Saturday, June 24th, 2017

Investment Firms: Attention to Values

Friday, October 10th, 2014

American Hero News
Shouldn't All Investment Analysis Include Attention to Values?
David Lee Smith

If there were a one-size-fits-all process for picking stocks, everyone's portfolio performance would likely turn out about the same.  Fortunately, however, while there are differences in the approaches taken by the market's minions, most fail to weigh a key aspect of company analysis: the degree to which a corporation attends to its values, ethics, and other related considerations.   

This particular aspect of investment research is hardly window dressing. Indeed, companies that foster high standards vis-a-vis all their publics tend to remain consistently stronger, while lasting far longer, and ultimately benefiting their shareholders to a greater extent. It's hardly even hyperbolic to suggest that those corporations that are managed in a way that comports with the principles and values upon which the United States was formed are today able to play a role in fostering a better and brighter America.   

We at American Values Investments (AVI) are keenly aware of the financial and operating capabilities of the companies we research as potential additions to our portfolios. But we also believe strongly that our scrupulous probing of the values aspects of those businesses sets us apart from other fund managers whose selection process is built largely around a cookie-cutter focus that's largely restricted to concerns about earnings, asset returns, and other essentially rear view mirror aspects of securities analysis. We take our examination a giant leap farther, and we're convinced that concerns about corporate values is conducive to a more solid investment performance, especially over time.  

The Normal Analytical Approach 

 You probably know how the investment research process typically works. Through a variety of inducements, an analyst or analytical team initiates an examination of a company, beginning with an essentially big-picture, looking at its track record, along, of course, with that of the industry within which it operates.  Included is a rigorous income statement analysis, involving comparisons of the company's most recent performance with both past periods and with other companies that operate in essentially the same sector.  

Also of major significance are the balance sheet -- especially the company's debt levels and capital structure -- and both cash flow trends and dividend yields. There's far more to be gleaned from the financials, of course, but this quick overview of the process seemingly provides more than an inkling of what generally constitutes the lion's share of the typical analytical process. 

The Need to Take it Farther 

None of this is to imply that these measures are anything short of crucial. It's just that they tend to fall short of a complete rendering of a company's total strengths and weaknesses. Another step taken by AVI analysts involves factoring in an assessment of the target company's managerial competence. That's a step to which virtually all analysts ascribe. But since it's essentially visceral, and not susceptible to ready quantification in Excel models, it's often reduced to lip service by a high percentage of professional investors. 

In addition to the above tests of a company's financial status, American Values takes the process a giant leap farther. The firm's analysts undertake a careful examination of the ethical and values-driven approach through which management directs and inspires its organization. Almost always, because the information on this aspect of a company's approach is not included in required U. S. Securities and Exchange Commission reporting, it's far more difficult to dig out than is the case with financial data.      

Three Meaningful Measures 

AVI analysts look at all the companies considered for inclusion among what are dubbed "American Heroes," or those companies that qualify as investments by the firm.  In doing so,they look carefully at three distinct criteria. This criteria, each of which will be discussed in more detail in future blogs, are individually categorized under the following rubrics:  

  • Integrity. This includes the intention by management to make a distinctly positive impact upon the marketplace.  
  • Caring.  Companies that meet this standard manifest concern for the best interests of employees, their families, the communities within which they operate, and their customers.
  • Courage. Management that is unafraid of suffering the potentially adverse effects that may result from doing what they ultimately believe is good and right for the corporation and the public.  

Chalking up the Benefits From Values Analysis 

Adhering to these values criteria results in far more than simply garnering congeniality awards for management teams. In fact, companies that are attentive to values tend to benefit in a host of ways. As but one example (others will follow in subsequent pieces), those that gain reputations for respecting and benefiting their personnel consistently, find that both hiring and retention of top talent improve dramatically. Obvious follow-on results also include operational consistency, reduced training costs, and, as a result, generally higher financial margins.  

As former pastor and an erstwhile governor of Arkansas, Mike Huckabee told his audience recently on his weekly television program, "Hiring good employees and treating them well  is just good business." On that and other bases, it seems eminently sensible for most, if not all, investors to consider seriously the application of values criteria to their regular analytical processes.  It just might be that our great nation will thank them for it.

More about the author, David Lee Smith

As a consultant and contributing author for American Values Investments, Inc. David Lee Smith is an economist, investment analyst, and writer.  He and his wife, Virginia, are active members of Christ Our Savior Lutheran Church and often enjoy attending sporting events especially UT football, basketball and tennis. 

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