Imagine you are the owner of a successful business that your family spent decades building. Then one day you are being interviewed about your business by a television station. During the interview you casually make a comment that identifies your political leanings in a hot topic area. Suddenly, as if by whirlwind, the next day you learn your business has been targeted for a national boycott, not because of the products you sell, but merely for your political beliefs. Welcome to the investing reality show of 2017.
When I was a young investor I worried about all the typical risks a business might face such as credit, inflation, competition, interest rate, market and others. Now a new risk has been added to that list – political risk. This is the risk that, completely apart from a business’s product line, a company gets drug into, or voluntarily walks into, a political battle that leads to a boycott. Boycotts are not new, but social media has made them much more powerful.
The political climate is so heated in our nation that apparently it’s no longer enough to discuss matters in a public forum. Both sides have now taken to attacking the business interests of the other. Retailers are boycotted for policy decisions that have nothing to do with the products they sell. Some manufacturers are boycotted by retailers who disagree with their political views. One person mentioned to me the other day that there were so many boycotts going on that she could no longer remember where she was not supposed to be shopping anymore, or where she was allowed to buy her coffee.
It is difficult to calculate the effect of a boycott; they may hurt or they may even help a business by increasing brand awareness. I didn’t even know Ivanka Trump had a clothing line until someone decided to boycott her. Likewise, privately held Chik Fil A restaurants reported increased sales after they were targeted for boycott. I have also watched stock prices suffer under a boycott, though it is impossible to know how much may have been caused by other factors.
Choosing to invest in individual stocks brings a unique and elevated level of risk. With the heightened political risk that companies now face, I advise investors to be even more careful if they are buying single stocks. There doesn’t seem to be an end in sight to the current boycott epidemic, but maybe over time businesses will decide to exit the political arena and go back to just producing and selling great products.
Until then, investors may need someone to design a new cell phone app that tracks all the current boycotts with the added feature of warning them when a company they invest in has taken a political stand that may result in offending half their customers. It is truly a new world we are living in and, all kidding aside, investors should be careful of this new risk.
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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