A Stockpicker’s Market in Philanthropy

In the stock market, there are times when most companies are able to ride a booming economy and produce good results. In these markets, it often seems as if investors can pick just about any stock and do well. At other times, the economy is so turbulent that only really well run or uniquely positioned companies are successful investments. These turbulent times are often referred to as “a stock picker’s market.” This phrase is meant to suggest that someone who can differentiate between stocks has an advantage over someone who simply positions their assets to participate in line with how the overall market behaves.

I think we’re in a stock picker’s market in philanthropy.

During the last six years we’ve seen a strong economy and growing interest in philanthropy. We’ve also seen a burst of new nonprofits with new ideas. As long as the economy and charitable giving chugged along, many nonprofits were able to stay in business and start new projects.

Today we’re seeing what many experts believe will be the deepest and most abrupt recession in decades. Since few nonprofits are able to build “equity” to draw on during tough times, they have little to no ability to withstand drops in funding without dramatically pulling back on their programs.

So we seem to have a number of convergent forces that will make it more important than ever for donors to fund the right organization and not just throw money at a cause. For the last few years, if a donor funded any nonprofit that was working on a cause they cared about, the donor could at least expect that the nonprofit would still exist in a year. Today, donors need to question whether the nonprofits they plan to fund are even a going concern. Nonprofits do not face strong market forces when you look at their programs. As long as they are good fundraisers, a nonprofit can run ineffective programs and still stay in business. But nonprofits do face harsh market forces on the fundraising side.

We’re in the early stages of seeing how this plays out. But I think that we are now in an environment where donors who attempt to pick the best nonprofits to fund rather than being content to give to nonprofits simply because they focus on a cause the donor cares about will see the fruit of their discernment through obviously superior results.

The fact is, tough times are when great organizations differentiate themselves. If you’re a Seth Godin fan, you’ll know that the economic turmoil is a “dip” that great organizations will roll up their sleeves and lean into.


  1. Sean,

    I really appreciate the way you use the language of investment to talk about philanthropy, and I think the long-term outlook is very important, but I have a question about messaging.

    Whenever I use the word “invest” when talking about Wokai, the China microfinance non-profit with which I work, the person’s next question is always, “So, what’s the return?” I’ve answered this question several ways:

    1. Highlighting the long-term impact on China’s society

    2. Explaining the way in which contributions made to fund loans for entrepreneurs in rural China can be recycled (once the original borrower repays the loan)

    These answers rarely seem to satisfy the person I’m speaking with. I think it’s because many of these people either work in finance or are active investors, and the word “invest” activates a completely different part of the brain than a word like “donate” or “contribute.”

    I’m wondering if you have experienced a similar cycle of questions in your own work, and how you have approached them. One of my favorite posts of yours was the one about the distinction between spending and investing, but I’m starting to think that this language might be more prevalent among people who talk about philanthropy every day than among the wider population of potential contributors.


  2. Great question Leslie. I’m going to answer this in a full blog post, but I’m out of time today.