Written By: Milja Mieskolainen

These terms cover large entities. Let’s begin with impact investing, as it can be the basis or only a small part of an overall investment strategy. Many have certainly heard about responsible investment and taking a broader standpoint of investing, but rarely do we really focus on the differences between these purposes. Deeds mean more than words, and it’s the concrete behind the promises that matters the most.

It’s not uncommon for responsible investment to be confused with impact investing. These terms often get mixed up at least in our everyday language, which is of course not dangerous. However, if you want to think about your own strategy, it might be a good idea to get to know these themes a bit more closely. Impact investing can be roughly described as an impact that seeks environmental or social benefits in addition to returns. The more traditional and more familiar responsible investment is limited to not selecting companies that are a part of the problem.

We can use environmental protection as an example. If a person wants to focus only on the fact that the company does not harm the environment through actions such as using large amounts of fossil fuels, he is a responsible investor. When diving deeper into solving the problem by for example investing in a company that develops alternatives to fossil fuels, can we talk about an impact investor.

Impact investing is not only limited to environmental issues but can also seek to cure other long and short term disadvantages. Impact investing can be seen as a strategy used to influence the problematic chain in the long run, with each piece affecting a functional whole. Social problems exacerbate the pain points of the social network, and together they undermine the protection of the environment, which stems from the norms and schemes of things set by the institutions. If one of these components is lame, it is difficult to get a function whole that has the ability to make a difference.

As with any topic or theme, there are problems with impact investing, too. Not all problems can be solved by investing, no matter how effective it is. The entities mentioned earlier are a part of the solution, but that does not mean that we should not try to do something meaningful by our own actions. Public sector regulations and laws, along with attitudes, are the foundation on which more impact-generating solutions can be built with impact investing.

The next topic is active stock picking, which is one of the best known parts of the investment world. The image of stock market analysts constantly analyzing companies is by no means false, but it can be misleading. What is stock picking really?

In its simplest form, a shareholder buys a stock from a listed company and sells it when he thinks the time is right. In reality, the process involves trading costs and other slowing down factors, but the core of stock trading is analysis and profit making. I want to sell the stock at a higher price than what I paid for it. How do I know which stock price is rising? How can I make an excess earning? How can I win the market? There are no simple answers to these, and the truth is that most investors are losing to the index in the long term.

However, there are many good things about active stock trading and it's definitely worth getting to know. Knowledge is power, and when you are ready to work hard and get to know different companies, it is possible to get good returns. If you are ready to put together a mosaic of pieces of information, analysis and calculations, it indicates that you want to truly understand the functioning of the market and the value of the company. No one can ever know everything, but finding the essential information and creating a logical whole will go a long way in replacing the missing pieces of the structure.

Recently, index investing has gained popularity at an accelerating pace and is, for many, the easiest way to start investing. An index investor cannot beat the market or make an excess earning, but investing in an index is safe and, at its best, does not take time. Because there are no free lunches, when index investing one loses the ability to capitalize on market sentiment or price distortions. An investor with discipline and good nerves can go countercurrent and is not accountable to anyone. Thus, he has the ability to monitor the performance of the market, find opportunities and avoid potential bad companies in the index.

In practice, an active shareholder can spend more time with various sources of information researching companies, interpreting past performance, and learning new things than trading. As the whole world moves forward, so do the companies on the stock exchange. In general, balancing between optimism and realism is a part of the daily life of an active investor. There are opportunities everywhere. There are disappointments everywhere.

Both topics have been popular for a long time and offer many possibilities. An active stock picker, compared to an index investor, has the ability to choose to his portfolio companies that create an impact and thus have the ability to support these solutions. By combining impact investing and stock picking, an investor can influence, learn, and especially act as they want on the matters that they find the most important.