prospects and I could buy it at a great price. You can’t get into into an environment where you’re making social values more important than the valuation and quality of the underlying business. If you have a cause you care about make money in a dirty, old gas stocker handling stock, don’t eat some of the proceeds to charity. Don’t let it influence your investing decision. Sadly, we’re actually seeing a lot of states and big endowments and pensions Ashley add ESG requirements to their funding mandate because that’s insane.
Speaker 1 (02:52):
If you can strain your universe of opportunities, there is no way for you to outperform an unconstrained, a universe of opportunities. You are costing your fund money. And remember, in the case of the states, that’s the fund that’s going to pay for the retirement of teachers, state employees, cots, frontline, emergency workers. So we’re penalizing them for today’s current social values, which may very well be meaningless in a year or two. You also miss opportunities. Look at oil and gas. Last year, a lot of their stocks are up 8, 9, 10 times what they traded for last March. But you would have passed on them because they’re oil and gas stocks and they don’t fit into this new ESG model. There is no do good and make as much or more than regular investing investors who pay attention to quality and valuation are always going to outperform those who put their social and political causes ahead of the pure mathematics that make investing work. Now, you know, who doesn’t
Speaker 2 (03:58):
Care at all about ESG scores?
Speaker 1 (04:01):
How about Colbert, Kravis and Roberts KKR, the giant private equity fund. The guys they’ve been in business over 40 years, 1976. I believe they were founded. All right. They have averaged 25% a year since then. They have made hundreds of billions of dollars for all these pension funds. So a lot of retired school teachers out there who are only re retired because their fund managers invested a ton of money in KKR and other private equity funds. Now you look at what KKR owns, okay? And I’m just using them as an example. You could do this with almost any of the big private equity funds, oil drillers, casinos pipelines. They’re a sporting goods store that sells an enormous amount of guns and writing handguns and rifles all over the Southern part of the United States. They’re an industrial machinery companies, plastic companies, steel, all of these companies would have lousy ESG scores. So if you care about that, you’d miss these opportunities. But now when I look at KKRs portfolio, I also see they much like myself are also fans of renewable energy. In addition to traditional energy, they own a ton of renewable energy companies. They’re starting to invest in things like cloud computing, where you would have a higher ESG score. They don’t care what the ESG score is. Is it a good business? And what price am I paying for it? That’s what they’re focused on. You know, who else doesn’t care besides me about ESG scores,
Speaker 2 (05:30):
Warren buffet. Okay.
Speaker 1 (05:32):
Utilities, railroads, coal and nuclear plants, pipelines, coal miners, chemical companies. These are the things that Warren buffet owns in addition to his banks. And Coca-Cola, he owns fast food restaurants, which is like one of the unhealthiest things on the planet. But he’s in there. He owns it. Why it’s a good business and he could buy it at a great price. Guys. This game is about numbers, not feelings. If you want to do good in the world, invest based on the numbers and use the money that you make to fund the causes and goals that you hope to achieve in, in your philanthropic projects. But when it comes to writing a check and put it into something, do exactly what we did with golden nugget online. Is it a good business? And can I buy it at a great price because that is all that matters. So if somebody is talking to you about the need for you to have a high ESG score, just ignore that fellow.
Speaker 2 (06:29):
Move on to the next one. Numbers, not feelings. That’s how you make money in the stock market. Anyway, I’m
Speaker 1 (06:35):
Tim. Melvin. This has been a better way to wealth. Thanks for watching. And we’ll talk to you again tomorrow.
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