Danielle Town and Phil Town’s March chapter of their 2018 Invested Book encourages us to evaluate companies’ missions and values as key investment factors to consider if we should buy a company’s stock, like what Warren Buffett would do.
The title of this chapter is “Voting for a Mission with My Money.” Danielle asks readers to spend 10 minutes creating our Investing Office so we can get into the zone when we’re doing our investing practice. We should create an atmosphere that will help us get towards financial freedom.
My Investing Office has my favorite books, notepads, pencils, pens, computer systems with organized folders in which I store articles and annual reports/letters, pictures of my family. One of my goals is to be able to take care of my family someday if I become financially successful. My computer desk or comfy couch help to create the right atmosphere for me.
The book asks, what will support and motivate us when our investing practice gets difficult? For me, that is sports, I’ll take a break and either go exercise or do sports and think about my long term goals. I’d love to just play sports throughout my life if I reach financial freedom.
Danielle wrote about the history of a corporation, in that it’s sort of a “legal fiction” that was created so we can invest in it while also being shielded from it taking on liabilities like debt. Hence, the double-edged sword called “limited liability.”
Even though we are owners of a publicly exchanged company as shareholders, unless we have a substantial percentage of ownership, we don’t always get access to the information the company’s management controls. This is called information asymmetry.
I agree we should be value-driven and mission-oriented investors. We have a set of principles that we expect companies we invest in and ourselves to live by. We should distinguish between “angel” and “monster” companies to know which companies are behaving honorably or not.
Sometimes there could be varying motivations that the management and Board of Directors (BOD) have that may not always align with shareholders’ best interest and values. For example, though shareholders elect the BOD, the BOD chooses the CEO of the company.
For example, a “mercenary CEO” may be incentivized to increase their compensation by taking actions to increase the company’s stock price by buying back shares, even if it might not make sense to buy back at that particular price.
Many of us would want to vote our money or invest in companies that have a mission to change the world for the better. They can be companies that aren’t only doing good at the expense of returns, but are companies that will keep growing and generating cash flows. And they have managers with integrity.
There is forward momentum that we vote for companies that do the right thing. We should create our lists of companies whose missions and values one would support. These could include equitable pay, humane treatment of animals/humans, environmental sustainability, ethical practices, helping communities, buying local goods and produce.
Companies that I’ve either invested in or am interested in investing in have values and missions I appreciate such as Starbucks, Berkshire Hathaway, Costco, and Visa. As a consumer, I have benefited from the products and services from these companies in my everyday life.
The closest I’ve found to Berkshire Hathaway’s Mission was what Warren Buffett wrote in the 1998 Annual Letter as a mission for the executive managers of the subsidiaries: “Just run your business as if: 1) you own 100% of it; 2) it is the only asset in the world that you and your family have or will ever have; and 3) you can’t sell or merge it for at least a century.”
In many annual letters, Buffett values companies that he’d love to buy with the following qualities: “at least $10 million of after-tax earnings, demonstrated consistent earning power (future projections are of little interest to us, nor are “turn-around” situations), (3) businesses earning good returns on equity while employing little or no debt, (4) management in place (we can’t supply it), (5) simple businesses (if there’s lots of technology, we won’t understand it).” And he has to be “comfortable with both the economics of the business and the ability and integrity of the people running the operation.”
I believe Buffett and Munger have incorporated environment, social, and governance (ESG) principles throughout their management of Berkshire Hathaway. They were doing ESG before it was trendy. Phil Town indicated when we’re creating our “investment story” we consider the 4 Ms: management, meaning, moat, and margin of safety (this exercise is covered in more detail in later chapters).
All of us are on the journey towards FIRE (Financial Independence, Retire Early) and it is one filled with much gratitude and enlightenment, and I look forward to making more investor friends.
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