The Sanctimony Factor

Over the years, a new factor has emerged when attempting to measure investment suitability, which has little to do with balance sheets, forecasts or indicators.  That factor can be generalized as the  “social responsibility” component.  We recall some of the original victims of socially correct investing which included tobacco and oil companies as well as weapons manufacturers.  Recently this circle has expanded to include GMO companies and assorted firms which are not ‘ethical’ in their labor and trade practices.

There are investment companies that exist whose principal mandate is to invest only in ‘acceptable’ businesses.  That seems to be simple enough; if you invest in Smith and Wesson, you are not buying a company making dinner plates.  Whole Foods is a company that brands itself as representing desirable social and cultural values as their driving credo while selling only natural products.   But the line can be quite fuzzy.  For instance, when one considers an investment in Apple, are they ignoring the well documented dismal working conditions in their Asian assembly plants?  When investing in Amazon, are they considering the company’s contribution to the collapse of brick and mortar retail stores?

Thus far, the answer is no, because bottom lines drive their stock prices ever higher.  What’s happened only recently however are companies that inject themselves into the social justice discussion, therefore creating risks to their investors that are quite difficult to measure.  The addition of a political component to investing can create a very tricky trading variable.

Such companies include Facebook, Twitter, Disney, Netflix and most conspicuously recently, Starbucks.  The injection of political dimension to a company’s operating direction can easily affect their customer base even though the business remains somewhat unchanged.  In the case of Starbucks however, with their new inclusive washroom policies, it may mean that the price of their stock will be more reflective of toilet paper costs than the price of coffee beans.

As technicians, we lean towards the notion that all known factors about a stock are already factored into its present price level and that subsequent forecasts can be made from those levels.   I had in fact been optimistic on SBUX’s fortunes a year ago, but this new unknown social justice component may render any trends moot as consumers decide whether or not to support their initiatives.  After all, there are no shortage of coffee shops.

The chart pattern above reflects a neutral position since all indicators are essentially non committal.  Existing holders are waiting to see what happens and new money is reluctant to push the stock higher. Whichever direction it may take from here may have as much to do with the strength of sanctimony as the sales of bean water.  For me, I was only interested in the coffee business, not the possible effects of the company’s political positions. Accordingly I will exit the Starbucks position.

 

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