As I continued with my project, I tried to direct all my decisions towards my investment philosophy. Investment for me is a mutual favor between the investor and the company. The investor funds the company through money and/or other goods, and therefore earns an asset of the company. This asset is the company’s promise of some certain or uncertain return of the funds in the future, with a potential of a higher return. But in order for this mutual favor to work, I believe that the company must be providing goods and/or services that are in a direct or indirect way improving the world. After all, I am investing for this company’s future growth!
But how can we know whether a company is improving the world? I believe justice takes a big part in answering this question. A company that is just with its employees by paying decent wages as well as with its customers by charging a fair amount for its goods/services is a necessary criteria. Responding to the necessities of a certain community (the broader of a community the better) I believe is in addition a quality of vital importance. An environmentally sustainable company, or with an every-day improving pollution record is also a key characteristic, as well as a company with leaders who display their ethics through action. One more quality I must mention is a company free of child labor.
According to Rutgers University’s Risk Tolerance Quiz, I have a pretty low average for risk. I believe that assumption is asserted in most of the circumstances the quiz described; however, if I believe I am working to achieve a clear goal for a noble purpose, I don’t mind taking some bigger risks.
RS, Risk Tolerance Quiz
I set three financial goals in different time horizons for this project. These financial goals are much more long-term than anything else. I believe this fits with my personality and, specifically when talking about investing, is much smarter:
- 1-year goal: I’d like to visit GCE in Chicago for my graduation, and support my parents with the price of the plain tickets with $1,000.
- 5-year goal: $20,000 to pay off some of my college loans, if any.
- 25-year goal: A savings account for my children’s education, with $80,000
The two markets I chose to invest in are renewable energies and cosmetics. Out of the many companies I researched, two of them stood out from the rest: Pattern Energy and L'Oréal. They seemed to me as a good distribution to my investments because both Pattern Energy and L'Oréal have strengths and weaknesses that complement each other. L'Oréal is rich in history and counts with a strong establishment, while Pattern Energy takes part in transforming the world to Renewable Energy, something I consider a major necessity. Also, a great (near) financial future is expected for Pattern Energy.
Here is a little more detail about these two companies:
Pattern Energy (PEGI): Pattern Energy is an independent power company, with a portfolio of 20 wind power facilities in the United States, Canada, and Chile. As they put it in their website (patternenergy.com), Pattern Energy is “transitioning the world to renewable energy”. PEGI is committed to protecting the environment and consider it their responsibility to produce clean, renewable energy to consumers with minimal impact. PEGI offers 7.3% in dividend yield (one of the highest of the sector; recently $0.422/share) and a simple financing structure.
Pattern Energy Stock Price, 2017.
L'Oréal (LRLCY): L'Oréal is the world’s largest cosmetics company. Its headquarters are located in Clichy, Hauts-de-Seine, France.L'Oréal offers a maximum of 0.5% in dividends to shareholders who have continuously held their shares for a minimum of two years; however its dominant position, which comes from its grand branding power and great stability leaves only a slight room for any disruption to other similar businesses. Last year, L'Oréal was named the “World’s most ethical company” of 2017 for the 8th consecutive year by the Ethisphere Institute, a global leader in defining and measuring the standards of ethical business practices. L'Oréal works with organizations such as the Anti-corruption Commission of the International Chamber of Commerce, the Ethics and Compliance Initiative, the International Business Ethics Institute, and several others in a “spirit of continuous improvement”, as they state in their webpage.
L'Oréal Stock Price, 2017.
I have distributed my investments in 3 portfolios:
Portfolio l- 1 Year Goal
$25,148.00
56 Shares of LRLCY @ 223.88 ($12,509 total)(49.7% of portfolio)
583 Shares of PEGI @ $21.68 ($12,639 total)(50.3% of portfolio
I will benefit myself from this first investment only from dividend earnings, which sum up to $1,024.44. My 1-year-goal will therefore be achieved. The ROI of this portfolio is of 10.8%
- LRLCY has an expected ROI of 9.7%
- PEGI has an expected ROI of 12.7%
- The ROI of this portfolio is of 10.8%
- Future value of all shares: $27,966.52
Portfolio ll-5 Year Goal
$25,148.00
56 Shares of LRLCY @ $223.88 ($12,509 total)(49.7% of portfolio)
583 Shares of PEGI @ $21.68 ($12,639 total)(50.3% of portfolio)
This portfolio is similar to the first, but my plan is to cash these shares out by year 5, earning a total of $21,547.62, dividend earnings included. This meets my 5-year-goal. The ROI of this portfolio is also 10.8%, of course.
- L’Oréal has an expected ROI of 12.4% after 5 years
- Calculating the PEGI expected ROI for the next 5 years was no easy ordeal. 5 years ago, PEGI’s share value was 6.8% more than the present one. However, I think it is unreal to believe that its share value will further decrease on average for the next five years; there is a series of signals that point towards a take off from the Renewable Energy market in the next five years, for many more years to come. I came up with what I believe is a much more asserted way of calculating the ROI for the the next five years: I calculated the ROI of the last year and of the last 2 years, and I finally calculated an average between the two. The result was an ROI of 9.4%
- Future value of all shares: $42,247.74
- Dividend earnings: $4,447.88
Portfolio lll-25 Year Goal
$25,398
28 Shares of LRLCY @ $223.88 ($6,255 total)(24.6% of portfolio)
883 Shares of PEGI @ $21.68 ($19,143 total)(75.3% of portfolio)
I plan on making this investment while in parallel I cash out the previous one. Therefore, I calculated my earnings on an 20 year span, given that I will invest this portfolio 5 years after the first investment. I will earn a total of $125,227.21, which exceeds my 25-year-goal by a lot!
- L’Oréal has an expected ROI of 9.6% after 20 years
- Once again, I used 9.4% as PEGI’s expected ROI.
- The ROI of this portfolio is of 8.2%
- Dividend earnings: $39,894.9
- Future value of all shares: $154,563.59
Total Investment Portfolios Value: $50,556.8
(coming in $10.8 less than the initial amount)
A series of considerations guided me through deciding how to invest in relation to the time horizons. I decided to invest just about half of the money at first, and have it compound for 5 years. This first step will also serve me as a test run; if everything goes fine, and the markets these companies belong to don’t suffer from any sort of economic depression, I will continue with investing the second half of the money, and have it compound for a much longer time. I decided to invest on the long run, specially for this second investment, because I’m not exactly counting on this money for the near future (after all, it was a gift!), and why not? With some calculations I have noticed that time in investing makes all the difference!
In the long-term, I invested much more on PEGI. This is what the total performance of my investments looks like:
RS, My Investments.
The ROI of my portfolio’s compared to the S&P 500 looks something like this:
Evidently, the ROI of the S&P 500 is considerably more than that of my portfolios’. However, I believe I have reached larger goals with these investments that an ROI. Through these investments, besides meeting my financial goals I am supporting two companies which I feel have something most companies can learn from: both distinguish themselves in one way or another by how they apply their ethics in their doings.
These are the assumptions I made in this Action Project:
- I am assuming in my calculations that both L’Oreal and Pattern Energy will continue to be leaders in their markets because of their continuous growth, their quality and the type of service they provide.
- I am assuming that that even though Pattern Energy’s performance hasn’t been the best on average in the last 5 years, it will grow much more, as it has been doing in the last year.
- I am also assuming that both Pattern Energy and L’Oreal highlight more than most or even rather all other companies in their markets for financial, ethic, and productive reasons.
