THE BLOG
09/25/2012 03:46 pm ET | Updated Nov 24, 2012

What Is Good for the Poor Is Good for the Country

Taoists perceive nature differently than many. It is the nature of mathematics that one is given the choice to see the world as discrete units (algebra), or continuous motion (calculus). It is the same with strategy.

Taoists perceive strategy in the continuous. As the great strategist Sun Tzu notes in The Art of War: "Order is born from disorder; courage is teased from timidity; victory is lifted from defeat."

The question to ask a Taoist is not "Are you happy?", but "What is your state of nature?" Taoists do not define the world in terms of black/white and either/or; nothing ever is as it is always becoming. Strategy is viewed in relative terms like a point on a continuum. In all happiness, there is sorrow; an army amassing strength in one position weakens itself in another; all disadvantages present opportunities. It is a dualistic vision.

Think of a multi-dimensional graph of variables with the current state of nature as a coordinate on the graph, but current is passing. Taoists believe they are purposefully creating actions to create a more preferred state. Good strategists of Taoist lore are defined by their total focus on actions to change states of nature. Because they view strategy in the continuous, they always believe there is a way to move along the continuum. It is never a question of possible. It is always a question of how.

It is my experience in working with college athletes that many limit their potential because they lack two qualities. One is self confidence, the other is motivation. One reason they lack self-confidence is they see the world more in the discrete. "I cannot do this task consistently so I have failed." Mushashi, the great samurai reflects the Taoist view when he writes in The Book of Five Rings: "...determine that today you will overcome your self of the day before, tomorrow you will win over those of lesser skills, and later you will win over those of greater skill..."

Given that the median wealth of Whites ($110,000) is 20 times that of Blacks ($4,950), the goal of our REDUCEtheWEALTHGAP Campaign is to increase the wealth of the urban disadvantaged. Our current design does so by first educating participants in business literacy. We then help graduates create and maintain a community of wealth with three investment opportunities -- savings groups, investing groups, and micro-business loans. We are highly confident the program is effective. It is also cost efficient.

Today I want to focus on investing groups. Their genesis arose from a class discussion during our January pilot. During a free wheeling discussion on types of investments I asked about their knowledge of mutual funds. Fewer than 35% had heard of mutual funds, and less than 15% owned them. I talked about index funds and brought up the Fidelity Spartan 500 Fund. I told them that when you own even a fractional share, you can tell people you own shares in 500 of the world's most powerful firms. I pointed out this included ownership in Apple, GE, IBM, AT&T, Coca Cola, Exxon Mobil, etc. The general nature of the class when told this was disbelief. I then explained more convincingly and smiles arose across their faces. When I explained the lack of trading costs and the low expense of index funds it was if I had led them to a world they never knew existed -- like, I introduced the genius of Jack Bogle to a new culture.

Mutual funds seem well suited for our investment purposes. Most importantly, fractional share purchases are possible meaning that participants can invest small sums of money. We believe members of our investing groups will minimally triple their returns from current levels.
Besides knowledge, the other obstacle blocking many participants from investing in the funds is the required initial investment (often $3,000). We mitigate this by seeking an outsider investor willing to invest $3,000 to join an investment group. Investors will include individuals, foundations, and Wharton alumni.

Interestingly enough, the design of our investing groups better aligns incentives between the disadvantaged and society. Most current programs supporting the urban disadvantaged are presumed to cost society dollars. Our program increases the wealth of the urban disadvantaged through their investment in society, in our case through markets.

Furthermore, the more our program grows the greater is the financial support of the urban disadvantaged. Growth of the program does not mean higher expenses -- it signifies greater investment by them. What's good for the poor is good for the country.