Charles Mizrahi: God, Capitalism, and ESG

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Charles Mizrahi is a savvy value investor with a record of picking undervalued stocks. In a recent article he wrote about the connection between Biblical principles and capitalism, forces often considered to be at odds. He looks at values in both senses of the word.

Mizrahi wrote:

In this time of economic uncertainty around the world, we should not look for a global reset, attempt to undo the tenets of capitalism, or wait to see what the next round of government bailouts gives us.

We should instead be taking hold of the opportunities that American capitalism, based on thousands of years of Judeo-Christian principles, provides to each and every one of us: to work hard, invest, and thrive — and follow God’s commands to help our neighbors prosper.

In an interview, Mizrahi talked about the difference between the abilities of government and private enterprise, the increasing investor support for ESG priorities (environmental, social, and governance priorities) in their portfolio companies. Mizrahi offers a free 30-day subscription to his Alpha Investor newsletter, including his model portfolio and text alerts.

What can capitalism and free enterprise do that government cannot? What can government do that capitalism cannot?

We could talk extensively about all the ways that capitalism and free enterprise can accomplish things that the government can’t, but in such a conversation it’s important to remember that business and government have different roles. It is the confusion around where one should stop and the other should start that is often the source of the problem.

Government is designed to maintain the status quo. It only looks at systems that are already in existence and seeks to manage those. The government’s real role is to maintain the safety and basic infrastructure needed for citizens and their businesses to thrive and grow. Think of FEMA as an example, that’s where the government steps in effectively.

Capitalism is different because it’s designed to create growth. It is innovative and, by nature, looks to create new opportunities and systems for free markets to expand and grow. That’s why, in our current crisis, the free market is best equipped to help us innovate and navigate our way out of economic turbulence.

You say in your essay that the Bible calls on the wealthy to care for those in need. How can we best make the competitive and ambitious impulses that make capitalism successful encourage compassion and generosity?

America is the most prosperous nation and also the most generous nation. That’s why you see billionaires taking pledges to give away large portions of their wealth and little kids donating their birthdays to raise money for people in need.

Any attempt to “encourage” more compassion and generosity would lead to a decrease in charity. There’s a reason people give sacrificially of their own free will, yet at the same time try to pay as little taxes as possible. Regulation or compulsion kills generosity.

Over time the “invisible hand of the market” encourages compassion and generosity. Consumers patronize companies that are more socially responsible. Companies that are not, will see a loss of market share. End result: the market place is driven by consumers.

Currently investors are applying non financial factors, (Environmental, Social, and Governance) before allocating capital. Companies that do not confirm will see a decrease of investment, thus encouraging them to be more ESG-oriented.

The fastest-growing area of investment funds are the so-called ESG funds (environment, social, governance), based on the idea that GAAP is no longer adequate for evaluating investment risk. What do Biblical principles tell us about allocating investment capital along these lines?

The Bible contains a concept of “the prohibition against waste and needless destruction.”

During wartime destruction of trees in Deuteronomy 20:19–20. These teachings were not limited to trees during battle, but extend to any waste and needless destruction.

In Psalm 24, we see that “The earth is the Lord’s and the fullness thereof’. God is the owner of the land. Any act that damages the earth is an offense against the property of God.

Man is charged with being the earth’s stewards: Isaiah 41:17–18, God promises, “I, the God of Israel, will not forsake them. I will open rivers in high places and fountains in the midst of valleys; I will make the wilderness a pool of water and the dry land springs of water.”

The planet is on “loan” from God, and humans must preserve it and improve it.

For example, the farmer is commanded to let his field lie fallow every seven years. Leviticus 25:1–7.

Here’s another example, sewage. Soldiers are instructed to carry a spade with their weapons in order to cover the excrement after they excrete. “Therefore shall your camp be holy; so that He see no unseemly thing in you.” Polluting the land with bodily waste, improper way to behave and offense to God. Deuteronomy 23:14–15.

Why is capitalism’s reputation suffering with millennials? What are they missing? How can corporations better communicate with them?

Ben Shapiro famously said, Millennials “were born on third base, and think they hit a triple”.

For the past three decades we’ve taken any common sense thinking out of the universities and it was replaced with anti-capitalist, pro-socialist thinking. Millennials never learned the horrors of communism, its impact on the environment, and the death of more than 100 million people in the 20th century.

That’s a topic that you could write a book on, but at its base the reality is millennials have been taught by people that oppose, or just don’t understand, capitalism. One of the false ideas that have been perpetuated, for example, is that capitalism is a zero sum game. There’s an idea that the only way one person becomes successful is that someone else has to suffer.

That is categorically false.

As I mentioned in my latest article, in ancient times God established that prosperity was a blessing, but there was an expectation that prosperity required generosity, allowing a whole community to thrive as individuals thrived.

Communicating that mindset would serve corporations well today — allowing your employees to have more say and understanding in the benevolence side of the corporation, and really just having better overall communication with them, letting them understand that their bonus or raise was a result of the company’s growth and success. Let them witness the trickle down effect of prosperity.

God established that prosperity was a sign of blessing, but it carried a responsibility with it. It was not meant to be hoarded or to be used only for self-gratification and advancement. There was an expectation from God concerning wealth, and a divinely ordained responsibility to manage wealth wisely and be generous with the results.

Why are you doing all this, Charles?

I’ve been privileged to live an extraordinary life. My grandparents were immigrants, my parents struggled financially all their lives, and yet I had the opportunity to achieve financial success.

Only in America is that possible, nowhere else.

Now it is my turn to give.

That is why every American can have complimentary access to my Alpha Investor newsletter right now.

You’ll see that capitalism will improve your life and that of your family as well.

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