Who is the greatest and most successful investor in modern history?
The answer is easy: Warren Buffett, the “Oracle of Omaha,” who built his investment empire by scrupulously following the principles of the value investor, sniffing out undervalued businesses and stocks.
Make no mistake: Buffett is looking for above-average profits, and he casts his net wide. But he also has personal values to uphold. Though Buffett was once bullish on tobacco stocks, at Berkshire Hathaway Inc.’s 1994 annual meeting, he said investments in tobacco were “fraught with questions that relate to societal attitudes and those of the present administration. I would not like to have a significant percentage of my net worth invested in tobacco businesses. The economy of the business may be fine, but that doesn’t mean it has a bright future.”
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And Charlie Munger, Buffett’s partner, said this about an opportunity they had to invest in a company called Conwood, which made smokeless tobacco products, including snuff and chewing tobacco:
You definitely are going to kill people with that product that have no reason to die. It’s the best deal we ever saw; we couldn’t lose money doing it and we passed. … Do we miss the $2 or $3 billion we would easily have had? Not an iota. We had a moment’s regret? Not an iota. We were way better off not making a killing out of a product we knew going in was a killing product.
Know Where to Draw the Line
The point of talking about Warren Buffett is this: Socially conscious investing is nothing new, nor is it the slightest bit unusual. Most people do it to a certain extent. For instance, very few investors would knowingly put their money into a company whose primary product was napalm or mustard gas. (Yes, some investors love military weapons stocks, but they don’t concern us.)
The question is not if you draw the line, but where do you draw the line?
Consider the Kroger Company, the United States’ largest supermarket operator by revenue and fifth-largest general retailer. Kroger operates nearly 2,800 stores in 35 states under 28 different names. The stock has historically performed well and would be a logical part of a stable growth portfolio.
However, the chain also sells cigarettes and other tobacco products. While sales volumes aren’t available, as the nation’s largest grocer, you can imagine the numbers are robust. What percentage of per-store revenue do cigarettes and other tobacco products represent? Probably minuscule—but enough to keep them on the shelves.
Does this mean you should dump your Kroger stock?
It’s not an easy question to answer. In 2022, Walmart announced it would begin phasing out cigarette sales in select U.S. stores. The chain has around 5,000 stores in the United States, and in 2019, it raised the minimum age to buy tobacco to 21 and stopped selling e-cigarettes. A spokesperson for Walmart told CNN Business that it made the business decision to remove tobacco from select stores “as a result of our ongoing focus on the tobacco category.”
Does this make Walmart more attractive?
The nation’s largest retailer has also stopped selling handguns and certain rifles, including AR-15s, and raised the minimum age to purchase firearms to 21. But in September 2023, Walmart announced it was cutting starting pay for new store employees who pick and pack online orders and stock shelves. Not good for workers and a conundrum for socially conscious investors.
Focus on Companies That Are Solving Problems
Big, diversified companies can present challenges to socially conscious value investors. For this reason, investors may wish to focus on companies that are more sharply defined and dedicated to solving a problem. An individual investor could focus on businesses that are addressing a very specific area of need that’s of interest to that individual, such as education, affordable housing, or food security.
For example, I would argue that almost all healthcare technology innovations that startups are pursuing intend to solve problems for patients or providers. If it wasn’t worth investing in such companies from an ROI perspective, no one would ever put money into the healthcare industry.
Investors shouldn’t feel compelled to invest in areas that don’t contribute to society just because they believe it’s necessary to compile a “well-diversified” portfolio. Why invest in a tobacco or fossil fuel business when so many other investment opportunities exist in industries that have also generated positive returns?
Look at the Overarching Societal Benefit
Of course, you want to—and should—make a profit on your investment. Those of us who are privileged enough to dedicate financial resources to investing should consider the opportunities we have to shape the world our kids will live in. To think of ROI strictly in terms of cash in your pocket is to overlook your ability to contribute to a healthy, prosperous, and peaceful environment we all want to live in.
The good news is that there are more than enough socially responsible opportunities to allow you to be discerning in your choices. Does the world really need another NFT or cryptocurrency startup? I’m not saying these have a negative impact on the world, but what is their overarching societal benefit?
At the end of the day, socially conscious investing is nothing new. Just ask some of the world’s greatest investors!
About Ron Levin
Ron Levin is a socially conscious venture capitalist, entrepreneur, and amplifier of inspiring enterprises. He’s a managing partner with Alumni Ventures, the most active VC firm in the U.S., and has been an angel investor and advisor to over a dozen startups. His new book, Higher Purpose Venture Capital, profiles 50 venture-backed startups that are solving the world’s biggest problems. Learn more at linkedin.com/in/levinron.
