Chemical Footprint: Screening Stocks for Chemicals of Concern

Chemicals are in virtually every product we buy from clothing, cosmetics, furniture, shampoo, fragrances, and building products to the food we eat and, of course, the pharmaceuticals used to treat illnesses. In short, life as we know it would not exist without chemicals.

Yet, chemicals also can be harmful and pose risks to human health depending upon their nature and the amount of time we’re exposed to them. So as a consumer, investor or business executive, it’s critical to understand your exposure to “chemicals of concern.”

Chemicals of Concern

Across the world, various regulatory, industry and government agencies have established lists of chemicals of concern. Any chemical that can potentially cause harm can be considered hazardous. However, certain chemicals can persist in the environment (air, water, land, plants and animals), build up in animal tissues and be toxic—causing different types of harm ranging from mild skin irritations to cancer.

Chemicals of high concern (CoHCs), as defined under the California Candidate Chemical List, include:

  • Carcinogens, mutagens or reproductive toxins (CMR)
  • Persistent bioaccumulative and toxic substances (PBT)
  • Other chemicals for which there is scientific evidence of probable serious effects on human health or the environment
  • A chemical whose breakdown products result in a CoHC that meets any of the above criteria

Sounds complicated but extremely important, right? Absolutely, socially responsible investors recognize that the improper use of chemicals can cause materially adverse investment performance and even greater harm to society. Therefore, it’s important that your investment manager conduct a broad screening for chemicals of concern when selecting stocks for your portfolio. Let’s look at a real-world example.

Lumber Liquidators (LL) – Linked to Health and Safety Violations

On March 1, 2015, Anderson Cooper, CBS News correspondent, reported on 60 Minutes that the laminate flooring sold by Lumber Liquidators (LL) may fail to meet health and safety standards because it contained high levels offormaldehyde, a known cancer causing chemical. As shown below, the stock price fell sharply just before and immediately following the report—then down 72% since the start of the year.

Source: Wall Street Journal Online

What went wrong?  Allegedly, it appears that Lumber Liquidators failed to properly control its supply chain by sourcing lower-cost, formaldehyde-tainted laminate flooring manufactured overseas. The flooring was tested by 3 independent labs and failed to meet California formaldehyde emissions standards (CARB-2) with levels, on average, six or seven times higher than allowed and in some cases as high as twenty times higher than allowed.

What were the repercussions? Lumber Liquidator’s CEO, Robert Lynch, resigned on June 16, 2015, and the company announced it would discontinue the sale of the laminate flooring manufactured overseas. Now, the company faces a growing number of product liability and securities lawsuits including allegations that its directors breached their fiduciary duties by failing to properly oversee the laminate flooring manufactured overseas.

This story offers an interesting case study on the importance of Socially Responsible Investing (SRI) and the value of careful environmental, social and governance (ESG) screening. Here are a couple of key takeaways:

I. Watch the Profit Margins  – 60 Minutes reported that Whitney Tilson, a hedge fund manager, correctly identified that Lumber Liquidators had doubled its profit margins in just two years. An unusual gain in a commodity business. These gains should have led more analysts to question the sustainability of the increased profits and the underlying business drivers.

II. Don’t forget the “S” in ESG – Some key social factors that can have a material impact on the value of a stock include (1) customer satisfaction (2) product safety and liability (3) supply chain management and (4) occupational health and safety.

In this case, Lumber Liquidators frequently advertised images of children playing on new hardwood and laminate flooring. Unfortunately, due to their size, children are also the most likely to first show symptoms of exposure to harmful chemicals. So, the risks of providing an unsafe product, used by children and in the home, ultimately destroyed customer satisfaction and caused homeowners to immediately rip the flooring out. Responsible investors should evaluate if the supply chain is sustainable and provides occupational health and safety to its workers.

Sustainable Investing: The ESG Approach

A sustainable approach to investing incorporates the analysis of material, non-financial ESG factors into the investment decision-making process and helps determine the final selection of securities for your portfolio. Analyzing material ESG factors ultimately helps investors rank order stocks before making final investment decisions.

Start with the Chemicals of Concern by Industry

When screening prospective investments, it’s helpful to start by identifying the chemicals of concern used in the industry you’re evaluating. Then determine the level of revenues from products containing those substances and explore the firm’s processes and controls for managing its chemicals. Look for information from industry, regulatory and government sources such as:

Benchmark and Rank Order Your Investments

After you’ve gained a broad perspective on the industry, it’s time to collect the sustainability metrics. In the Household and Personal Products industry, for example, the Sustainable Accounting Standards Board (SASB) suggests the following four metrics regarding chemicals of concern under its Product Environmental, Health and Safety Performance topic:

  1. Revenues from products that contain REACH substances of very high concern (SVHC) (Metric CN0602-05)
  2. Revenue from products that contain substances on the California DTSC Candidate Chemicals List. (Metric CN0602-06)
  3. Discussion of process to identify and manage emerging materials and chemicals of concern. (Metric CN0602-07)
  4. Revenues from products designed with green chemistry principals (Metric CN0602-08)

Ultimately, we’re trying to identify the firm’s “chemical footprint.” To that end, the Chemical Footprint Project (CFP) Assessment Tool (released on June 19, 2015) also provides a good resource for publicly benchmarking chemical use and management. It’s backed by over $1.1 trillion in purchasing and investment power with signatories that include Aviva Investors, BNP Paribas IP, Boston Common Asset Management, Calvert Investments, Miller/Howard InvestmentsTrillium Asset Management, Zevin Asset Management, Dignity Health, Kaiser Permanente, Staples, Target and many others.

In the final analysis, we’re looking for best-in-class performers and screening out firms with significant risks. In the long-term, integrating ESG analysis into the investment decision-making process will help identify companies with business models that are more sustainable, socially responsible and profitable.

Networking on the Green


The long, proud history of the CFA Society of Chicago, founded in 1925, was just barely preceded by the founding of Ruth Lake Country Club in 1922.  Nearly 100 years later, the two entities came together for an exceptional day of golf.

On August 3rd, more than 50 of the Society’s finest golfers and their guests descended on Ruth Lake to enjoy a fine time of fellowship and competition on one of the area’s premier country club courses.  The first nine holes were originally designed and built by David Foulis in 1922 with the second nine completed in 1923 to round out the 18 hole layout, creating a  fair but demanding track.  While the original design stood the test of time for over 80 years, an Arthur Hills redesign in 2005 brought it up to a higher standard of excellence.

The day’s events began with the group spending some timeDSC_2111 loosening up on the driving range and getting a feel for the glass-like putting greens.  At the same time, everyone was free to indulge in the full buffet lunch which was highlighted by bacon bratwurst, a selection of sandwiches, salads, and an assortment beverages.  After lunch, the participants were directed to their carts and sent out to their starting holes for the day’s golf.

As far as this writer’s round of golf went, the weather wasDSC_2113 fantastic!  Certainly all of the participants played both good and bad shots, had some punch shots fly straight through the trees, and others that were stymied by those same trees.  The putting greens were so quick that missed tap-ins could roll several feet past the hole, but certainly all would agree that they ran true for well-struck putts.  Overall, the course was in fantastic shape and provided a great test for all aspects of the competitor’s games.

After playing the course, the group gathered in the Club’s dining room for drinks and dinner.  As waiters provided drink service, a buffet was again laid out.  The dinner version offered various salads, sides, a mix of fish and chicken dishes, and a beef carving station.  This allowed time for the group to meet new friends, discuss the day’s play, provide recommendations for must-see courses in the area, and to potentially foster some new business relationships.

While the diners enjoyed their meals including delicious cake for dessert, Kim Augustyn presented awards and gift packages to the winners of the long drive, closest to the pin, and net team score contests.  We’d like to congratulate Thomas Campbell of Neil, Gerber & Eisenberg LLP for hitting his shot to 57” on the par-3 14th hole and Erik Kratz of Mid-Continental Capital for crushing his drive long and straight to win the long drive contest.  Jason Loy and Anthony Doughty of KPMG and Philip Figal and Scott Cosentine of Ashland Partners combined to shoot an incredible net 51 score to pick up the team honors.

Of course, we would also like to send special thanks to our sponsors for their generous support!

  • Eagle sponsor: Principal Funds Distributor, Inc.
  • Par sponsors: Allstate Investments, D3 Financial Counselors, LLC, ETF Managers Group, RBC Global Asset Management, and RiverNorth

With the 11th Annual CFA Society of Chicago Golf Outing in the books, all the participants will surely look back to remember a great Monday out of the office and will be looking forward to seeing what other outstanding area course will serve as host to next year’s event.

CFA Society Chicago Book Club:

On Saudi Arabia by Karen Elliott House

The CFA Society Chicago Book Club met July 21st for a lively discussion of On Saudi Arabia: Its People, Past, Religion, Fault Lines – and Future by Karen Elliott House.  The book is a fascinating look at the perspectives and interests propelling Saudi society and we were all surprised at how little we knew of this important trading partner and regional power including the following surprising facts:

  • 60% of the population is under 20 years old0307272168-195
  • 40% unemployment among 20- to 24-year-olds
  • 90% of private sector jobs are held by foreign workers
  • Individual initiative and risk-taking are frowned upon
  • Cinemas, music, men and women shaking hands, and books on Saudi Arabia are all forbidden
  • Saudis aren’t interest in democracy: seen by some as forbidden under Islam and by others as chaotic

The author conducts probing interviews with princes and religious leaders, stays in the home of a devout Muslim family, discusses the future with teenagers and college kids, and explores criminal behavior with ex-convicts.  She shows how the Saudi royal family uses religion and oil wealth as “opium of the people” to buttress their authority and maintain stability, but serious internal challenges are threatening the status quo.  Easy access to information tops the list.  Saudis are more informed and connected via social media and cable news and as a result are demanding transparency and fairness from government.  They also more openly question the royal family’s lavish lifestyle, which is in stark contrast to the conservative Islamic principles they advocate.  Meanwhile divisions among Saudis along tribal, religious, gender, reformist/traditionalist lines are increasing social tensions.  When the book was published in 2011 the Arab Spring was in full effect, fueled by these same internal dynamics.  This is still seen as a serious threat to the monarchy.

Saudi Arabia’s biggest external threat is Iran and its desire to expand influence in the region.  The Saudi monarchy has positioned itself as the leader of all Islam because the two holiest Muslim sites, Mecca and Medina, are in Saudi Arabia.  To an ambitious Iran these might be tempting to capture.  Increased Iranian prosperity following this year’s negotiated nuclear agreement could make them even more viable targets.  Add to that the increased competition in global oil production from fracking and alternative energy sources and its clear Saudi Arabia, while still strong, has some crucial challenges to address.

We debated various paths forward but ultimately agreed Saudi Arabia faces an unclear and possibly explosive future.  Resolving the poor education system was heavily discussed, since it generally fails to produce graduates with marketable skills and critical thinking ability.  But government corruption, dependence on royal favors and hand-outs hinders a productive working class.  Saudi men are reluctant to take jobs they see as beneath them.  Saudi women are largely sidelined, comprising a mere 12% of the workforce even though they increasingly educated and motivated.  Women are restricted to working only with other women, and often seek “acceptable” teaching or medical positions.  There’s a growing demand among women to lead more fulfilling lives, but many defend the status quo and feel it’s inseparable from their Islamic beliefs.  Women’s rights have become a proxy war between progressives and conservatives.  We also compared Saudi Arabia’s economic prospects to Russian and Chinese models, but its social code and wealth structure are just too different to be relatable.

Royal succession may offer a glimpse at Saudi Arabia’s future.  After his crowning earlier this year, King Salman made 29-year-old Prince Mohammed bin Salman deputy crown prince and concentrated unusually large responsibilities with him.  The prince now heads the state oil monopoly, the public investment company, ministry of defense, and leads the air war in Yemen.  This is shocking for a country that has stayed unified for decades by sharing positions among the royal family.  If this is any indication of its future, Saudi Arabia might become increasingly assertive in the region while enforcing religious conservatism internally.  We were also surprised that Saudis are generally not interested in gaining democratic freedoms.  The country is more a collection of tribes and Islamic factions than a unified state, and Saudis see a need for strong rulers to prevent internal wars.  Democracy is also seen by some as forbidden by Islam because elected leaders promise what they don’t have and praise themselves – both are Islamic taboos.

On Saudi Arabia offered a valuable look at the many layers of Saudi society and the challenges it faces.  It was fascinating to learn about this country that’s so important in the region and the world.


Upcoming Schedule:

August 18, 2015: “Superpower: Three Choices for America’s Role in the World” by Ian Bremmer

*NOTE: Author Douglas Sisterson is attending the PDDARI meeting which takes place just before the book club meeting on 8/18. He will be discussing his book “How to Change Minds About Our changing climate”.

September 15, 2015: “The New Cold War? Religious Nationalism Confronts the Secular State” by Mark Juergensmeyer

October 20, 2015: “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies” by Erik Brynjolfsson and Andrew McAfee

November 17, 2015: TBD


To sign up for a future book club event, please click here:

Becoming a Values-Based Leader


CFA Chicago’s Distinguished Speaker Series recently hosted Harry Kraemer, an executive partner with Madison Dearborn Partners and Clinical Professor of Strategy at Northwestern University. Former Chairman and CEO of Baxter International Inc., Mr. Kraemer is author of the book, “From Values to Action: The Four Principals of Value Based Leadership”.  He spoke of the critical need to develop the next generation of leaders and of the “Four Principals” as illustrated in his book.

Mr. Kraemer stressed that leaders need to begin leadership early in their career showing that they want to be “in” the movie, not just “watch” the movie. Leaders must not be content to wait for “those guys” to make decisions; they must want to be one of “those guys”.

In order to influence people, leaders must be able to relate to people. They must also be able to employ common sense and have the ability to make complex problems simple.   It is important to demonstrate these attributes on day one of whatever job they begin.

The “Four Principals” of value based leadership are “Self Reflection”, “Balance”, “True Self Confidence”, and “Genuine Humility”.  In his presentation, Mr. Kraemer went on to describe each principal as follows:hklogo_head

Self-Reflection: A leader needs to be able to get away from the notion of merely going faster to get more things done.  He needs to be able to determine which tasks really matter and ask what could be done differently.

Balance: A leader must be able to demonstrate knowledge about a wide array of topics. To understand all sides of a story, he must understand other perspectives. The incorporation of multiple perspectives makes it easier to move forward.

True Self-confidence: The ability to say “I don’t know” and the ability to say “I was wrong” is evidence that a leader has true self confidence.  An inability to say these things shows that he is too worried about what other people think.  Everybody has strengths and weaknesses and those must be acknowledged in order to improve.

Genuine Humility: A leader must remember where he came from and how he got to where he is.  Luck and timing can be just as important as skill set and prior work performance.  A leader needs to keep in touch with people who knew him “when”.


Mr. Kraemer stressed the importance of keeping in touch with a wide variety of people from within and outside the organization. He recommends that mentoring not be limited to one or two confidants, but rather come from a wide array of people.  This exposure makes it easier to determine what values are important.

Mr. Kraemer concluded his remarks by speaking about the One Acre Fund which benefits small farmers in East Africa.  The proceeds from his book sales will go to further the aims of the fund.

Don’t Be Surprised!

On June 25, CFA Chicago welcomed Steve Romick, CFA at The University Club. Romick’s presentation included lessons learned after four decades of value investing, focusing on absolute rates of return. He emphasized the following concepts he employs:

  1. Accept uncertainty
  2. Have a disciplined focus on value
  3. Focus on outperforming over market cycles not calendar quarters

He has deployed this absolute value focus to his New Income Fund.  According to Steve, this fund has never had a negative quarter.  He looks at value stocks like infinite duration bonds with rising coupons. The individual security exposure in his funds is generally limited to between 1% and 3% of the portfolio value, depending on his conviction. His funds are go anywhere funds (similar to hedge funds), providing examples of companies he would not own because he cannot easily quantify how they can generate value.  He also provided an example of a company he does own because the market value of the underlying minority interest in a public company was greater than the parent company’s market value.

Interestingly enough, because their goal is to out-perform over economic cycles, he no longer puts significant resources in trying to predict the economy.  He says he wins by not doing dumb things and by always having a rational value thesis. Both he and his team always strive to take off the rose color glasses when looking at an investment, with an emphasis on what could go wrong.

Steve reminded the audience that the U.S. market is at an all-time high relative to GDP and that the current bull market is the longest, since World War II.  This may be a somewhat compelling reason to be focused on value investing.

Steve Romick, CFA is Co-Managing partner of First Pacific Advisors, LLC, a Los Angeles-based investment manager.  Romick is a value investor with a proven ability to build strategies with an absolute return focus that have generated superior risk-adjusted returns over full market cycles. Romick earned a BS in Education from Northwestern University and is a CFA Charterholder.

Investing in a Changing Climate

Investing in a Changing Climate

Is climate change for real? The short answer is yes. According to Doug Sisterson, co-author with Seth B. Darling of How to Change Minds About Our Changing Climate…about 98% of climate scientists believe that the Earth’s climate systems are changing due to “anthropogenic” (caused or produced by humans) greenhouse gas (GHG) emissions.

Based on peer-reviewed scientific reports, The International Panel on Climate Change (IPCC) concludes that the effects of greenhouse gas emissions, and their anthropogenic drivers, are extremely likely (95% – 100%) to have been the dominate cause of global warming since the mid-20th century in its Climate Change 2014 Synthesis Report Summary for Policymakers (4). The IPCC describes the causes of climate as follows:

SPM 1.2 Causes of Climate Change

“Anthropogenic greenhouse gas emissions have increased since the pre-industrial era, driven largely by economic and population growth, and are now higher than ever. This has led to atmospheric concentrations of carbon dioxide, methane and nitrous oxide that are unprecedented in at least the last 800,000 years. Their effects, together with those of other anthropogenic drivers, have been detected throughout the climate system and are extremely likely to have been the dominant cause of the observed warming since the mid-20th century.  {1.2, 1.3.1}” (4).

The IPCC presents an interesting graphical view of GHG emissions (in gigatonne of CO2-equivalent per year, Gt CO2-eq/yr) for the period of 1970 to 2010 (shown below). Interestingly, annual CO2 emissions from fossil fuel combustion andindustrial processes accounted for 65% of the 49 Gt total. Other major sources include methane (CH4) at 16%, CO2 from Forestry and Other Land Use (FOLU) at 11% and Nitrous Oxide (NO2) at 6.2%.

What are the risks of climate change?

The risks associated with global warming are expected to create widespread impacts across the planet—and include more severe weather-related events. In Asia, IPCC identifies increased drought-related water and food shortages, more heat-related human mortality and increased flood damage to infrastructure, livelihoods and settlements. Europe faces increased damage from river and costal floods, increased water restrictions and increased damage from extreme heat events and wildfires. North America faces similar problems with increased damage from wildfires, increased heat-related human mortality and increased damage from river and costal urban flooding. The oceans face reduced fisheries catch potential, mass coral bleaching/mortality and increased damage from costal inundation and loss of habitat (14). While this is not an exhaustive list, the point is that the effects are widespread and can impact human health, agriculture, housing, infrastructure and many other industries too—think of massive insurance claims after extreme weather events.

What’s the global plan?

In order to limit the harmful effects of global warming, The United Nations Framework Convention on Climate Change (2010) established a global accord in Copenhagen that attempts to limit the future increase in global temperature to 2 degree Celsius from pre-industrial temperatures. Since scientists estimate an almost linear relationship between cumulative CO2 emissions and projected global temperature change to the year 2100; this effectively means that a “carbon budget” on CO2 emissions has been established between 430 to 530 Gt CO2. The graph below illustrates the relationship between the carbon budget (CO2 emissions permitted below a 2 degree temperature increase) and climate change.

Problem solved?

Not so fast. Under this carbon budget, the International Energy Agency (IEA) reports that no more than one-third of proven fossil fuel reserves can be consumed prior to 2050, unless carbon capture and storage (CCS) is widely deployed in its 2012 World Energy Outlook.

No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2 °C goal, unless carbon capture and storage (CCS) technology is widely deployed” (3).

This dilemma has led some to conclude that fossil fuel reserves may become “stranded assets” that won’t or can’t be used in the future—which could lead to asset write downs (impairment) on balance sheets and imply that current stock prices are overvalued. The Carbon Tracker Initiative notes that assets can be stranded for regulatory, economic or physical reasons.

Stranded assets are fossil fuel energy and generation resources which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return (i.e. meet the company’s internal rate of return), as a result of changes in the market and regulatory environment associated with the transition to a low-carbon economy.” Carbon Tracker Initiative: Resources: Stranded Assets, Web. June 2015.

However, according to Julie Fox Gorte, Ph.D., senior vice president for Sustainable Investing at Pax World Investments, “Factually, unburnable carbon doesn’t exist.” In short, Dr. Fox Gorte correctly points out that in order for fossil fuel reserves to become stranded (unburnable) assets there would need to be new regulations that don’t exist today in Pax World’s ESG MattersEven still, I believe new environmental regulations, legislation and carbon markets will develop and we must pay very close attention to them.

I know of no nation that has or is considering legislation to make it either illegal or uneconomic to extract remaining coal, oil or natural gas reserves and burn them in the engine of commerce, mostly to produce energy” (1).

What can investors do? 

First, recognize that the problem is real. Second, understand that the timing, magnitude and consequences of climate change are evolving issues. Consequently, one could develop an investment strategy that evolves as new scientific information, technology, environmental markets (for greenhouse gases, carbon, water, weather risk, etc.) and legislative or regulatory policies emerge.

Many colleges, universities, foundations, cities and other civic, charitable and religious institutions have opted to divest from fossil fuels (see Go Fossil Free Divestment Commitments). Others have opted to influence change through corporate engagement. And still others use low carbon indexes to increase exposure, while reducing tracking error, to more carbon-efficient companies (seeMSCI Beyond Divestment: Using Low Carbon Indexes).

Finally, let’s not forget that climate change will create new investment opportunities and environmental markets. Surprisingly, the best trade can be counterintuitive.Richard L. Sandor, Ph.D., Chairman and Chief Executive Officer, Environmental Financial Products, LLC, recently talked about his new book Sustainable Investing and Environmental Markets: Opportunities in a New Asset Class by authors Sandor, Clark, Kanakasabai and Marques in Chicago. Sandor explained that environmental markets often over-estimate the cost of compliance with new regulations so the best trade could be to short the carbon market—even though your gut is telling you that the price will go up.

CFA Society Chicago Book Club:

The Billion Dollar Mistake by Stephen Weiss

The CFA Society Chicago book club met for their monthly meeting on June 16, 2015 to discuss “The Billion Dollar Mistake” by Stephen Weiss.  Mr. Weiss brings a wealth of knowledge and experience to the table as he has spent nearly 25 years on Wall Street working at Lehman Brothers, SAC Capital, and Salomon Brothers.  Coincidentally, he was booked on Flight 93 for a 9/11/01 departure though decided to postpone the trip to focus on pressing work at Lehman.  The event was a turning point in his life where he left Wall Street to move out west and start a hedge fund.  This is where he began thinking about his next phase in life and writing this book.  At the end of the day, a mistake is a mistake, whether it is a billion dollars, a million, or a buck.  This book presents several different case studies which can help us minimize the number of our future mistakes.  The book also provides several 101 type lessons in finance to help explain the various case studies.  The case studies involve the ponzi scheme of Madoff, AIG’s deviation from its core business, Aubrey McClendon’s excessive leverage at Chesapeake Energy, and activist investor Ackman’s divergence from his investment discipline.  To sum up a few of the key takeaways, we have put together the following bullets:

  • Never let your passion override your sense of discipline.  Always perform your due diligence and remember that times, facts, and investment scenarios are constantly changing.
  • Be careful of rushing into a market that is falling fast.  Let the knife fall.  It is better to fully understand the investment rather than impulsively jumping in.
  • Insider buying and selling must be carefully analyzed.  Understand the context and motivation for the transaction.  Insider buying isn’t always a buy signal.
  • Leveraging your portfolio can enhance your returns, but never over leverage to the point where you don’t have the necessary collateral to meet your margin requirements.
  • Know the investment discipline established by your manager and ensure they stick to their mandate.  Venturing outside their area of expertise leads to style drift and potential losses.
  • Short selling can be a dangerous strategy.  Remember that the market has an upward bias and going against it is similar to trying to beat the house.
  • Rarely does a fall in stock price equal an opportunity.  Prices move in response to new information resulting in a very efficient market.
  • Beware outsized returns.  They almost always indicate excessive risk.  Be sure you are willing and able to take on the risk, otherwise stay conservative.
  • Don’t just diversify across asset classes; consider diversifying across investment managers which can lead to increased risk mitigation.


Upcoming Schedule:

July 21, 2015: On Saudi Arabia: Its People, Past, Religion, Fault Lines – and Future by Karen Elliott House

*(NOTE: Those who attend the July Book Club meeting will receive a free copy of “Superpower: Three Choices for America’s Role in the World” by Ian Bremmer)

August 18, 2015: Superpower: Three Choices for America’s Role in the World by Ian Bremmer

*(NOTE: Author Douglas Sisterson is attending the PDDARI meeting which takes place just before the book club meeting on 8/18. He will be discussing his book “How to Change Minds About Our Changing Climate”.

September 15, 2015: The New Cold War? Religious Nationalism Confronts the Secular State by Mark Juergensmeyer

October 20, 2015: TBD


To sign up for a future book club event, please click here:

Next-Level LinkedIn Strategies


Is the resume becoming extinct?  JD Gershbein thinks it’s possible.  Every professional knows that it’s a good idea to have a LinkedIn profile, but how best to build it and find new opportunities?  Gershbein encourages professionals to continuously improve their LinkedIn profiles, which have emerged as the most versatile business document around.  In his talk, Gershbein focused his presentation around what he would do on LinkedIn if he needed a job.  “You’re competing on LinkedIn for three things: time, visibility and attention,” he told us. Gershbein stated that it is important to convert action on LinkedIn to a strategy.  Working with LinkedIn for job leads or new business is a lot like panning for gold in that there is a lot of junk, but worth it if you are methodical and consistent in your approach.  In terms of developing LinkedIn profiles, Gershbein said that there are three sub-movements within the social media revolution currently taking place that we should consider:

Brand Storytelling – where you embrace uniqueness in contributory form or aspirational form

Content Marketing – how you sell yourself

Community Management – living the story you tell in front of the real world

One way that a LinkedIn profile can be better than a resume is that it allows you to show potential employers what you accomplished, along with what you learned as a result of what you accomplished.  Gershbein says that the latter explanation is a very important way to show employers your self-awareness and personal development.  Using LinkedIn publishing, a platform for blog posts and original content from LinkedIn users, is also a good way to achieve your content marketing goals. Writing is a valuable skill in almost every business field and any piece of communication you produce should be considered as part of your strategy.  It’s also important to be accessible.  You can develop an e-signature for your personal email, and you should always include your email address and telephone number in your LinkedIn profile.  When making contact on LinkedIn, Gershbein says it is good to quickly move the conversation offline and schedule what he calls a “brief discovery call”.  Most people are much more likely to agree to a call if it’s described as brief, Gershbein has found.  Another important tip is don’t make the LinkedIn profile a redundant document that provides the same information as your resume.

The most important area on your LinkedIn profile is the summary section.  According to Gershbein, this is the “make or break section” and should be written in third person narrative format.  The summary needs to answer three questions:



Why should I hire you?

What contributions will you make?

What were the results from what you did?


Everything on the LinkedIn profile should help answer these three questions.  Contributions should center on two main areas: contributions to company culture and contributions with clients.  It’s important to answer the question of “Why would you recommend yourself to others?” also.  Keywords are an important consideration because this is how recruiters will find you and connect with you.  Anything shown in bold on your LinkedIn profile appears higher in search results.  The main keywords you want to focus on include your industry, market, job title and specific skills.  It’s a good idea to sprinkle in relevant keywords throughout your profile to rank higher in recruiters’ search results which tend to favor profiles with many connections and profiles with more sections completed.

LinkedIn is an extremely popular website with nearly 350 million users yet remains underutilized by many.  With a more strategic approach and a carefully crafted profile, LinkedIn can provide job seekers with a strong platform for branding, networking and finding new employment opportunities.


JD Gershbein is the CEO of Owlish Communications and a specialist in LinkedIn strategy. For more information, visit

Networking at Weber Grill Restaurant!

SteakThere’s no better way to start the summer than with good barbecue! In early June 2015, CFA Chicago members gathered at the Weber Grill Restaurant in Lombard, where patrons can watch Master Chefs grill steaks, burgers, chops, chicken and fish – right before their eyes – on real Weber Kettle Grills.  That’s right; The Weber Grill heats about 2,000 lbs of real charcoal per day to 1,500oF for a unique indoor grilling experience.

Shannon Curley, CFA, Executive Director – CFA Society of Chicago, and Kim Augustyn, CMP, Director of Programs and Sponsorships, warmly welcomed CFA Chicago members to the evening’s three-course progressive networking dinner. The atmosphere was relaxed and jovial with table conversations ranging from hedge funds and derivatives to golf and new babies (congratulations Brendan!).

Kim explained that attendees would switch tables to meet different people after each dinner course, according to the information printed on our nametags.  It sounded great until I realized that my nametag read: Table 4, Table 4 and Table 4.  I was beginning to feel like Marlon Brando, the Don of the Corleone crime family in the Godfather movie, conducting business in a restaurant.

Then, suddenly it all made sense. CFA Charterholders would recognize this as a simple case of serial correlation. Statistically, given the smaller size of the gathering, extreme events like this were even more likely to occur than in larger samples.  It all worked out in the end, but in real life, we must remember that patterns tend to repeat themselves more often than we think they should and this, of course, also explains why Apple had to reprogram its “random” iTunes shuffle algorithm so the same song doesn’t play twice in a row.

Don’t worry if you missed this great networking opportunity—there will be many more in the near future. In the meantime, there’s no reason you need to miss out on good BBQ, so here’s my favorite recipe for great 4th of July BBQ ribs!

Day Before: Put pork ribs in crock pot. Pour in one 16-oz bottle of Coke (to break down connective tissue).  Cover and leave on high for 4 hours.  Wrap ribs in plastic wrap and aluminum foil.  Refrigerate overnight.

Next Day:  Make “The Secret Sauce”: ½ c Ketchup, 1 ½ T Worcestershire Sauce, 1 can tomato soup, 1 can water, 1 good-sized onion diced, celery (to suit your taste).  Bring to boil on stove.  Then, simmer for 15 minutes with cover off.

Brown ribs on grill.  Apply some BBQ sauce on the grill and pour the rest over on plate.


Hey! They’re Raising the Price of the Free Lunch

On May 21st, Tad Rivelle gave a presentation over lunch at the Chicago Club.  The subject “Hey! They’re Raising the Price of the Free Lunch” revolved around on how interest rate increases and deleveraging will affect the economy, capital markets, and the investor class.

Mr. Rivelle is the Chief Investment Officer, Fixed Income for the TCW and MetWest Fund brands.

Tad started his discussion noting that too much thought and weight are given to next word or phrase that is added or eliminated from Fed pronouncements and minutes.  Instead, more time and thought should be applied to considering the overall policy and climate that it is applied in. The stage and length of the business and market cycle are also of great importance; “Identify those variables that drive the cycle, as opposed to those variables that are driven by the cycle.”

Tad described a traditional cycle in which business overproduction leads to layoffs and excessive growth rates push inflation higher.  Historically central banks have then stepped in to lessen the effect of the cycle by using monetary policy to slow the economy.  Tad suggested that this cycle is different as the inventory cycle has largely been eliminated with more efficient supply chain management and the current cycle has been fueled with cheap credit and quantitative easing (QE) programs.  These include several rounds of QE initiated by our own central bank, Abenomics in Japan, and now the ECB’s version of QE in Europe.  What then will kill the current cycle?  Expanding credit past reasonable levels and the resulting debt service hitting a tipping point (usually unseen) will push the current cycle to recession.

One of the problems with all of the recent QE programs is that they are designed to only “fix” one problem, while the capital markets commonly believe that these programs can remedy an assortment of problems; stagnant wages, slow growth, inflation/deflation, and suppress volatility.  At its core, a QE program is a credit centric growth model structured to enhance near-term growth at a cost of building up a stock of bad loans and malinvestments (badly allocated business investments, due to artificially low cost of credit and an unsustainable increase in the money supply).  These bad loans will end a cycle and the central bank, using the tools at hand, will not be able to stave off a market correction.  In simple terms QE was designed to promote cheap credit and the efficient allocation of resources.  Substantially QE has changed the allocation of loanable funds.  Cheap capital has been pushed to unproductive endeavors while capital is rationed to more productive business oriented endeavors.

The current QE program in Europe is one that promotes inflation and a weaker currency.  The ECB will likely succeed by “importing” growth and economic activity.  A tangent result will be that as Europe imports growth, they will also “export” deflation to the U.S.

While the intent of QE programs has merit, their effects have been and will continue to be problematic.  In the United States, GDP and inflation were both supposed to rise – they haven’t.  In Europe and Japan growth prospects are stagnant to recessionary.  Mexico and Canada (our largest trading partners) are in an economic slowdown.  There is a recession in Brazil, depression in Russia.  China’s growth is at a 25-year low, and global disinflation has continued unabated.

Tad provided some conclusions; he expects a flattening yield curve, which foreshadows an economic slowdown.  The Fed, with its expanded balance sheet, will not be able to maneuver in an economic decline.  If the Fed carries out on its promise to renormalize or raise rates, then risk assets will suffer and marginal borrowers will be crowded out by higher rates.

So then how should one position themselves in the market?  Tad recommended playing defense with risk assets, under weighting airline, bank, and utility debt, and strong underweight high yield and bank loans.  Overweight; non-agency MBS (ongoing de-leveraging of senior tranches limits downside risk), CMBS / ABS (the capital structure of CMBS are reasonably valued).

Tad concluded the presentation by taking questions.  One member of the audience asked Tad to comment on the muni bond market and in particular his view of the Illinois and California public debt problem.  Tad’s answer was brief, but perhaps a relief to an audience of Illinois residents as he saw no obvious catalyst to bring the current public debt problem to a head.