Wealth Notes – July 17, 2012
The World’s Most Respected Companies
By Rob Wrubel, CFP®, AIF®
Each year for the last eight years Barron’s magazine has published a list of the world’s 100 largest public companies in order of how they are respected by people in the investment community. It is an interesting exercise to talk about when referring to companies, rather than price to earnings, stock prices or the social lives of executives, when looking to invest.
Respect does not guarantee results, but for us, it can be a great place to start. We want to invest in companies with a strong sense of ethics, with clear and regular reporting and where we can be confident that the people managing those businesses understand how to communicate with stockholders, customers and other interested parties. Of course, we still need to examine price fundamentals, potential for growth, dividends, role in a marketplace, changing trends and other factors when deciding to choose between one company and another for an investment opportunity. We also build portfolios that are diversified, meaning we own quite a few different companies in portfolios, sometimes using managed funds or index funds that own hundreds of companies.
Still, with investing in stocks, we have to remember that we are buying shares in companies. When one company, like Coca-Cola, earns a profit, we gain value by having dividends paid to us from those profits and/or from an increase in the price of the stock if more and more people are willing to pay a higher value for that company.
Our philosophy of investing means we are not looking for short term trading opportunities. We do not want to own companies for a few seconds or even for a few months. We build individualized portfolios for clients and hope to create targeted asset allocations to last for at least a few years. Warren Buffett famously said, to paraphrase, you should not be investing in a company that you plan to sell within five years. That gives a sense that when we make initial investment decisions that we are looking for companies that can create long-term value and not get too worried about the day to day fluctuations.
Gains do not always come when expected, and this has been true for decades of investing. Recently, we reread a letter written by Craig Ralston in 2002. Craig is one of the founders of our company. His article in May 2002 was called, “Pride of Ownership.”
This article was written after the Internet bubble burst, and people who had been jumping from one dot com stock to another finally realized that they had been buying a whole lot of dot nothing. Sock puppets ruled the day. Profits did not matter and talking heads talked about how the world was in for a huge shift in how we buy what we buy.
Of course, some of the hype came true though most of it did not. Book stores continue to fade away and good luck finding a travel agent. Many of us use email and text now as primary means of communication.
What did not change was that great companies find ways to endure and to return profits to their shareholders. 2008 saw another time of stress in the stock markets and we have seen mini versions each summer since. Through it all, many respected companies have found ways to be profitable and to return profits to shareholders. Some of these respected companies have been around for decades, some close to a century. Others are fairly new. Many of these companies earned a slot at the top of the most respected list – companies like 3M, McDonald’s, Nestle, Walt Disney, American Express, Kraft, Johnson and Johnson. Yes, there are tech companies and newer companies. Apple, Microsoft, Intel and Amazon are all high in the list.
These companies earned their spots at the top of the list through dedication to customers, positive corporate governance, perceived ethical clarity and a host of other factors. The ones not respected seem to be ones where ethical violations, public trust and self-dealing are more common or perceived.
Sometimes, it is impossible to tell when companies are taking the “low road” of deceit, fraud and shoddy accounting. Wal-Mart, a company that usually earns high respect marks, recently was taken to task for potential bribery issues related to Mexico. The company has made strong moves to own-up to the issue and prevent similar ones from occurring. The culture of transparency, honesty and integrity are crucial in our pursuit of looking for investments to create long-term value for our clients.
We like to think our goal as a financial planning firm is to earn a place in our community as a most respected company. We appreciate your trust in us as we seek to help you achieve your goals of creating lasting value and income for you and your family.
Rob Wrubel CFP®, AIF®, is a Senior Investment Consultant with Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.