Friday, 11 August 2017
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Do we care?

I was very well aware that there were problems in our aged care industry long before the ‘4 Corners’ report on Aveo. Reports of overcharging, of bad service, poor food and even physical abuse in the aged care industry have been all too frequent. I was not aware of just how deliberate the process of grabbing the last remaining assets of our older citizens had become until the Aveo report was televised. I suspect Aveo is not alone. The report must have shocked large numbers of people including lots of would be customers. We all run the risk of ending up there sometime so it was great to have the warning that we must read every fine detail of the contract. Better still get an experienced lawyer to read it. That could be money very well spent. Unless our government gets around to regulating this industry as a whole we are going to have to look after ourselves and to be very careful.

As I watched I wondered what would happen to the share price the following day and I was not disappointed. It fell sharply and has continued to go down. The ‘4 Corners’ report revealed an appalling attitude to the elderly members of our society who need help. Importantly it also raises the question of ethics in business. Is a profit, regardless of how it is achieved, acceptable to investors? Is it good business practice?

In my early professional career, it was made clear to me that we must look after our customers as they were the future of the practice. Many of our industries today seem to ignore that principle. Our electricity companies are loading up the bills as hard as they can go. Electricity has become so expensive that more and more people are generating their own. The power companies may be making a good profit for the shareholders in the short term, but they are putting their own future at risk. The facilities are now readily available for people to go it alone and detach themselves from the grid. The power companies have lost all customer loyalty and they could be in danger of losing their business.  

The growth of ethical funds suggests that an increasing number of people are concerned about the ethical standards of the companies in which they invest. The questions asked at annual meetings indicate that investors want their managers to look after the company and not just their bonus. Exploiting customers may work in the short term and produce a few years of outperformance but it can’t be the basis for long term growth. Keeping existing customers is a lot easier than attracting new ones. Aveo’s solution to that problem is to make it financially impossible for people to go elsewhere.

There’s no doubt many of our biggest companies have been involved in questionable activities. Some have been prosecuted for illegal activities with an inevitable effect on their share price. CBA has demonstrated that very effectively this week. The share price fell with the news of money laundering but was rescued by another bumper profit. Is their action the result of the pursuit of outperformance by senior managers prepared to ignore both ethical and legal principles or, is it as claimed, a technical malfunction of software? CBA is not alone as all our big banks have been in trouble with the law and the regulators in recent years. The threat of a Royal Commission to investigate them is not going to go away. 

We can all decide when and where we invest. I have never held gambling stocks, not because I have a fundamental objection to a small bet, but because once betting becomes big business it attracts big money. Where big money is involved bribery and match fixing will follow. I have never owned tobacco stocks because they do so much harm but it’s not so simple. I own Woolworths to my cost, and they do own hotels in Queensland which run pokies and they sell tobacco. Am I therefore investing in gambling and tobacco?

On the positive side it’s enjoyable to find good companies doing good things and support them with investment. I enjoyed owning Bellamy’s so much that I kept a small parcel even when all the indicators were saying sell. I’m delighted that they are now back on track and the share price is rapidly recovering. I have enjoyed owning NXT and seeing the business grow. They pioneered an industry but now have competition. Australia can be very proud of it’s health care companies such as CSL, RMD and COH. They are great international companies founded in Australia and it’s good to have investments in them.

Marcus often writes about our investments not keeping us awake at nights. I like to sleep at night believing that my investments are not doing harm in the world. Managing my own fund enables me to make that sort of decision in the best way I can.


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