Investments

Doing Good or Doing Well?

By May 31, 2019 June 6th, 2019 No Comments

Socially Responsible Investing has become a major stock market question over the last few years. Should you put your returns at risk by investing in companies that care about social justice as opposed to winning at all costs? Chances are you won’t have to, here’s why: At the end of the day, stock price is determined by profits and profits are determined by consumers. It’s become increasingly less acceptable to support poor moral business practices in relation to price. Consumers are beginning to realize that social responsibility and profit are not mutually exclusive. There are dozens of examples of morally skeptical companies losing significant stock returns when their bad behavior comes to light; ie. Enron or, more recently, Wells Fargo.

We also discuss investing as a long-term play. As long as immediate profits are not the goal and we have a long-term time horizon, socially responsible investing has the opportunity to outperform companies who may be morally lax in nature. As social media continues to grow, company secrets tend to be released earlier which can hurt stock prices immensely. It’s also extremely important to discuss the shift in how stock prices are valued in the current business environment. Profits no longer equal to value as shareholders continue to look for the newest and best technology moving forward. We can look at a company like Amazon, a company who was publicly traded for 4 years before turning its first profit, and understand that cash flow is no longer the backbone of a company like before. Other examples like Tesla & Spotify who are both extremely highly valued companies yet have never recorded a profitable quarter, all while Uber is expecting one of the biggest IPO’s of the year even though they have never recorded a dime of profit. For these reasons, the consumer is taking back the power which will shift the business landscape towards socially responsible investing which will ultimately boost stock price and wealth for the consumers who take advantage of it.

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