In late 2010, The Motley Fool began an innovative, public-facing program, offering real money to a handful of its analysts to invest in public portfolios according to their own investment styles. Although our premium services are bursting with analytical firepower and market-beating returns, this program, accessible on our public Fool.com website, offered what many other free financial information sources never would: stock picks backed with real money, transparency, and track records instead of calls fired into the wind with no follow-up.
My offering to the program, the Prosocial Portfolio, has been near and dear to my heart, and I so appreciate the opportunity to participate. My aim was to embrace a socially responsible investment philosophy and buy stakeholder-friendly companies for the long haul. Although the program is coming to a close after about four and a half years, and the Prosocial Portfolio will no longer exist, I view it as a successful run.
With an 80% return as of June 11, 2015, the Prosocial Portfolio admittedly lagged the S&P 500 by about 15 percentage points. While I'm not thrilled that I didn't beat the benchmark over that time frame, I don't feel bad about the overall return, and I think it has proven a point. If you invest with your personal values in mind, your portfolio can generate a respectable return while being populated with stocks you feel good about owning. For too long, conventional wisdom has held that anything close to socially responsible investing is by definition doomed to be a money-losing washout, but that's simply not true.
Going forward, as the marketplace evolves, I believe investors who add an assessment of the stakeholder impacts to their research on prospective stocks can be rewarded through straight-up financial returns and an extra emotional dividend -- knowing the companies they own are actively doing good in the world, or at the very least doing no harm.
Change for good
The marketplace has changed a bit since I started buying stocks for this portfolio, and that goes beyond the fact that it was permeated with pessimism in late 2010 and has since switched over to the exuberance of a long-running bull market. Many trends have borne out the idea that profits and positive actions in the world don't have to be conflicting, either/or outcomes, and the word is getting out.
When I first bought Costco (NASDAQ:COST) in late 2010 -- the second-ever stock purchased for the Prosocial Portfolio -- some considered the move a head-scratcher. First and foremost, it certainly wasn't viewed as a "bargain" stock at the time. Second, some found the "socially responsible" characterization baffling. The word hadn't gotten out to the mainstream yet that the retailer was not only laser-focused on delivering deals to its customers, but it had also been unwavering in treating employees well, offering great pay, benefits, and the potential for actual careers in an industry infamous for treating workers as expendable.
Flash-forward to today, and not only has Costco performed very well in the portfolio, but controversy about income inequality and employee treatment in the ensuing years has sparked a major shift in attitude about businesses' relationships with their workers. Increasing public concern -- and growing common-sense acknowledgment that happy employees are simply more engaged and productive -- has helped push companies like Wal-Mart (NYSE:WMT), Aetna (NYSE:AET), and TJX Cos. (NYSE:TJX) to voluntarily increase their employees' pay.
Costco was among a few best-in-class retailers that were way ahead of that curve, having chosen to treat employees well from the get-go because it was good for people and good for business. Long-term Costco shareholders have by no means been punished for that foundational strategy.
Since late 2010, the organic and natural merchandise industry has evolved into a massive trend to be reckoned with; many attribute this to the increasing economic clout of the millennial demographic. Hain Celestial (NASDAQ:HAIN) and WhiteWave Foods (NYSE:WWAV) have been solid winners in the portfolio, and given the increasing numbers of entrants into the organic space, the high ideals pioneered by Whole Foods Market (NASDAQ: WFM) and Chipotle Mexican Grill (NYSE:CMG) -- also denizens of the portfolio -- are proving to have set the standard.
On another note, more high-profile corporate leaders are leaving behind what has become a cutthroat (and ultimately dangerous) dogma of driving for sheer short-term "shareholder value" and taking a stand for a stakeholder-centric management theory targeting long-term positive gains, financial and otherwise.
Take Apple's (NASDAQ:AAPL) Tim Cook and Facebook's (NASDAQ:FB) Mark Zuckerberg as two examples. These CEOs have joined the rare but growing breed of corporate leaders who have at times basically told shareholders that if they don't like certain types of initiatives that don't show immediate or obvious return on investment -- such as environmental sustainability initiatives or helping connect the world's poor to the Internet -- they are pretty much welcome to sell.
Both of those companies found a place in the Prosocial Portfolio over the years. Beyond their financial performance, they've exceeded my expectations for leadership by keeping an eye on much more than just next quarter's financial bottom line, but also on the desire to be forces in making the world an economically healthier, more sustainable place.
Regrets and roads not traveled
I have some regrets as the Real-Money program comes to an end. For example, I exited solar energy, selling both First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) in the early days. I have long been interested in SolarCity (NASDAQ:SCTY) stock, but even though it has been a major force in solar, I never did the research needed to finally pull the trigger.
Solazyme (NASDAQ:TVIA) has been an abject failure in this effort, and it's the one stock in the portfolio that I have decided to ask The Motley Fool to sell as the program draws to a close. (I'll be asking the Fool to keep the rest of the stocks that are in the Prosocial Portfolio in the "coffee can" mentioned above.) As much as I believe in the importance of finding alternatives to petroleum-based oils, I've come to the (regrettably late) conclusion that the risks the company faces outweigh the potential for ultimate reward.
Although some of the other stocks haven't been winners thus far, I still believe patience is key. I find my real regrets center more on stock-related "roads not taken." For example, I've long been extremely interested in Unilever (NYSE:UL), given that company's efforts to turn its massive business into a stakeholder-friendly and sustainable one and lead the charge for more companies to do the same. However, I never felt the comfort level with international investing to go the whole nine yards and purchase shares.
Last but not least, I'm downright embarrassed about the number of times I talked myself out of purchasing shares of Tesla Motors (NASDAQ:TSLA) over the years. I have since come to the conclusion that Elon Musk is proving to be a massive force in our society's shift to sustainability and breaking the collective addiction to fossil fuels. I suspect Tesla has only just begun its potentially world-changing journey.
Letting it ride into the future
In the coming days and weeks, I plan several articles with updated thinking on the Prosocial stocks. Since I've decided to ask the Fool to hold all but one of the stocks in its long-term coffers, obviously I feel I've purchased a solid collection of companies, but I'd like to end with some thoughts on where they are now, where they might be going, and even the challenges some face.
Granted, the marketplace is always changing and evolving. Although predictions are often wrong, and I'll be the first to admit that even trying to make predictions can be a fool's game (and I worry I suffer from a degree of confirmation bias, one of the many types of biases investors can fall prey to), over the years I've gotten the sense that companies are increasingly competing with one another to do good, putting many of these businesses in strong positions.
I welcome the prospect of such "races to the top" becoming commonplace, but companies' managements will have to stay nimble to keep moving forward amid all kinds of change, and business history is full of companies that fail to rise above competitive and other challenges. A few of these stocks are risky even if I see the potential for rewards, and some of the leading companies could lose their current advantages.
Regardless, a large part of my strategy has always been about buying companies with an ownership mindset and simply sticking with them through thick and thin. This laziness isn't as crazy as it may sound; take the Fidelity factoid released last fall that showed the best-performing portfolios were those that belonged to people who had forgotten they even had accounts at all. It feels counterintuitive, but plenty of data show that too much trading actually hurts investors' returns instead of bolstering or even protecting them. Apparently there are worse things investors can do than stuff stocks in a metaphorical "coffee can" hidden in the root cellar.
One aspect of the Prosocial Portfolio will live on: I plan to keep its related discussion board open and invite you to join me there. I have personally found that one of the project's greatest "yields" has been connecting with people who contributed valuable thoughts and conversation on the broad topic of social responsibility in its many forms. I feel truly enriched from so many of those conversations, and the quality of many of the discussions have been far more enlightening and "valuable" than whether a stock is a "winner" or a "loser" on any given day. So if you're interested in the general SRI area, that conversation will be ongoing.
To my way of thinking, investing in companies that are moving beyond the drive to boost short-term "shareholder value" and take stakeholders and bigger worldviews into account is the investing equivalent of a much-quoted adage: "Be the change you wish to see in the world." When it comes to "prosocial" investing in the general sense, I believe the future is very bright indeed.
Editor's note: The Motley Fool launched its Rising Stars Portfolios program in late 2010. Twenty-five analysts took part in this endeavor, investing hundreds of thousands of dollars of The Motley Fool’s money in hundreds of stock ideas. With the analyst tally in the program now called Real-Money Stock Picks down to four, the Fool has decided to close the remaining portfolios. It's a logistical decision and no reflection on the analysts or their stock ideas.
The Fool will keep some stocks chosen by the analysts in a Robert Kirby-like Coffee Can Portfolio. We're going to hold them, for a long time, without checking in, without trading. We count the Real-Money Stock Picks program a success in our mission to help the world invest better.
Sept. 18, 2017: The Motley Fool intended to hold some Real-Money Stock Picks stocks, but this turned out to be a logistical burden, so the stocks were sold.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Alyce Lomax owns shares of Chipotle Mexican Grill, Costco Wholesale, Solazyme, and Whole Foods Market. The Motley Fool recommends Apple, Chipotle Mexican Grill, Costco Wholesale, Facebook, Hain Celestial, SolarCity, Solazyme, Tesla Motors, Unilever, WhiteWave Foods, and Whole Foods Market. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, Costco Wholesale, Facebook, Hain Celestial, SolarCity, Solazyme, Tesla Motors, WhiteWave Foods, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. 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.