Tuesday, July 8, 2014

SEA (Socially and Environmentally Aware) Stock-picking

Investing has become such a complex process that most of us turn over our money MBA’s and Doctorates to manage. The paradigm encourages us to seek Alpha (performance better than the broad market index), which turns into a quagmire of buying and selling that leaves most people worse then the broad market index over 30 years. The potential lesson, is invest in the broad market and leave it and in the end you will more then likely end up with a higher return then anyone you know…easier said then done.

With that being said – if we take our investing to the next level and invest in companies that have clear plan for the long term with SEA corporate policies/principles, we set ourselves up for being even more profitable.

Where to start? Well SEA investing might not be as daunting and as complex as investing as we know it. SEA investing takes our natural born intuition, especially since we are looking for corporate characteristics that correlate to the human condition – who we are. Each of us has as much potential as MBAs and Doctors to identify good companies – in the same way we might make long-term friends or partners or plan for our children’s future or our own retirement.

Here are some guidelines through which I ran the company Costco (COST) – an operator of membership warehouses.

  1. Is the company public - YES

  2. Does the company sell products that are healthy and constructive to people - YES

  3. Does the company charge a reasonable price for their product - YES

  4. Does the company minimize its negative impact on the environment - YES

  5. Does the company treat all employees like partners - YES

  6. Does the company provide fair opportunity to labor and sellers -YES

  7. Does the company donate at least 5% of its annual profit to charity - NO

  8. Does the company’s executive team receive a reasonable compensation – YES

  9. Are the company’s assets greater then its liabilities – YES

  10. Is the company profitable (does the company show a trend of or toward profitability in the last 5 years) – YES

Based on this analysis I would say the only thing that stands out is Costco’s Philanthropy. I believe that SEA companies should be donating at least 5% of their profits back to sustainable charity unless they are clearly redirecting their philanthropy in other directions.

  1. Public companies provide the easiest and most liquid access as investors, unless a private company is offering private investment perhaps in the form of venture capital or private placement.

  2. My Dad shops at COSTCO – a person who boycotts Walmart and has his own vegetable garden, and turns his nose up at anyone with more then 4 cylinders in there car. In my experience Coscto food is high quality and although may not be Whole Foods potential, it provides food and other retail products of a higher quality then most others.

  3. From filet mignon to flat screen TVs, Costco has some of the most competitive prices for the highest quality products

  4. Here is an example of the steps Costco is taking to be an environmental steward - http://www.opb.org/news/blog/ecotrope/12-fish-you-wont-find-at-costco-anymore/ - Based on a quick scan of a google search, in the last 5 years Costco is making great strides in its environmental impact.

  5. This article echo’s much of what is said about Costco on the internet - http://www.enn.com/environmental_policy/article/44802 and http://www.huffingtonpost.com/2013/11/19/reasons-love-costco_n_4275774.html

  6. There does not seem anything on the web implying that Costco treats its vendors unfairly or sells products which are produced by unfair labor conditions

  7. In 2012 Costco gave away $23.5 Million in cash to charity. Only about 1% of its profit that year

  8. Costco paid its executive team $20 million last year. Yes a lot of money, but also a lot less then other corporations of that size, which tend to average around $35 million

  9. http://finance.yahoo.com/q/bs?s=COST+Balance+Sheet&annual

  10. Yes, and has also outperformed the S&P 500 in the period since it became public

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