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The Power of Half


Parsad
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Looks like Buffett's request to some of the world's richest billionaires to donate half of their wealth, could also apply to many other people who have done well.  Here's a story of a family who sold their mansion and donated half to charity:

 

http://www.bloomberg.com/news/2010-06-21/family-sells-2-million-mansion-gives-half-to-charity-review.html

 

Cheers!

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Am I wrong to believe that this one-sided charity argument is short on some facts? Buffett and Gates waited a lifetime after building giant businesses to donate. At that point they were able to donate far more than others, thus by deferring charity until they did, they were able to offer MORE charity - a net positive? Likewise, the article says that if one person had a cheaper car, a homeless person could get another meal, but what about the many indirect benefits of wealth in society? How many workers made that Mercedes and were able to eat? How much does Mercedes as a corporation donate in relation to each car purchased (I'd think the profit margins are quite large).

 

In short, this seems to be more an argument for where and how you allocate your charity dollars. And for those who think the family is being altruistic, there does seem to always be a self-serving reason for giving, "The family had dinner together but their daily lives seemed to be drifting apart, each busy with his or her own activities. "

 

Ok, my rant is over :)

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Am I wrong to believe that this one-sided charity argument is short on some facts? Buffett and Gates waited a lifetime after building giant businesses to donate. At that point they were able to donate far more than others, thus by deferring charity until they did, they were able to offer MORE charity - a net positive? Likewise, the article says that if one person had a cheaper car, a homeless person could get another meal, but what about the many indirect benefits of wealth in society? How many workers made that Mercedes and were able to eat? How much does Mercedes as a corporation donate in relation to each car purchased (I'd think the profit margins are quite large).

 

I don't think anyone is arguing these points.  The point of their actions were that anyone can make a difference.  Some do it with their time (volunteers), some give back through their careers (teachers), and some can do it through charitable contributions.  Cheers! 

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Likewise, the article says that if one person had a cheaper car, a homeless person could get another meal, but what about the many indirect benefits of wealth in society? How many workers made that Mercedes and were able to eat? How much does Mercedes as a corporation donate in relation to each car purchased (I'd think the profit margins are quite large).

 

 

I was really turned off when I read that part.  Economics is not a zero sum game.  One person having money doesn't prevent another person from having money.  Maybe the homeless guy had physical/mental conditions preventing him from a job, but it is hard not to say "the guy in the Mercedes isn't preventing the homeless guy from working, not being addicted to drugs, and getting a meal."

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Giving money to a homeless person is perhaps a tangible example of giving money to someone who needs it, but in a lot of cases it is probably not really helpful, except for the guy who runs the liquor store, who probably gets the money a few minutes later.

 

If you interpret that statement as donating money to a homeless shelter or a qualified organization that strives to get the homeless off of the streets in a sustainable way, or some other worthwhile charity, then it makes more sense.  Essentially if everyone who had a luxurious lifestyle made their lifestyle a little less luxurious and used their money to support effective charities, the world might be a better place.

 

Of course you could still argue that $1000 spent on goods and services might indirectly benefit the impoverished more than it would if you gave $1000 to the #1 charity in your area, because it would promote economic development that would lead to decreasing the level of poverty.  Of course, the $1000 you spend might just go to some CEO's $10 million salary and then into his charitable trust which won't ever be released into the general economy...

 

If you take that idea to the extreme, then Buffett should go out and wildly spend his billions of dollars on goods and services before he dies so that he can stimulate the economy?

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In my opinion, you can donate the money but all donations don't have same overall impact. Point can be made for spending instead of donation to create more jobs but there are needs for specific projects which benefit the the society in very big way. Trick is to spend the money for something which has bigger impact.

 

Example - Mohnish is not donating money for opera hall etc but he has taken the initiative to target kids from poorest section in India and train them for IIT entrance examination( Some one who doesn't know - it has less than 2% acceptance rate and MIT/Stanford has more than 10% acceptance rate but you pay nominal fee to study there ). His foundation does select bright students only but they won't get the oppurtunities in normal circumtances even though they are bright. Results have been fantastic. Big percentage of selected students make it to IIT and other top schools. These successful students act as role model for other kids in slums like environemnt. Some of the selected students get involved in guiding other kids and they  are also expected to contribute money when they earn. Hopefully it can become a self sustaining system where some smart kids from poorest section gets best education.  

 

Yes, spending the money instead of donating does create trickle down effect but some section does need direct and immediate help. Few identified areas will provide biggest bang for money and channeling the donation in those areas is more effective if you consider whole world's population as one unit.  One million dollar can save the life of thousands of kids in africa but it might not help even hundereds in USA. Same money but manifold results.

 

I don't know too much but it seems Bill gates is trying to use the money smartly as well. Its a very big amount and smart use of it will make a very big impact.

 

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I think the difference is night and day when you compare a place like the US (bottom's up entrepenurial system) with opportunity for just about everyone and other parts of the world were basic needs are not being met.  We have the luxury of not thinking about where are next meal is coming from or having to work (not just us but our whole family) all day just make enough to eat.  In many places in the world this is the way it is and was the same way here 100 to 150 years ago.  There are many organizations that provide hand ups (fresh water wells, AIDS and TB medicines and malaria nets - I mention these three provide the largest bang for the buck spent according to the Copenhagen consensus) at affordable prices for all folks.  I think the key thing is to give no matter how much or little you have.  Being the bargain hunter I am I have comparison shopped these items and found the best prices at Franklin Graham's organization (Samaritan's Purse).  I think who you give through is not as important as giving as it can create an incredible networking effect for good.

 

Packer 

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Perhaps somebody will put together a list of "value" philanthropy.

 

I know it costs about $1,000 per year for college in Nicaragua -- a local philanthropy grants scholarships to students on the Nicaraguan island of Omatepe... a $6,000 gift will give somebody a career in medicine.

 

Then there is the Central Asia Institute where they will build a school in Pakistan/Afghanistan for $12,000.

 

But what else?  My knowledge is limited here.  I'd love a list of where you get the most bang for your buck.  I'm not interested in valuing an American life over the life of a person elsewhere -- if it costs 10x in America what it costs in Nicaragua, I'd rather benefit 10 people over there versus one person here.

 

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Couldn't we simply run our charity dollars through the government?  The gov't could set up their taxation system to tax the wealthiest individuals and wealthiest corporations more and then re-distribute those dollars to various pockets of society that need it the most (education, health care, employment, etc).  If the taxation system was progressive enough, it could tax the wealthiest to the point where they couldn't afford the Mercedes anymore and the gov't could put those excess funds towards programs to benefit the less fortunate in society.

 

That could work, couldn't it?

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Guest Bronco

Ffhwatcher, love your sense of humor.

 

As a cpa doing many returns over the years, you realize many people with money are charitable in some way.

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Perhaps somebody will put together a list of "value" philanthropy.

 

I know it costs about $1,000 per year for college in Nicaragua -- a local philanthropy grants scholarships to students on the Nicaraguan island of Omatepe... a $6,000 gift will give somebody a career in medicine.

 

Then there is the Central Asia Institute where they will build a school in Pakistan/Afghanistan for $12,000.

 

But what else?  My knowledge is limited here.  I'd love a list of where you get the most bang for your buck.  I'm not interested in valuing an American life over the life of a person elsewhere -- if it costs 10x in America what it costs in Nicaragua, I'd rather benefit 10 people over there versus one person here.

 

 

Great idea! I was trying to find charities/non-profits, etc where you get the most bang for your buck, but so far I had been really disappointed when I took a detailed look at them. I found that the best charities seem to target only about 85% of total "collections" to go to actually helping the poor. The other 15% is overhead for example, charity drives, events, etc. Even this 85% is very inefficiently deployed and in some of the very small charities that I had an opportunity to look into, about $2 worth of service is being delivered for every $5 that is collected.

 

I think many more people would be willing to donate large sums if there is some credible evidence that the money is really being put to good use. A rating agency for non-profits would go a long way in both improving the performance of existing charities by highlighting the amount of waste and in increasing the amounts donated by people.

 

Thanks

 

Vinod

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Couldn't we simply run our charity dollars through the government?  The gov't could set up their taxation system to tax the wealthiest individuals and wealthiest corporations more and then re-distribute those dollars to various pockets of society that need it the most (education, health care, employment, etc).  If the taxation system was progressive enough, it could tax the wealthiest to the point where they couldn't afford the Mercedes anymore and the gov't could put those excess funds towards programs to benefit the less fortunate in society.

 

That could work, couldn't it?

 

Goverment is needed in certain sections for sure but I don't think they are very efficient in getting biggest bang for money. I wouldn't tax to such an extent that no one can afford Mercedes. It will simply kill any incentive for anyone to work smarter/harder. In my opinion Government should stick to providing essential services which helps the society( like fire fighters, police etc). If the government can provide an environment to their citizens where they can unleash their potentials, the job is 100% done.

 

Despite all the problems , USA has done well due to having a decent system in place which allows regular Joe to do something if he wants. I think in Afganistan , you will have equal percentage of talanted kids but environemnt is not helpful . Many potential engg, doctors, poets and others grow up seeing only the guns and bullets.

 

Thats the main reason, I feel optimistic about the future of USA. For couple of thousands year, China didn't provide an environement where talent can be unleashed. Slowly they are moving in that direction and as results many good things will come to this world. Different time scale but similar situation with India. Most places in Africa never had any decent system for an extented period and sadly I don't see any progress also.

 

 

 

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Perhaps somebody will put together a list of "value" philanthropy.

 

 

 

Well, I don't have any list but I do know few people personaly who are trying to buid a school in remote area in Jihur,Ethiopia -  where kids have to walk more than 20 miles if they want to go to high school. I was helping them with a presentation for fund raising recently.

 

Most kids there don't even get to finish primary education. They have to work to support their families. Some who are fotunate enough to finish primary education, face lots of trouble to get even basic high school education due to nearest high school being 15 miles apart and no reliable means to travel.

 

Any of you interested can check their website.

 

http://www.jihurschool.com/

 

 

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Perhaps somebody will put together a list of "value" philanthropy.

 

I know it costs about $1,000 per year for college in Nicaragua -- a local philanthropy grants scholarships to students on the Nicaraguan island of Omatepe... a $6,000 gift will give somebody a career in medicine.

 

Then there is the Central Asia Institute where they will build a school in Pakistan/Afghanistan for $12,000.

 

But what else?  My knowledge is limited here.  I'd love a list of where you get the most bang for your buck.  I'm not interested in valuing an American life over the life of a person elsewhere -- if it costs 10x in America what it costs in Nicaragua, I'd rather benefit 10 people over there versus one person here.

 

 

 

Effective philanthropy is just as difficult as highly focused value investing if not more so.  Buffett said he couldn't do it effectively.  That's why he turned his money over to Gates.  Peter Lynch once did a study of the outcome of his fund's investments in companies where there was much promise,but no verifiable long term, successful track record.  The results: of 37 companies every single one of them were losers, mostly big losers.

 

We did a similar study of dozens of relatively small donations of a private foundation to organizations that they knew little about other than what they purported to do.  A close follow up study was unable to verify any lasting positive effect from any of those donations.  This foundation now concentrates most of its giving on a handful of organizations that they know from intimate contact are highly effective.

 

I'll try to come up with a short list of a few highly effective organizations in the next few days, but this should be only a starting point.  Check out their track records, what they have actually done, not what they say they have done or what they hope to do.

 

IMO the most satisfying giving isn't sending money to a distant charity, but going to the most out of the way regions of under developed countries on medical mission trips to help people who have no access to medical care or no pure water other than the well the missionary organization helped provide.

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  • 2 weeks later...

Perhaps somebody will put together a list of "value" philanthropy.

 

I know it costs about $1,000 per year for college in Nicaragua -- a local philanthropy grants scholarships to students on the Nicaraguan island of Omatepe... a $6,000 gift will give somebody a career in medicine.

 

Then there is the Central Asia Institute where they will build a school in Pakistan/Afghanistan for $12,000.

 

But what else?  My knowledge is limited here.  I'd love a list of where you get the most bang for your buck.  I'm not interested in valuing an American life over the life of a person elsewhere -- if it costs 10x in America what it costs in Nicaragua, I'd rather benefit 10 people over there versus one person here.

 

 

 

Effective philanthropy is just as difficult as highly focused value investing if not more so.  Buffett said he couldn't do it effectively.  That's why he turned his money over to Gates.  Peter Lynch once did a study of the outcome of his fund's investments in companies where there was much promise,but no verifiable long term, successful track record.  The results: of 37 companies every single one of them were losers, mostly big losers.

 

We did a similar study of dozens of relatively small donations of a private foundation to organizations that they knew little about other than what they purported to do.  A close follow up study was unable to verify any lasting positive effect from any of those donations.  This foundation now concentrates most of its giving on a handful of organizations that they know from intimate contact are highly effective.

 

I'll try to come up with a short list of a few highly effective organizations in the next few days, but this should be only a starting point.  Check out their track records, what they have actually done, not what they say they have done or what they hope to do.

 

IMO the most satisfying giving isn't sending money to a distant charity, but going to the most out of the way regions of under developed countries on medical mission trips to help people who have no access to medical care or no pure water other than the well the missionary organization helped provide.

 

Here are two charities with ROI that's about as high as it gets:

 

Living Water International has a long track record of success installing and then helping communities maintain fresh water pumps in poor countries, over 9000 wells now and counting.  they leverage donations by training volunteers and getting churches and other NGO's to sponsor specific projects.  I personally saw the tremendous impact the installation of one of their wells made in a Honduran village of about 2000 people.  One year after the community's fresh water well was installed,  infant and childhood mortality from endemic water born illnesses dropped to zero and the older members of the community reported that their gastrointestinal illnesses were a tiny fraction of the former incidence.  See:   www.water.cc

 

Free Wheelchair Mission ships robustly designed, easily maintained wheelchairs made with common off the shelf parts like mountain bike tires to poor countries and distributes them free of charge.  It was started by a MIT PhD mechanical engineer who saw a poor woman in Morocco dragging her legless body on a dirt road with her one good hand several years ago.  $59.00 will give a person like her a new life with wheels.  See:   www.freewheelchairmission.org

 

There are many other effective organizations that do good works.  the two organizations listed above are merely a good starting point for giving.  

 

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