Introducing Rizq Analysis
Offering a differentiated set of long-term equity investment insights through an ethical, faith-based lens...
Bismillah Al-Rahman Al-Rahim
We extend a warm welcome to our esteemed readers as we embark on this exciting venture aimed at offering insightful content on equity investment themes and wide-moat business models globally, with a particular focus on uncovering the key factors that confer the best businesses with staying power, duration, and an ability to reinvest capital at high ROICs over the long-term. In addition, we seek to take a keen interest in the environmental, social, and governance (“ESG”) perspectives on these companies through a faith-based lens.
To begin, we must make clear that we do not purport to portray any of the content on the individual companies or otherwise as being “investment advice”, nor do we make the claim that our analysis and conclusions place any of these prospects or themes in the realm of so-called “Shariah compliance”. Indeed, this is a term that has been overplayed in recent years, owing to the proliferation of demand for faith-based investment mandates; in practice, we have seen that (despite the best efforts and intentions of some of the proponents of this movement) compliance with the Sacred Law in accordance with the Islamic faith has proven to be an altogether elusive ideal within the context and paradigm of a secular global financial system, in which there will be inevitable cross-overs, interlinkages, and spill over effects when engaging with such an all-encompassing network.
Rather, we like to think of our goal as being more feasible and applicable to the real-world status quo, albeit perhaps less ambitious than arriving at an outcome that strives to fully live up to the oft-used tag line branded on Islamic investment products, but more often than not falls short by a wide margin.
Sincerity is an important tenet of faith, and we are of the view that it is far more preferable to make a conscious effort to get as close as we practically can to the most desirable outcome within the context, rather than falsely convincing ourselves that we have “cracked the code” within the complex web of the modern monetary system that entirely satisfies the parameters set by the Divine; the latter is a perilous territory, in our humble understanding, since it is a clear exposition of the inflation of the “nafs”, or ego, which constantly yearns to feel good about itself, in turn defeating the objective of setting out on a project to grow wealth ethically.
Consequently, Rizq Analysis will set out to employ a “best efforts” approach; notably, we will attempt to dive deeply into key elements of investment themes, business models, and individual companies, in order to ascertain the extent to which their operations, management, and dynamics are in the intersecting segment of the proverbial Venn diagram that includes circles for great businesses (conventionally-defined), and as close adherence as possible to the ethical values espoused by the Islamic faith, which more broadly includes the traditional “ESG” categorisations.
The original inspiration and vision behind this venture had its genesis in the increasing realisation that many of the incumbent faith-based, or so-called “Shariah compliant” investors, funds, vehicles, and platforms, have tended to espouse relatively facile screening and filtering tools to arrive at a universe of investable candidates that, at least superficially, may sit well with faith-based sensibilities, an elementary level being the obvious elimination of prospects in the alcoholic beverages, interest-based financing models, or gambling sectors, for example. This is in no way to detract from the significant progress that many of the proponents have made using such methodologies, which is most definitely a step in the right direction, and much needed change to cater to the wealth management needs of the growing population of middle-class Muslims globally. Moreover, a number of these platforms have developed more sophisticated tools to filter companies more effectively, and are certainly worthy avenues to explore for the wealth management needs of Muslims, which we can perhaps explore in a later post.
However, what we feel is somewhat amiss currently is the deep-dive fundamental analysis and investigative work around business models, management teams, and corporate governance, which necessitates some form of “scuttlebutt” - to borrow a Phil Fisher term - and is an aspect of the traditional bottom-up investment process that requires honed expertise and human capital, rather than something that can be conveniently handed over to an algorithm, hence represents an investment edge that cannot readily be “competed away” by the AI investment revolution.
Moreover, we feel that there is a desperate need, now more than ever, to consider environmental issues as a focal point in investment analysis, particularly climate change. This is not only something that people of faith should naturally take a keen interest in promoting, but there are factors closer to our hearts that ought to spur Muslim investors to pay attention to climate change and help to mitigate its effects as much as possible. Just one stark example of a striking and potentially catastrophic consequence of mankind’s accumulated greed and incessant devouring of resources at all costs - all in the name of “progress” - is that one-third of the Himalayan glaciers are set to melt by the end of the century, even if current efforts to reduce climate change succeed, and up to two-thirds if they don’t. This is a sobering prospect, and should strike a chord with Muslims, since of the potentially two billion people directly at risk from the resultant flooding of the melting glaciers, a large proportion are inhabitants of largely Muslim territories, such as Pakistan and Bangladesh - as is often the case, it is the weak and destitute who typically bear the brunt of profligacy.
As a result, we will aim to dig into the specific measures that companies and industries at large have been taking to tackle these very serious issues head-on. In aggregate, we hope to provide interesting and insightful pieces to inform your investment processes, offer some food for thought, and in a nutshell, a means through which to formulate critical questions around an investment case when applying a faith-based lens on a best efforts basis.
To begin, we will set out to focus on differentiated insights and provide articles short of full-company write-ups and valuation analyses; perhaps at a later stage, depending on feedback and demand, we will evolve the product, so as to better meet the needs of our readers and subscribers following the preliminary iterations. At the same time, we will endeavour to make the content as varied as possible in this initial phase, so that we can gather data points on the style and type of content that appeals most to investors, ranging from high-level industry focused pieces, to “expert network” style interviews with key company and industry stakeholders, as well as material of a more philosophical and spiritual bent, since we assume that the core audience will have at least some interest or connection to the faith-based approach to investing. Ultimately, we are firm believers in the long-term compounding approach to sustainable wealth creation, as popularised by the likes of Warren Buffett, rather than speculatively trading stocks as if they were merely pieces of paper, so the genre of the materials will invariably pertain to this major theme.
We will kick off our first major piece by setting the stage and outlining our basic mental models and investment analysis framework when searching for great businesses around the world. Happy reading!