I listened to a group of individuals discussing investing when one mentioned he had bought a hot penny stock on the recommendation of a friend. “What company is it?” one individual asked. “I don’t know,” was the response, “I only know the symbol.” As you can imagine, my next newspaper article was already formulating in my head.
Another person in the group then asked, “What does the company do?” I knew I had to write this article when the answer came back, “I don’t know, but what does it matter?” By now cell phones were searching the internet for news on this mysterious company. When the group learned that the company was selling a dangerous product, and marketing it to teens, the man boastfully declared, “I don’t care what they sell, as long as they make me money.”
I wonder how many people feel the same about their investments. Do you care what your money is being used for or do you only care if you turn a profit? A couple of decades ago a trend known as “Socially Responsible Investing” began to emerge. I remember reading an article by a leading analyst at the time who discarded the movement as a bunch of “tree huggers” who did not know how to read a balance sheet. A modern offshoot of that trend called “Impact Investing” looks for companies making a positive impact on the world. Having followed the data for years, I am beginning to believe there may be good reason for investors to give a serious look at this type of investing.
A recent example is CVS pharmacy whose stated purpose is “Bringing good health to America.” While touring a store, CEO Larry Merlo noticed the rack of cigarettes behind the counter. He wondered how a company focused on good health could be selling such a product. Many investors were shocked when he later announced CVS had discontinued tobacco sales at all 26,000 stores saying, “It was the right thing to do.” Mr. Merlo put his job and company on the line since tobacco sales accounted for a whopping $2 Billion in annual revenue. Surprisingly, in the 17 months since that announcement, CVS stock has climbed over **25% (Yahoo Finance). I wonder if being morally responsible in one area of business leads to higher morals in other areas? If so, there may be some value in looking beyond the traditional balance sheets of future companies.
In 2015, the Edelman Trust barometer showed that 81% of customers wanted to do business with companies that sought a purpose higher than profits. In a related 2015 survey by the Levo group, 84% of millennials reported that a company’s purpose was the #1 consideration for a good job fit. Investors in 2016 who only know how to read a balance sheet, but fail to take into account the moral value and purpose of what a company does, may find themselves moving dangerously away from some very strong socio-economic trends.
** In NO WAY should this be taken as a recommendation to buy or sell CVS stock. The story is only used as an example to illustrate a point.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 1173 S. 250 W. Suite 505, St. George, UT 84770.
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