Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 8018 going to renew Bureau of Prisons contract with private prison companies, the stocks of the two largest prison companies dropped almost 50% in the first hour of trading. The private prison industry is one example of many private companies that depend on govern- ment funding of a function at an expense level significantly higher than the most economic ways to deliver that function. As described in my on line book, Dillon Read & Co Inc. and the Aristoc- racy of Stock Profits http://dunwalke.com, there are two prison systems involved – one for the incarcerated and one for the taxpayers funding the first. Now that the debt-financed growth model can- not continue, we must look at the fundamental productivity of companies. Can they endure the changes ahead, including cutbacks in govern- ment spending? Investment Screening: Can We Filter for Productive Companies? Can we filter for productive companies? The an- swer is most certainly, “Yes.” However, doing so is truly an art, and not a science. First, we do not have transparency on how our global governance and financial system work. Nor do we have reasonable disclosure of covert cash flows and assets. We know that trillions have gone missing in a global financial coup d’état but we don’t know where the money went or how it is being reinvested. Consequently, we lack information to understand how the eco- nomics of an individual company or industry really works. I can estimate, sometimes with some degree of confidence, however, there will be surprises. Second, we can be confident that company prod- ucts and services are productive, make money for the shareholders, and add value in the general economy. However, such a company can still be targeted by economic warfare by government (e.g. the coal companies) or by covert operations (e.g. Chipolte) in a manner that significantly harms productivity. Productivity is not neces- sarily protection against growing political risks, particularly from the unproductive. Third, for the Solari Screen, I will be looking for companies that have a significant fundamental business. They make money in the marketplace. I am not concerned with their ESG policies or compliance. I am concerned about: • Excellence in governance and management: I am looking for companies of which the investors, board of directors, and manage- ment reflect the experience, knowledge, and networks required by the business, custom- ers, and constituencies they serve. They have leadership that can produce excellence in their core mission. • Lawfulness: I am looking for companies with a fundamentally lawful business model. That model does not make them perfect, nor mean that they do not make mistakes or that a duly authorized officer of the corporation does not break the law. It does mean that the company has not adopted a model that de- pends on intentional, institutionalized crimi- nality. • Risk: I am looking to avoid what I call “real stinkers.” They may play by the letter of the law, however, they have a reputation for play- ing dirty or working overtime to make highly questionable or highly unethical practices technically legal. These folks are likely to get caught eventually or experience serious con- sumer and investor blowback. At some point, they have too many enemies and too many liabilities not to get in trouble. Monsanto is a recent case in point. • Private: I prefer companies that make money in the private markets as opposed to depen- dence on a high degree of government pur- chases or contracts that come with a heavy degree of political risk. The exception is state- owned companies in international markets where this risk is a common, seasoned prac- tice, and a hybrid public-private partnership can reduce political risk. By definition this may leave out a significant number of ESG criteria. Consider this a positive “ Can we filter for pro- ductive companies? The answer is most certainly, “Yes”. However, doing so is truly an art, and not a science. ” I. Investment Screening: Can We Filter for Productive Comapnies?