Thursday, August 30, 2012

Investing in the Seven Deadly Sins

was struck by something new I learnt in researching an article on medical device company Covidien.  One of the key surgical procedures for its products turns out to be Bariatric or weight loss surgery. It strikes me that many of these procedures will come as a result of the unfortunate life-style choices of some of its patients.

I was initially startled, but then I realised that I do actually live in the real world and my sense of surprise was really a self delusionary device created to shield my sensitivities from the truth. The inconsequential and light-hearted drivel that follows is as a consequence of this pointless discovery.
I think the reality is that many companies and industries proved to be good or bad investments based on behaviour which could be classified as immoral. Of course, in times of uncertainty (and during sex) many people turn to religion, so as a good Catholic boy I think it’s time to look at the Seven Deadly Sins in investment.


Wrath

As Einstein used to say (probably) it’s all relative isn’t it? As a Brit, the moral fault line between the UK and the US over medical research has always struck me as fascinating. There are fewer issues that arise more wrath in the States than embryonic stem cell research and the US does not allow Federal funding of programs in which human embryos are subjected to risk of injury or death. Meanwhile, genetically modified food research receives little much less resistance.

It is a completely different situation in the UK where the creation of embryonic stem cell lines is permitted but if you dare try to modify a mushroom –as if humans haven’t been modifying food for thousands of years- or turbo charge, Prince Charles and others are likely to set qualifying times for the Olympics in coming after you. 

I would tend to avoid stem cell companies in the US and avoid crop science companies in the UK.


Greed

It is hard to know where to start here and even harder to know when to stop!  There is good greed and bad greed. Bad greed is the kind of behaviour exhibited by some of the banks in recent years. Leveraging up on risk for their own personal gain whilst racking up risk for the shareholder who then has to bail out the banks in order to give them a platform to do it all over again, is not how free markets are supposed to work. What is supposed to happen is that the banks go bust and the greedy incompetents that led these firms are supposed to join the ranks of the unemployed. The largest hate figure of the malcontents with this issue is, of course Goldman Sachs (NYSE: GS).

On a more positive note, it is thanks to the greed of Gilead Sciences Inc (NASDAQ: GILD) that AIDS has not prevented huge numbers of people from continuing to live a normalised life. In addition, the next step is prevention and Gilead is increasing moving towards that.  An FDA Advisory committee has already recommended Truvada for approval as a pill to prevent AIDS and Gilead is awaiting a formal FDA decision.


Pride

The market is full of stories of how pride and hubris destroyed seemingly unassailable market conditions. Nokia was once the globally dominant phone manufacturer and Research in Motion’s (NASDAQ: RIMM) fall from grace is obvious for all to see. Blackberry was once the ‘must-have’ device for young people looking for a smart phone, particularly as it had such a strong position in the corporate market. Unfortunately if you rest on your laurels and do not innovate and build on your position, your competitors will.

On the other hand, if it wasn’t for Steve Jobs’s pride in his genius, there would be no IPod. No IPhone. No huge returns to Apple (NASDAQ: AAPL) shareholders. The question is whether Apple will continue to innovate and develop without its guiding light?


Sloth

Sloth and eating processed food, urban sedentary life styles and just good old fashioned laziness.  All are causes of a lack of exercise and dietary concern. Ultimately this causes weight gain and the conditions that diseases like diabetes will thrive in. Unfortunately this is proving to be a very successful export to emerging markets. I have a more detailed article on the subject linked here.  Suffice to mention here that the trend doesn’t appear to be going away anytime soon.


Lust

Let’s not mince words here. If there was no porn, internet infrastructure would not have developed as quickly as it did. Streaming video, E-commerce, Security, broadband capacity, the list goes on. It is fair to say that a company like Juniper Networks (NYSE: JNPR) would not be the company it is today without pornful lust.

On a more negative note, if someone could guide me towards a listed company investing in massage parlours in the Punjab I would be most grateful. The prevalence of self-selective abortions of girls in some parts of the world is truly frightening. If the feminists are looking for a ‘War on Women’ they will find it in many places in Asia.


Envy

Every time I hear another upstart politician or commentator in Europe jump on a soapbox and advocate Eurobonds or any such notion that involves exposing taxpayers in countries like Germany, Austria, the Netherlands and Finland to others debt, I am reminded of the root cause of it. It is envy. The PIGS could reform. They could engage in the kind of painstaking measures that West Germany did in order to integrate East Germany. They could even read history and see how Germany was formed out of the Zollverein (customs union) of previously disparate States. They could do these measures and hope to reach Germany’s low rates of unemployment and growth. The markets would like it and it would be a confirmation of the solidity of the Euro.

No. It is so much easier to undertake the politics of envy and try and coerce and game the Germans into taking on responsibility for others failures.  Where the envy would be better directed would be if certain countries in Europe decided to follow Germany or Finland’s example are starting spending in line with their revenue generation.


Gluttony

Hands up if you thought I was going to go for McDonalds? Nope. There is nothing wrong with a burger and McDonalds gets an unfair rap much of the time. I’ve never seen people force fed at gun point in a fast food joint.

Moreover, Gluttony doesn’t just encompass food. I’m fascinated by the fact that diamonds cannot be easily distinguished from artificially produced moissanite. Whilst ‘moissanite is a girl’s best friend’ will not be a hit single any time soon, I can’t help thinking so much misery in certain parts of the world could be alleviated by not buying diamonds or that human kind could direct its intelligence to better causes than finding ostentatious baubles in the dirt.