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A New, Evolving Chapter in Investing

By Alyce Lomax – Mar 20, 2014 at 6:30PM

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Much like life, investing evolves. We can add on more positive ways to secure our futures.

Increasing numbers of investors are shifting toward a new investment style that applies new standards for high-quality investments. This philosophy involves investing in companies that reflect the shareholder's personal beliefs -- or at least don't work against them. Like everything else in life, investment philosophy evolves.

When searching for prospective investments, some investors are adding in more holistic criteria, such as empathic leadership, corporate values that align with the investor's personal values, and high-quality businesses that strive to make the world a better place, rather than simply maximizing profits on a quarter-by-quarter basis.

Large groups, growing financial power
Some of this growing shift owes to a straightforward financial factor: demand.

Sallie Krawcheck, former Merrill Lynch and Smith Barney exec, penned a LinkedIn post on a Big Idea for 2014, explaining why more stakeholder-friendly investing is increasingly important. Two large groups, women and millennials, are increasing their wealth and showing an interest in responsible investing. Contentions about this major shift are borne out elsewhere.

The U.S. Trust's "2013 Insights on Wealth and Worth" points out that 45% of high-net-worth individuals see their investment decisions as ways to express their social, political, and environmental beliefs. Further, this focus on responsible investing was especially high among women and relatively young investors: Of women in the pool of respondents, 65% believe it is important to view investments through the lens of their impact on society and the environment, and 67% of Gen X and Gen Y respondents agreed it was important.

Females' financial aspirations and influence are growing. First Affirmative Financial Network, which tracks trends in socially responsible investment, recently pointed to females as a significant economic force with a sustainability focus.

According to the U.S. Department of Education, women control 60% of wealth, and their numbers are growing at twice the rate of men's. In addition, some estimate that by 2030, females will control two-thirds of wealth in the U.S.

Millennials embrace a similar view of business and investing. According to one study from the Social Science Research Network, 90% of MBAs would accept lower paychecks if they could work for a company that takes social responsibility and ethics seriously.

Millennials are also attracted to "impact investing" in its many forms. Their business decisions will build intellectual capital into workforces going forward. If young people -- a Boomer-like force in sheer numbers -- want to work that way, as they amass wealth, they will likely invest that way.

Pioneers of a profit philosophy shift
Some people still don't believe that environmentally and socially conscious initiatives can actually boost companies' bottom lines, rather than simply giving the public a warm and fuzzy feeling.

Still, some major companies have been earnestly increasing their environmental and social friendliness. These wildly successful companies -- with massive long-term investment returns -- express this in their shareholder letters and 10-K filings:

  • Costco's (COST 1.10%) 2013 annual shareholder letter: "We continually ask ourselves: Are we improving our performance? Are we growing our business? Is our performance in the eyes of all our stakeholders -- our members, our employees, and our suppliers -- better than it was yesterday?"
  • Facebook (META 1.97%) CEO Mark Zuckerberg: "Facebook was not originally created to be a company. It was built to accomplish a social mission -- to make the world more open and connected. ... These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits."
  • Whole Foods Market's (WFM) "higher purpose statement": "With great courage, integrity, and love, we embrace our responsibility to co-create a world where each of us, our communities, and our planets can flourish -- all the while, celebrating the sheer love and joy of food."
  • Starbucks (SBUX 2.77%) CEO Howard Schultz: "The complexity of these times requires, in my view, that businesses complement their main goal of profitability with actions that can help our society move forward in ways that benefit as many people as possible. With this in mind, those of us who lead public companies, in particular, have a duty to share our organizations' success with our people and reach out to the communities we serve, in addition to creating shareholder value."

Big-picture quality
Each of these companies makes a compelling investment right now, given their intrinsic strength.

Costco recently reported quarterly results that were viewed as disappointing by many investors. However, a same-store sales jump of 5% and a 6% net sales increase isn't exactly a disaster, even though the quarter has been viewed through such a pessimistic lens. Strong retailers and weak retailers alike have faced headwinds including a tough holiday season and terrible weather. When investors take a short-term view and lose taste for such stocks, it often makes a golden opportunity for sharp investors to build positions in great companies,.

Facebook suffers no such brick-and-mortar concerns. Continued evolution and innovation makes it look expensive according to traditional valuation metrics, but let's face it: Disruptive companies are extremely difficult to value. There's something to be said for investing in a company that's building a loyal user base and carries so much hope for social interconnectedness and even the potential for world-changing democratic communications with governments and corporations. Its WhatsApp acquisition should allow it to spread its influence and penetration across the globe as well.

Like Costco, Whole Foods Market has been laid low by concerns about its last quarter, as well as panic about its margins, given continued value pricing on goods. However, it plans to market to larger groups of people who may have previously feared its "Whole Paycheck" image. And when it comes to vision, Whole Foods beats rival grocers hands-down, differentiating itself with higher-purpose initiatives that champion stakeholder care.

Starbucks hasn't been in the spotlight much, but it's been buying up innovative companies to plug into current trends, including Teavana, Evolution Fresh, and La Boulange. It's setting itself up for growth despite the coming disruption of brick-and-mortar businesses, and that's happening largely behind the scenes.

Where the real gold is
Investors can clock great returns by investing in companies that do well by doing good -- especially given the current shift in wealth and values. But what do we call this type of investing, which may have a lot to do with heart, soul, and financial success?

Many common names for similar investing philosophies come to mind, such as socially responsible investing and green investing. In time, a term may stick that encompasses how capitalism drives societies forward and upward. Concern for stakeholders at every level is at the heart of these strategies.

And for those who don't like the current terms, here's one that has been around for centuries: the Golden Rule.

Check back at for more of Alyce Lomax's columns on environmental, social, and governance issues.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Alyce Lomax owns shares of Costco Wholesale, Starbucks, and Whole Foods Market. The Motley Fool recommends Costco Wholesale, Facebook, Starbucks, and Whole Foods Market. The Motley Fool owns shares of Costco Wholesale, Facebook, Starbucks, and Whole Foods Market. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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