In the 1990s, Abercrombie & Fitch was one of the biggest clothing retailers in the US. Teens and twenty-somethings couldn’t get enough of their products, and the company had storefronts in shopping malls across the country. The stock was incredibly popular with investment managers too, and it was one of the few publicly traded retailers everyone wanted to own. But toward the end of the decade, the company published a catalog full of models showing more skin than clothes. It was so revealing, in fact, the company only offered it to patrons who came into the stores and presented an ID to show they were over 18. For a company marketing their products to teens, they had crossed a line, and everyone knew it.
Having a faith-based approach as an investor used to be simple. All we had to do was avoid certain industries like alcohol, tobacco, gambling and adult entertainment, and we were good. And fortunately for me, most of those companies never met my standards for quality anyway, so avoiding them was easy to explain in a secular context too. Occasionally, a company like Abercrombie would make a mistake, and it was easy enough to add them to the do-not-buy list. But in the universe of high-quality companies, those problems seemed few. We could count on executives to do what was right for the shareholders first. And if the corporations gave to charities and causes, they always asked if their decisions were likely to alienate some of their customers; if the answer was “yes,” they’d donate to something that didn’t put their reputation at risk.
Investing is more complicated today. Executives are far more likely to approve donations to charities and causes that operate in direct violation of the beliefs of some of their customers and shareholders. And for the person of faith, owning shares of these companies can be troubling. This is especially true if the company repeatedly offends that investor’s beliefs. After all, businesses are made of people, and people make mistakes. Most of us know this and we are often willing to extend our favorite businesses a bit of grace if they blunder—it’s when the blunders become habitual that we get discouraged.
Of course, there is little agreement even among people of faith about what is and what is not acceptable. Even so, for those of our investors who would like to put their faith first, we have crafted a new portfolio. We start with the same methodology that we use for all our portfolios. We still look for companies that we believe have a sustainable competitive advantage, that are the best or the only companies that do what they do, that are trading at a reasonable price given what we think the company is worth, that have good prospects for growth, that are profitable and that are financially healthy. We also balance those companies across sectors and industries such that the same forces that drive the US economy also drive the portfolio. But to this list, we also look for companies that show, through their corporate and community actions, a desire for:
- Protecting Human Life
- Promoting Human Dignity
- Enhancing the Common Good
- Pursuing Economic Justice
- Preserving Our Global Common Home
If this portfolio interests you, then you might want to know these things as well.
- First, a company doesn’t have to support these virtues, but it cannot actively work against them to qualify as a company we might consider.
- Second, the portfolio will not look like the market and is unlikely to perform like the market. Secular investors do not value the same things faith-based investors do. So many of the largest companies in the US may not be included in this portfolio. For this reason, an investor with a faith-based mindset cannot invest with the goal of “beating the market.” It must be more about supporting companies that share your views about faith, life, family, community, virtue and stewardship; it cannot be about returns.
- Third, you may be surprised to see which companies make the cut and which ones don’t. You also may not be in complete agreement with us about the decisions we make. But like all things where your money is concerned, you can know that we have given each company a great deal of thought, and we have made the best judgement we feel we can, especially given the subjectivity of some principles.
If you have questions about this new portfolio, or have questions about any of our others, please contact us.
~ Travis Raish, CFA