Here lately, we've caught some glimpses of the times that test investors' mettle. It's difficult to stay cool when the Dow plunges hundreds of points in one trading session alone, for example. However, some investors may understand one odd method for staying calm, and others may want to consider it even if it sounds a bit strange: truly believing in the companies we put our hard-earned money behind.
In other words, believing in your companies' higher positive purpose can be a calming way to make your stand. After all, investors are more likely to prosper when they hold their stocks for the long haul even in the face of market panics (and maybe even bought more). There are ways we can adjust our mind-sets to hold in thick or thin.
Feeling good about feel-good companies
The qualitative layer I'm referring to seeks companies with an awareness of stakeholders, strategizing far beyond the short-term "shareholder value" concept. Their managements consciously try to add value and growth in the world through their businesses instead of resorting to exploiting negative externalities. In other words, they're not focused on boosting their businesses in the short term by subtracting long-term value from others.
This basic theme can be related strongly to a socially responsible investment-type philosophy or environmental, social, and governance (ESG) investing -- or simply screening for companies consciously doing good through their businesses, such as the Conscious Capitalism business philosophy.
Here are some of the attributes investors can think about when analyzing their companies' businesses:
- Care for environmental sustainability and recognition that being good environmental stewards is also in businesses' own best interest to protect precious resources for overall economic well-being;
- The power of stellar internal cultures that motivate employees to play to win and feel good about themselves while they're doing it;
- Attention to supply chains, discouraging or demanding an end to abusive practices, and even realizing the importance that their suppliers prosper;
- Strong corporate governance policies in place that show respect for long-term shareholders, as opposed to a focus on managements' own self-interest (such as astronomical paychecks for the very few that are detached from actual performance);
- Love and respect for their customers.
It may sound like "believing in our companies" is an emotional component. In a way it is, and don't get me wrong -- investors must rein in some self-destructive emotions. However, I'd argue the most important emotion to control is panic. Frequent trading often destroys investors' returns, and market panics are the worst times to bail on quality companies.
I imagine it's far more difficult to fight off the temptation to sell if one is only trading tickers, frenetically checking soulless charts, obsessing about stock prices surging up or down on a day-by-day basis, or trying to bottom feed on low-quality companies' shares that are beaten up for legitimate reasons.
Some solid reasons to believe
Studies back up this basic concept with long-term investment performance data. Given the ugly, often scary market environment we've been experiencing here lately, it's the perfect time to point this out.
One of the most interesting things I've run across in this area is a report Morgan Stanley released last year, Sustainable Reality: Understanding the Performance of Sustainable Investment Strategies. It revealed some compelling data on why buying companies with stakeholder-centric initiatives and holding them makes calm, rational sense in wild, scary times.
The analysts examined a variety of sustainable investment performance studies and performance data for 10,228 open-end mutual funds and 2,874 separately managed accounts (SMAs) in the United States.
Among the fascinating findings:
- Sustainable investing performance usually met, and often exceeded, that of traditional investments.
- Sustainable equity mutual funds had the same or higher median returns and equal or lower volatility than their traditional counterparts over 64% of the periods examined.
- A review of existing studies showed that a positive relationship exists between corporate investment in sustainability and lower cost of capital as well as better operational and stock price performance.
Morgan Stanley defines sustainable investment as "a commitment to economic well-being for both the present and the future, balancing society's needs today with the demands of tomorrow. Sustainability encompasses behaviors, processes, tools, and technologies that can be perpetuated and replicated in ways that achieve economic, social, or environmental benefits."
Some I believe in
Those research results provide compelling reasons to consider assessing companies' care for thee factors, and holding them through thick and thin -- especially when the market's freaking out.
We're all likely going to define such companies differently. Here are some of the companies whose missions I believe in.
Under Mark Zuckerberg's long-term vision, Facebook (NASDAQ:FB) is about so much more than the short-term bottom line. In fact, Zuckerberg often makes it clear that connecting the world -- including those in poor, developing countries -- is Facebook's real reason for being.
In quarterly conference calls, Zuckerberg has often been quick to point out to analysts that Facebook's true mission is not to make money in the short term. And of course, despite what could be considered an iconoclastic view of corporate priorities, Facebook is doing wonderfully in the financial sense.
I've owned shares of Chipotle Mexican Grill (NYSE:CMG) for years now and admired its business long before that. It isn't lost on me that the E. coli outbreak connected to Chipotle has given the company's management its biggest challenge ever. Even though the CDC has officially decreed that the outbreak is over, it's been a painful phase with real financial repercussions.
It was quite a shocker when Chipotle revealed the kind of sickeningly negative same-store sales we Chipotle shareholders had never seen before. "Unprecedented" can indeed be frightening. And unlike some stocks that get torn down during market downturns for no reason, there certainly have been understandable reasons why many investors have fled.
However, I haven't hit the sell button as the stock's price has crumbled. I trust Chipotle's management's heart is in the right place when it comes to its Food With Integrity message. I've noted Co-CEO Steve Ells' public apology and vow to make Chipotle the safest restaurant in the industry.
If Chipotle can indeed get a grip on its supply chain and tackle setting industry food safety standards for fresh ingredients from small, organic, and local suppliers -- and granted, that's no easy feat -- that would make Chipotle stock a true bargain at current levels. It would also be good for the entire industry to higher standards, and a benefit for consumers. I'm willing to wait for a far better long-term prognosis.
I recently finally bought some shares of Unilever (NYSE:UL), a company whose leadership I have long admired. I realized that if I am constantly sharing my admiration about some of the big-picture ideas CEO Paul Polman espouses, I should be a shareholder.
Polman's taking on the massive task of trying to shift a huge multinational corporation to the heights of sustainability. Unilever has even voiced interest in going for B Corp certification, a specific framework and serious stand in making stakeholder-centricity a business priority.
Furthermore, Polman has basically suggested short-term traders and speculators move on along and avoid Unilever. According to an interview with Forbes contributors Andy Boynton and Margareta Barchan: "I don't have any space for many of these people that really, in the short term, try to basically speculate and make a lot of money. We want people who want to be long term with us and build this company over the long term."
I realized it was high time I stop agonizing over Unilever's stock price and what, exactly, constituted the "best entry point" -- I decided to go ahead and proudly put some of my money behind a company I admire and a mission I admire.
Safety in the system
I'm well aware we all have different definitions of the types of safe investments that allow us to sleep peacefully at night. We all define corporate responsibility differently, too.
However, I think it's important that investors start to seriously ponder these issues and what else they mean. Even those who aren't specifically interested like sustainability or employee treatment might consider other interpretations. For example, leadership teams that delve deep into these issues display a rare trait that crafts strong businesses: systems thinking.
Big-picture thinking and awareness of interdependence and interrelationships can foster innovation, risk reduction, and build healthy businesses overall.
This strategy to survive market volatility may sound strange to some, but one day, hopefully it won't sound so odd at all. That'll be a day when investors realize the real reason why it's important to be part owners in great companies they can believe in. They'll feel good about their financial returns and positive impacts on the world. And that'll be a wonderful day for everyone.