How to Profit from the Coming Social Disruption

Many hands raised to the sky

The world is on a precipice of an amazing revolution that will take years (decades, centuries, maybe) to evolve. The first wave of the change is the coronavirus pandemic, and the second—and more important part of that wave—is the Black Lives Matter (BLM) movement. And both have created —and will continue to create—phenomenal social disruptions.

There have been many articles recently written about the opportunities that the pandemic has brought to streaming, e-commerce, and online education. And there will most likely be even more wealth distributed to those businesses as the pandemic rages on.

But today, I’d like to focus on the potential social and economic changes and opportunities that will arise from the Black Lives Matter movement.

Social disruption is defined as “the alteration, dysfunction or breakdown of social life, often in a community setting. Social disruption implies a radical transformation, in which the old certainties of modern society are falling away and something quite new is emerging.”

To be sure, it’s an exciting time—and one from which we can take our cues from previous historical disruptions.

Throughout our history, we have witnessed many social disruptions that have forever altered 1) our way of thinking and relating to each other; 2) expanded global economics; and 3) have given birth to new technologies, industries, and cutting-edge companies with tremendous investment opportunities.

And now we are on the cusp of radical changes that—if we look far enough ahead—will not only enhance our collective lives, but will also drive some fantastic opportunities to invest on the ground floor.

Before we talk about those opportunities, let’s take a walk back through history and look at a couple of examples of the social disruptions that have come before, the societal changes they have forced, and the resulting wealth that was accrued for those investors who were savvy enough to realize the economic potential that they offered.

The Women’s Movement
It may be difficult to imagine today, but women have only had the right to vote since May 21, 1919. Alternatively, white male landowners were granted that right in the late 1700s. The National Women’s Suffrage Association was formed in 1869 to help women get the vote, but it took 50 years to make it happen. Most women who worked outside the home were housekeepers or schoolteachers. With the advent of the Industrial Revolution in the 1840s and 1850s, factories needed more workers, so it wasn’t long before 10% of women began working outside the home. By the end of World War I, that number had increased to 25%. Then, World War II boosted the demand for war machinery, and the Rosie the Riveter campaign recruited women to fill those jobs, pushing the percentage of women in the work force to 37% by the end of the war. In the 60s, the Women’s Liberation Movement focused on giving women the right to an education and the right to work. In 1900, there were 85,338 female college students in the United States; by 1940, there were 600,953, and today, 56% of college students are female. And today, 48% of women are in the workforce.

None of these efforts was easy. Protests, centering on women’s supposed lack of expertise and mental capacity, threatened each state of progression. You can see from the following chart that even today, just 22% of the C-suite (CEO, CFO, COO, etc.) are women and we still have a long way to go for true equal rights, but as the Virginia Slims cigarette commercial used to say, “We’ve come a long way, baby.”

Representation in the Corporate Pipeline by Gender and Race

Source: McKinsey & Company

Women Inventors
It’s no doubt that women in the workplace have drastically changed the world. We have women to thank for many of our most useful inventions, including:

1809 Mary Kies became the first woman to receive a patent in the United States, for her technique of weaving straw with silk. Only 10% of patents in U.S. are held by women today.
1812 Tabitha Babbitt invented the circular saw by attaching a circular blade to her spinning wheel.
1832 The glass aquarium was created by Jeanne Villepreux-Power.
1843 Nancy Johnson invented the ice cream maker.
1843 Ada Lovelace developed the first computer algorithm.
1871 Margaret Knight received a patent for the paper-bag-making machine (after a man stole her design and she had to prove it belonged to her!)
1872 We owe a big thanks to dishwasher inventor Josephine Cochran, who first used water pressure rather than scrubbers to remove debris.
1873 Although many lives perished on the Titanic, those who used the boat’s life rafts owe their invention to Maria Beasley (who also held a patent for a barrel-hooping machine).
1899 Letitia Geer developed the one-handed medical syringe.
1903 Mary Anderson patented the windshield wiper. Unfortunately, her patent expired, due to lack of manufacturing interest, and ten years later, a similar device was standard on most vehicles.
1919 Alice Parker designed a cutting-edge system for central heating that used natural gas, rather than wood, to heat a home. Alas, it was never used, but it paved the way for the modern heating systems.
1941 Movie star Hedy Lamarr, created a frequency-hopping communication system that could guide torpedoes without being detected. This set the stage for WiFi, GPS, and bluetooth.
1951 Bette Nesmith Graham (mother of Monkee Mike Nesmith) invented liquid paper, transforming her from a secretary to a millionaire.
1957 Pharmacologist Gertrude Belle Elion had already developed drugs used in the treatment of AIDS, malaria, herpes, and cancer. Then, with George Herbert Hitchings, she invented the first immunosuppressive drug, Azathioprine, initially used for chemotherapy patients, and eventually for organ transplants.
1966 Policemen around the world can thank Stephanie Kwolek for inventing bullet-proof fiber, known as Kevlar.

Without women’s efforts throughout history, none of these inventions would be made—and utilized daily. While many women worked for larger corporations who adopted their inventions, others went on to found their own businesses.

Women-founded Companies
More than 12.3 million American companies with $1.8 trillion in sales, are owned by women.

The number of women-owned businesses is on the rise, increasing 58% since 2007, growing at an annual rate of 21% (more than two times as fast as total new businesses) and can be found in every sector of the economy.

Here are some examples of women-founded businesses that most of you will easily recognize:

  • Rent the Runway was started in 2009 by Jennifer Hyman and Jenny Fleiss as a way for women to rent dresses for special occasions. Today, its selections include everyday wear—including work clothing—rented via member subscriptions. Last year, T. Rowe Price $125 million in the company, and it is now valued around $750 million.
  • Skin care company Proactive was created by Dr. Kathy Fields and Dr. Katie Rodan in 1995, and is now worth $1 billion. In 2002, the doctors started Rodan Fields, a skincare company focusing on older women. The brand has been ranked the #1 skincare company in the U.S. several times, by Euromonitor International Ltd. which publishes the world’s most comprehensive market research on the skincare industry.
  • Millions of women love Sara Blakely for her company Spanx, which she launched in 2000. The shapewear company is now worth $1.1 billion.
  • If you want to know who you are related to, you can consult 23andMe, the genetic testing company created by Anne Wojcicki and Linda Avey in 2006. Today, the company is worth $2.5 billion.
  • In 2014, Whitney Wolfe Herd launched dating app Bumble (now with a $1 billion market value), in which women make the first move after matching.

As you can see by the following graph, the data is clear that women entrepreneurs and workers vastly improve a country’s Gross Domestic Product.

Women's Labor Force Participation Results

Consequently, it’s no surprise that venture capital investors are beginning to catch on. Their investments in all-female founding teams rose to $3.3 billion last year, amounting to 2.8% of capital invested in U.S. startups. It’s still way too small, but that’s an improvement from $3 billion in 2018 and $2.1 billion in 2017.

Women-founded businesses still do not get the support that those created by men enjoy. But some do become public companies, and their shareholders have few complaints from their gains.

Here are a few who have made it into the big time:

Company & Symbol Year Founded Industry Share Price Gain (%)
Cisco Systems (CSC) 1987 Technology 4,453
BlackRock (BL) 1988 Financial 3,535
Estee Lauder (EL) 1946 Consumer 1,946
Siebert Financial (SIEB) 1967 Financial 500
Blackline (BL) 2001 Technology 263

The Civil Rights Movement
Like the Women’s Movement, Civil Rights have come a long way, but we have miles to go. The movement dates back hundreds of years, but reached a tipping point in the 1860s, when the disagreement over the enslavement of Black people propelled the Civil War. The war lasted from 1861-1865, and heated up further after President Abraham Lincoln’s Emancipation Proclamation, or Proclamation 95, a presidential proclamation and executive order on September 22, 1862. The proclamation freed more than 3.5 million enslaved African Americans in the secessionist Confederate states. Once the war ended, the remainder were freed by way of the Thirteenth Amendment to the United States Constitution, ratified in December 1865.

The Reconstruction era of 1865 to 1877 brought plenty of challenges as seceded states were brought back into the Union and the country grappled with the legal status of African Americans. Widespread discrimination persisted, leading to Congress enacting the Fourteenth Amendment in 1868, affirming that everyone born in the United States, including former slaves, was an American citizen and declaring that all male citizens over twenty-one years old should be able to vote. Then, the Fifteenth Amendment in 1870 affirmed that the right to vote “shall not be denied…on account of race.” (Notice, gender was not mentioned).

As we know, those actions did not end discrimination. Decades of unrest followed, with horrible examples of racism, both overt and subtle, by individual as well as government action. On September 9, 1957, President Eisenhower signed the Civil Rights Act of 1957 into law, the first major civil rights legislation since Reconstruction. It allowed federal prosecution of anyone who tried to prevent someone from voting and also created a commission to investigate voter fraud.

But my the mid-1900s, the Black community—along with many white supporters—had had enough. Protests, sit-ins, and marches took place across the country, and leaders like Dr. Martin Luther King, Jr., Malcolm X, Rosa Parks, and Rep. John Lewis, moved to the forefront of the movement, and led the charge to desegregate schools and to the passage of the Civil Rights Act of 1964, which prohibited discrimination based on race, color, religion, sex, and national origin by federal and state governments as well as some public places.

In 1965, President Lyndon Johnson signed the Voting Rights Act, which banned all voter literacy tests and provided federal examiners in certain voting jurisdictions. Following that, the Civil Rights Act of 1968 (also known as the Fair Housing Act) prohibited discrimination in sale, rental, and financing of housing based on race, creed, and national origin.

Most of the social disruption from the Civil Rights Movement took place between 1945 and 1970, but the struggle for equal rights continued. The Civil Rights Act of 1990 was the last piece of major civil rights legislation in the U.S. It provided the right to trial by jury on discrimination claims and introducing the possibility of emotional distress damages, while limiting the amount that a jury could award.

Over the last few decades, the Black community—while still underrepresented in business and education—has continued its struggle for equality. But some progress has been made.

As of 2019, there were more than 2.5 million Black-owned businesses in the U.S. But just 2%, or 124,000, of the 6 million employer firms in the U.S. are Black-owned. More than 30% are in health and social services. And as my previous chart showed, just 14% of C-suite executives are people of color.

Black Inventors
Black inventors have been mostly unsung heroes who have been responsible for some significant inventions, including:

1850 A former slave, Sarah E. Goode was the first African American woman to be granted a patent for her invention of a folding cabinet bed (the precursor to the Murphy bed).
1853 George Crum invented potato chips—thank you!
1887 The induction telegraph which allowed trains to communicate with each other was just one of the inventions from Granville Woods, who had an estimated 60 patents.
1896-1914 George Washington Carver discovered 300 uses for peanuts (but he did not invent peanut butter!). He also invented ink, dye, soap, cosmetics, flour, vinegar, and synthetic rubber—all from plants.
1905 Madam CJ Walker created products for Black hair, becoming the first African American female to become a self-made millionaire.
1912 One of the earliest versions of a gas mask, the ‘Breathing Device’, was patented by Garrett Morgan. He followed that up in 1922, when he was the first to put a ‘yellow’, or caution light, in a traffic signal.
1935 Percy Lavon Julian experimented with soybeans and synthesized a drug called physostigmine, which is used to treat glaucoma. He also discovered how to mass produce cortisone and the steroid progesterone.
1939 Charles Richard Drew became the ‘father of the blood bank’, after he developed novel methods of separating plasma from erythrocytes and dramatically increased the shelf life of plasma to two months.
1940 Frederick McKinley Jones filed one of his more than 60 patents for the roof-mounted cooling system that’s used to refrigerate goods on trucks during extended transportation.
1957 The sanitary belt was patented by Mary Beatrice David Kenner, who held a total of 5 patents.
1966 Marie Van Brittan Brown filed a patent in 1966 for the first-ever home security system.
1981 Mark Dean holds three of nine PC patents for being the co-creator of the IBM personal computer.
1986 Ophthalmologist and laser scientist Patricia Bath invented laserphaco—a device and technique still used to remove cataracts.
1990 Lonnie Johnson is responsible for the Super Soaker water gun, which has accrued more than $1 billion in retail sales.
1995 Lisa Gelobter helped develop Shockwave, the technology that helped to develop web animation. She also assisted with launching Hulu.

These inventions are just the tip of the iceberg of the cutting-edge products developed by Black inventors. Many more have made their mark by starting their own businesses.

Black-founded Companies

According to BlackEnterprise.com, the top 100 Black-owned companies produce more than $25 billion in revenues and employ more than 70,000 workers. The top 5 include:

  • World Wide Technology, with revenues of $11.28 billion, founded in 1990 by David Steward and James Kavanagh, is a technology service provider, and counts 70% of the Fortune 100 corporations as clients.
  • Act 1 Group was founded by Janice Bryant Howroyd in 1978 and provides employment, workforce management, and procurement solutions in 19 countries around the world, and has annual revenues of $2.8 billion.
  • Ron Hall, Sr. founded Bridgewater Interiors (now run by his son, Ron Hall, Jr.) in 1998. The company makes automotive seating and assembles systems across 15 distinct car models for four automotive manufacturers, and brings in almost $2 billion in annual sales.
  • Troy Taylor owns the Coca-Cola Beverages Florida franchise, which he founded in 2015. It’s a family-run entity and is the third largest privately held Coca-Cola bottler and the sixth largest independent bottler of Coca-Cola products in the United States. The company has annual revenues of $1.31 billion.
  • Modular Assembly Innovations, with $1 billion in annual sales, was founded in 2011 by Bill R. Vickers. The company supplies tires and wheels for Honda and also produces other products such as automobile center console modules, powertrain accessory modules, chassis assemblies and engine components.

But you can’t invest in any of these businesses as they are not publicly-owned. The majority of African American-owned businesses have just one employee—the founder, and 38% are female-owned. So, they tend to be small businesses, with total revenues of about $150 billion.

One of the reasons many Black-owned businesses remain small is due to lack of funding. In 2018, just 1% of venture capital dollars went to Black-owned startups, and there were only 227 venture-backed Black companies out of the 9,000 or companies were funded in 2018. So, it’s difficult for these companies to achieve the critical mass needed to become public.

I wasn’t able to find a definitive list of Black-owned companies that trade publicly. A couple of sources reported that there were only 12 on the New York Stock Exchange, but that is unverified.

Here is a small sampling of publicly-traded Black-owned businesses:

Company & Symbol Year Founded Industry
Urban One (UONE) 1980 Multi-Media
RLJ Lodging (RLJ) 2000 REIT
American Shared Hospital Svcs (AMS) 1980 Medical Equipment
Citizens Bank (CZBS) 1972 Financial

Obviously, there’s a lot of work to be done to promote Black-owned entrepreneurship.

Educational Opportunities are Improving, but Not Fast Enough
And while education for Blacks is on the rise, as you can see from the picture below, the second graph shows that graduation rates among Blacks is still lower than other races.

Black Education on the Rise

6 Year Outcomes by Race and Ethnicity

Source: National Student Clearinghouse

Consequently, with Black-owned businesses generally being smaller than and producing fewer sales than the majority of white-owned businesses, coupled with a lower graduation rate, means that there continues to be a big wealth gap between the races.

But look at the next graph, which shows what could happen to our nation’s GDP if that gap was narrowed.

Closing the Racial Wealth Gap

That’s a pretty picture, isn’t it? And it should help stoke our interest in promoting Black-owned enterprises, as well as supporting efforts for providing strong educational opportunities.

Black Lives Matter—on a Cusp of a Monumental Socio-Economic Change
And that’s why the Black Lives Matter movement is so important. Now a global organization, BLM was founded in 2013 following the murder of Florida teen Trayvon Martin. It has grown exponentially, propelled by ongoing social injustices, specifically, the increasing number of young Black men who have been falsely accused, arrested, and murdered by the police.

The BLM movement is bringing needed attention to the racial inequities and discrimination that still exist, 155 years after the Civil War and decades after the Civil Rights movement. But it is morphing into something even more far-reaching that will have a lasting impact. And that’s its focus on the lack of financial support in improving Black communities and boosting Black-owned businesses.

Finally, we are seeing big businesses recognize this inequity, many of whom have begun donating funds to BLM. They include, among others: Walmart, Target, Home Depot, EA Games, Square Enix, Etsy, H&M, Tom’s Shoes, Amazon, Spanx, Levi’s, GAP, Warby Parker, Lululemon, Nike, McDonald’s, Wendy’s, Coca-Cola, United Health, and Peloton.

As well, venture capital and investment firms are waking up, too. In the past few weeks, Work-Bench, Initialized Capital, Backstage Capital, Eniac Ventures, Spero Ventures, Hustle Fund, Precursor Ventures, MaC Venture Capital, and Upfront Ventures, have all announced initiatives to assist Black-owned firms.

And addressing the social injustice side of the equation are the more than 400 companies, including Coca-Cola, Target, Volkswagen, Adidas, Dunkin’ Donuts, Hershey, Ford, Lego, Microsoft, and Clorox, who are boycotting Facebook, ceasing their advertising (which could add up to $70 billion) as a result of how Facebook handles hate speech and other harmful content.

Money talks. And that’s why you shouldn’t ignore the corporate activity surrounding BLM. If the money flow continues, the opportunity for real change will be incredible. And that will lead to enormous investment potential.

In fact, I’m going to label this movement as the next phase of Socially Responsible Investing (SRI)—also called ESG, Environmental, Social, and Governance Investing.

SRI/ESG is not a New ‘Thing’
Lest you think that socially responsible investing is a new ‘fad’, you would be wrong. The concept actually dates back to biblical times, when Jewish law mandated ethical investing. In the U.S., the Methodists—in the 18th century—were advised to resist investing in “companies manufacturing liquor or tobacco products or promoting gambling.” Today, many religions advocate some sort of socially responsible investing, but the idea has expanded well beyond religious teachings.

In the 1960s—the Vietnam War era—protesters called on universities to cease investing in defense contractors. As the antiapartheid movement in the late 1960’s and early 1970’s geared up, there was a global outcry to halt investing in South Africa, and that led to the establishment of the first SRI fund—Pax World Fund, created in 1971.

In the 1980s, the Bhopal, Chernobyl, and Exxon Valdez disasters created more interest in environmental investing.

The concept has evolved to include companies that fight against climate change, advocate renewable resources, want to create a more equitable world, eschew ‘sin’ stocks (gambling, alcohol, tobacco, guns, even marijuana), and those that promote positive impacts such as ethical work practices, a diverse Board of Directors, and gender equality.

And now we can add promoting Black-owned businesses to the SRI concept.

Socially responsible investments account for over 25% (over $12 trillion) of all assets under professional management in the U.S. That number is expected to rise due to the more socially aware millennial generation. And in a survey from Morningstar, 75% of Americans said they have moderate to high interest in impact investing. I think we’ll find those numbers increasing as investors see the opportunity from BLM.

And you needn’t worry about the returns from SRI. Countless studies have shown that SRI fund/ETF gains are not materially different from similar non-SRI investments. In one of the latest studies, S&P Global Market Intelligence reporeds that from January 1 to May 15, 2020, 14 out of 17 ESG-focused ETFs and funds outperformed the S&P 500.

How to Invest in SRI/ESG
According to Cerulli Associates, 26% of the $46.6 trillion in total assets under management are now invested in socially responsible investments.

According to the IMF, from 2010 to 2019, the number of ESG-dedicated funds has risen from 913 to 1931, with assets growing from $352 billion to $856 billion. According to Morningstar, sustainable funds in the U.S. saw record net flows last year, four times the previous high. So far this year, there have been 23 new ESG funds created.

Sustainable Funds in First Quarter

Right now, you won’t find many Black-owned businesses in those funds, but give it time. As more firms obtain funding and eventually go public, there will likely be plenty of dedicated, as well as diversified, funds that will attract investors.

But before that happens, investors will find opportunities in existing companies that will benefit from BLM, including companies in the following sectors:

  • Secondary education
  • Body, dashboard cameras
  • Street cameras
  • Corporate and government training addressing institutional racism
  • Entrepreneurial funding
  • Entertainment
  • Personal care products

A Few Stocks Poised to Benefit from the Social Disruption
I took a look at a dozen or so companies in these sectors that might have potential. But most were just not yet ready for our money. We’re probably too early in the BLM investment cycle to determine which individual investments are worth buying. Except for…

Axon Enterprise, Inc. (AAXN) makes the body cams that policemen wear. That market is going to rise exponentially, and the stock looks good. The company is expected to grow at an annual rate of 30% over the next five years.

Alternatively, you could, of course, invest in any of the companies that have pledged funds to BLM. Of those I mentioned earlier, these four look interesting and seem to be technically attractive right now:

Home Depot (HD), a perennial investor favorite, has been a hot stock since the March market rout and nine analysts have boosted their EPS forecasts for the company in the past month.

Lululemon (LULU), the athletic apparel maker, just announced that it is paying $500 million for home fitness startup Mirror. Its e-commerce investments have paid off during the pandemic, driving the shares higher. Eight analysts have recently increased their earnings estimates for the company.

Crafty online marketplace Etsy, Inc. (ETSY) is a beneficiary of the ‘stay-at-home’ coronavirus orders. But look for it to continue growing as more folks—looking to start sidelines or make a little extra money, begin to participate. Five analysts have raised their EPS forecasts for the company in the past 30 days, and expect it to produce almost 40% annual growth in the next five years.

Amazon.com, Inc. (AMZN) is already super-hot due to its growing fortunes in the e-commerce and streaming, due to COVID-19. Now the company is making a big play to support Black-owned entertainment. Analysts expect AMZN to grow at a 34% annual rate over the next five years.

Most of these stocks have risen pretty quickly, so you may want to wait for a pullback before adding any of them to your portfolio.

As the Black Lives Matter movement progresses, there will undoubtedly be many opportunities to invest in the companies that will help provide the tools to affect this social disruption. And we will be waiting and ready to bring them to your attention as they develop.

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