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The movement to reform capitalism has seen a wave of converts in recent years. But we should approach the latest commitments to ESG with skepticism. The answer is not much — at least so far. According to research last year, investors who signed onto the United Nations principles did not improve the social and environmental performance of their investments. When companies offer insincere commitments or overpromise transformation, they risk undermining the real work being done by others.

A movement meant to benefit the public good risks becoming a buzzword coopted to keep maximizing short-term profits. So how do we ensure that these companies follow through on their commitments? We suggest three ways to align the work of corporations with creating a more sustainable, inclusive, and prosperous economy.

First, companies should be required to publicly report on their social and environmental impact with clear, standardized, easy-to-understand metrics, such as carbon emissions, investments in training programs, and proportion of workers earning a living wage. As it is, companies can decide what — if any — social and environmental data to report. And what they do report is often self-serving. Companies publish their diversity policy, but decline to release the actual makeup of their workforce.

A century ago, financial reporting underwent a process to become transparent, standard, mandatory, and audited. This created a sense of accountability that social and environmental commitments desperately require today. Sixty-one companies have now committed to these metrics, including Unilever, PayPal, and Sony.

The wild west of ESG standards may soon be tamed. Second, we all need to hold corporations accountable. We have the power in our roles as consumers, employees, and investors to hold them to these commitments and demand more.

We are beginning to see consumers take up the cause, as they now expect companies to take a stand on social and environmental issues. And companies respond. In January, General Motors pledged to sell only zero-emission vehicles by Now, the first group was Group A.

Now, if you were in Group A, you were asked to pick the animal that you think is cutest - the kitten, the polar bear or the loris - simple enough. Those people in the second group, though, Group B - the people in Group B were asked to pick the animal that they thought everyone else thought was the cutest - not their own desires, their own view, but what they think the broader view is.

First, for Group A, we'll just use Pietra. Which one do I think is cutest? I liked the white fur, and I also thought that the whole skating on your belly on the ice thing was adorable. How are you? This is Marla Wood ph. WOOD: I actually had a hard time finding any of them particularly cute, honestly. She doesn't put her money in the market. WOOD: Yes, correct. One was it was the least appealing to me, which I find is generally the case with my experience in life. I'm always on the outside in my opinion.

And then also I thought it was the most sort of understandable, accessible - you know, sort of my experience of others is the thing that they know the best. So I figured most people would pick that. WOOD: Correct. WOOD: Yeah, that sounds like me laughter.

DAVIDSON: So even though she thinks the kitten is the least appealing, her fundamental valuation of the kitten is extremely low, she's voting for the kitten because she thinks everyone else is going to like it. All right. So, David, I have to say, it was all very exciting because you were sort of in charge of this experiment. So all of us found out the results before you did. But all of us were outside of the studio going, oh, wow.

Oh, wow. He doesn't know. So Caitlin has the results, and she's going to come in here and tell us what they are. So here we have the envelope. Open it up. You guys nervous? And hold on. I did this math earlier. The people from Group A - asked which animal do you think is the cutest? And the other half were pretty evenly split between the loris and the baby polar bear. That's Group A. So let's just recap. So we have two groups. Just to remember - Group A, the people who are asked to pick, what do you think for yourself is the cutest?

The other half's split between loris and baby polar bear. DAVIDSON: And I feel like from the standpoint of wanting the world to function in a rational way, where markets work efficiently and reasonably, there's sort of good news and bad news in this story, I think.

They were correct that people voted the kitten the cutest. They voted - they thought everyone was going to like the loris or the polar bear. So you can imagine, if there was a cute animal stock market - which, David, we are going to keep working on until it exists - you might get very different prices for the different animal stocks, depending on how investors are making their decisions.

Are they making fundamental analysis, just looking at what they truly believe is the cutest, or are they being strategic? Are they trying to guess what everyone else is thinking? What if the market was entirely filled with Marlas, right? Then basically, you know, there's a huge kitten bubble, and no one actually thinks kittens are cute.

Oh, no. It's not irrational. Marla is behaving completely rationally, right? You're trying to pick the stock you think is going to go up. So I think even Keynes would say that in the long run, the prettiest beauty contestant will win. It's just that in the short term, there's a lot of noise, a lot of distortions, a lot of psychological second-guessing and so forth.

But in the short term, which can last a long time, as we've seen, all sorts of things are happening that are not - that are totally unmoored. Because if everyone's choosing based on their true fundamental sense, that seems like a more grounded market. But if everyone's just guessing what everyone else is guessing that everyone else is guessing, then you can see how it can become kind of frothy and insane every once in a while.

After a quick break, we answer the million-dollar question - is the stock market like guessing the weight of a cow, or is it like a cute animal beauty contest? So Allison, Mihir, let's just get right to it. If the stock market is like guessing the weight of a cow, then it means that investors are trying to guess how good a company is, how good it's going to be into the future.

And all those guesses are kind of magically reflected in the stock price through the wisdom of crowds. But if the stock market is more like a beauty contest, then investors are not trying to guess whether a company has a bright future. They're just trying to guess what everybody else is going to do. So which is it? It's a very messy place where things often go wrong, and it's a place where ultimately things tend to get right.

GARCIA: Are there any examples, say, in the very recent past, where something weird happened and the price of a stock went either way up or way down, which seems to suggest this kind of dynamic where people are just guessing what other people are going to do in the stock market, and they might be guessing what other people are going to do in the stock market and that that seems to be driving the price of a stock?

I mean, in fact, that happened recently during the pandemic when you had a lot of people getting into the market who normally hadn't and, you know, were making bets on companies that didn't seem to have very good fundamental values. I mean, like a company like GameStop. I mean, I'm not even clear what they're sort of long-term growth rates would be.

It doesn't look very good. But, you know, you had a bunch of people piling on, saying we're going to put money into this at first. But then all of a sudden it becomes almost rational to pile on - right? So, I mean, even still, you know that this price is going up and it shouldn't go up and eventually it's going to fall, but you never know how much further it's going to go up before that happens.

And that's what makes it so hard. DESAI: The really crazy part comes when that story takes the next turn, which is GameStop capitalizes on the idea that lots of people love it and then they issue more stock. And then At that higher price. At that higher price, and then they're able to pivot in their business in an interesting way. And that gives them another leg to this fantasy about what they can potentially do. GARCIA: So how do we know in the stock market if, in a given moment, a price reflects how the company actually is performing and is expected to perform versus these kinds of short-term pressures where people are just guessing what everybody else is guessing?

You can never know for sure. So I think if you're an investor, you want to think about - are you a long-term or are you a short-term investor? DESAI: I think the way to reconcile these two seemingly opposed ideas is just to take it over different horizons. So I think, over the long run, we can be relatively confident that hopefully prices will reflect fundamental values, and we'll see those profits and cash flows come out over time.

You can believe that and also believe that over the short run, crazy stuff happens. It's just that the dynamic gets played out over different horizons. And now that you know where stock prices come from, in next week's class, we'll tell you how to apply that knowledge. But before we let you go, we actually have some vocab words that we'd like you to remember. First up, wisdom of crowds - you know, this concept that we just heard about by which all these different people trying to guess at something bring their own little bits of information to the guessing process, and those guesses end up averaging out to something pretty accurate.

And the second vocab word is Keynesian beauty contest, where all the guessing is not trying to arrive at an accurate judgment, but rather people are just guessing what everybody else is guessing. And I think for this class, that might be it.

Any other ones, actually? I had no idea what a loris was.

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Repayment of high-cost debt Once the emergency fund is built and insurance is in place, you should shift your focus towards repaying high-cost loans, if any. If you have any high interest-bearing credit card dues or personal loans, you should make sure you repay them first before you start investing for your financial goals. When you have such high-cost liabilities, investing for goals does not make sense. So, make sure you repay or pre-pay high-cost loans before you start investing.

Making a cash flow statement Once you have cleared high-cost liabilities, you should make a cash flow statement. In a cash flow statement, you have to record all the cash inflows salary income, interest income, dividend income, rent received, etc. On the other side, you have to record all cash outflows regular family expenses, rent paid, school fees, EMIs, existing investments, etc. The difference between the total cash inflows and cash outflows will give you your cash flow position at the end of the month.

If your cash inflows are more than your cash outflows, then you have a surplus or positive cash flow. This is a good situation to be in and you can use the surplus money to invest for your financial goals. If your cash outflows are more than your cash inflows, then you have a deficit or negative cash flow.

This is a worrisome situation to be in. It means you are spending more than what you are earning, leaving you with no money to invest for your financial goals. In such a situation, you should either look at increasing your income or reducing your expenses or both, so that you can wipe out the deficit and generate surplus for investing for your financial goals.

Making goal plans In the above step, you have made a cash flow statement and calculated the surplus that you have for investing for your financial goals. Now, the next step is to identify your goals. You should then classify them as financial goals and other goals. In this article, we will focus only on financial goals. You should quantify the financial goals, make an investment plan for each goal to figure you the amount you need to invest for each goal to achieve it.

Gaining knowledge of personal finance Before you start investing, you should try and gain knowledge about personal finance. A good place to start would be the Glide Invest blog , YouTube videos , podcasts , etc. The more knowledge you gain, the better investment decisions you will be able to make.

Gaining personal finance knowledge is an ongoing process and it should continue while you are investing towards your financial goals. Get your spouse and family members on-board Before you start investing in your financial goals, you should discuss this with your spouse and other family members.

They should be aware of the process and be on board with your plans. They should be aware of which financial goals you are investing in, how and when will they be achieved. When you have their in-principal approval and support, the financial planning journey becomes a lot smoother. You don't know where to begin, an investment advisor or financial planner could help you establish some basic goals and build a portfolio that works toward those goals.

Are You Financially Fit? You should check where you are from a financial standpoint. It does not make sense to invest money if you have a significant amount of debt and no emergency fund. Additionally, paying off your debt especially credit card debt and saving for emergencies, you will free up more of your cash for investing.

Before you begin investing, it's wise to take the time to get out of debt and establish an emergency fund. Worth noting: your emergency fund should be large enough to cover between three to six months of expenses. If your career field is unstable or you are self-employed, you should go with six months to a year of savings.

You should also determine what you are planning on doing with the money that you invest. If you are planning on using it for a down payment on a house or to pay for college, your investment choices will be different than if you plan on using it for retirement. If you are planning on using it in the next five years, you will be better off by choosing a more conservative account for your money, as opposed to if your financial goals are more long-term, in which case you can choose riskier investments.

For a short-term investment, you may consider a money market account. If you are embracing a more long-term investment strategy, you can be more aggressive with your investments and might consider mutual funds and stocks. For retirement investments, choose a k , IRA, or other retirement savings account. However, if you are planning on using your investment funds for early retirement, you will want to invest it outside of a retirement account so that you can access the funds without penalty before retirement age.

If this is the first time you are investing money, it is important to realize that you will make more money with a long-term investment strategy than you will if you hope to make a quick buck by day trading or buying and selling securities quickly.

While you can make money that way, it takes a solid understanding of the stock market, a lot of time, and real talent. If this is the investing route you want to take, you may consider hiring a professional. But proceed with caution. It is easy to take a big loss.

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Making a cash flow statement Once you have cleared high-cost liabilities, you should make a cash flow statement. In a cash flow statement, you have to record all the cash inflows salary income, interest income, dividend income, rent received, etc. On the other side, you have to record all cash outflows regular family expenses, rent paid, school fees, EMIs, existing investments, etc. The difference between the total cash inflows and cash outflows will give you your cash flow position at the end of the month.

If your cash inflows are more than your cash outflows, then you have a surplus or positive cash flow. This is a good situation to be in and you can use the surplus money to invest for your financial goals. If your cash outflows are more than your cash inflows, then you have a deficit or negative cash flow. This is a worrisome situation to be in. It means you are spending more than what you are earning, leaving you with no money to invest for your financial goals.

In such a situation, you should either look at increasing your income or reducing your expenses or both, so that you can wipe out the deficit and generate surplus for investing for your financial goals. Making goal plans In the above step, you have made a cash flow statement and calculated the surplus that you have for investing for your financial goals. Now, the next step is to identify your goals. You should then classify them as financial goals and other goals. In this article, we will focus only on financial goals.

You should quantify the financial goals, make an investment plan for each goal to figure you the amount you need to invest for each goal to achieve it. Gaining knowledge of personal finance Before you start investing, you should try and gain knowledge about personal finance. A good place to start would be the Glide Invest blog , YouTube videos , podcasts , etc. The more knowledge you gain, the better investment decisions you will be able to make.

Gaining personal finance knowledge is an ongoing process and it should continue while you are investing towards your financial goals. Get your spouse and family members on-board Before you start investing in your financial goals, you should discuss this with your spouse and other family members.

They should be aware of the process and be on board with your plans. They should be aware of which financial goals you are investing in, how and when will they be achieved. When you have their in-principal approval and support, the financial planning journey becomes a lot smoother. Consulting a financial advisor In the 21st century technology has played a vital role in shaping up how we conduct our financial affairs.

Today you can just open up your phone and tap a few buttons to plan and systematically invest towards your financial goals, with Glide Invest. You will get guidance for: A personalised risk profile assessment Identifying your financial goals Making a financial plan for each goal Automating the financial plan Review and analysis of your financial plan Hand holding you till your financial goals are achieved To start investing towards your financial goals, download the Glide Invest App now from Google Play Store or Apple App Store and get started.

Found it interesting? Registration is important because it provides investors with access to key information about the company's management, products, services, and finances. Question 3: How do the risks compare with the potential rewards?

The potential for greater returns comes with greater risk. Understanding this crucial trade-off between risk and reward can help you separate legitimate opportunities from unlawful schemes. Investments with greater risk may offer higher potential returns, but they may expose you to greater investment losses.

Keep in mind every investment carries some degree of risk and no legitimate investment offers the best of both worlds. Many investment frauds are pitched as high return opportunities with little or no risk. Ignore these so-called opportunities or, better yet, report them to the SEC. Question 4: Do you understand the investment?