Our Purpose

Public equity investing is not a zero-sum game — Proper capital allocation generates value for all of society — Active managers create incentives to support this value creation, making the world a better place.

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OUR PURPOSE

Investors have lost sight of the true purpose of our public equity markets. With the rise of passive investing, high-frequency trading, and casino-like speculative listings, the markets are increasingly divorced from the businesses they serve.

Passive indices allow investors to abstract their holdings from the underlying businesses through vast diversification. High-frequency trading sidesteps business risk by owning securities for mere fractions of a second. Meme stocks, flying taxi SPACs, and crypto-driven penny stocks chase excitement over fundamentals.

Through this lens, the markets appear to be a zero-sum game, simply shifting capital from the unlucky to the lucky, or the hapless to the gatekeepers. But this view misses the ultimate purpose of public equity markets.

The Noble Goal

Every investment decision either creates or destroys value. Our society’s well-being, literally the state of our civilization, rests upon proper capital allocation.

Poor resource allocation leads to destruction. The collapse of the Soviet Union, hyperinflation in Venezuela, Argentina, and Zimbabwe, and China’s real estate bubble all stem from misallocated resources. When capital is wasted, society suffers.

Conversely, proper allocation yields compounding benefits. The U.S. highway system was built for ~$500B in today’s dollars. Since its construction, our retail distribution system has been re-written twice, by Wal-Mart and Amazon, generating trillions in economic value along the way.[1] When investors (both private and public) make value-creating decisions, standards of living rise and our way of life improves.

Proper capital allocation is a noble goal, but achieving this goal requires reframing the zero-sum perception of public equity markets.

Not Zero-Sum

Yes, for every buyer of an equity, there is a seller. There will inevitably be a winner and a loser for each and every trade. But equity investing, done properly, is not trading. Equity investing is allocating capital to its highest and best use.

Public equity markets are filled with businesses that squander capital through excessive bonuses, lobbying to block progress, or redundant investments, undermining societal benefit. Active managers are required to find these value destroyers and remove their capital. When sellers outnumber buyers, share prices fall, a clear sign to management to end their value destroying ways.

Active managers redirect this capital to businesses doing excellent work, building real value for their customers, employees, shareholders, and society. These businesses are rewarded with rising share prices, motivating others to follow.

 Our Purpose

Active management shapes the incentives that guide capital allocation decisions in public markets. If we do our job properly, value will be created for all: investors, employees, customers, and society.

At Reference Equity, our mission is to identify businesses that are building real value and buy their shares. We do not view our trades as zero-sum or chase returns for their own sake; we allocate capital to what we believe is its highest and best use.

When the businesses we invest in create more value than other investors expect, we are rewarded. But the rewards extend beyond our clients to society as a whole. By sharing in this value creation, we move beyond zero-sum outcomes to make the world a better place.

[1] “Healthy Returns: The Economic Impact of Public Investment in Surface Transportation” ; “40 Years of the US Interstate Highway System: An Analysis—The Best Investment A Nation Ever Made”