Find the Companies Rejecting Stupid Ideas 

The purpose of investing is to grow our wealth by owning good businesses.

The purpose of a business is to make money for its owners (i.e., investors). 

The most effective way to do that is to keep customers happy. 

And the most effective way to do that is to create quality products and services, sell them at reasonable prices, and generally treat customers the right way. Everything else is a means to this end. 

Without these fundamentals in place, you don’t have a business. 

This is not rocket science. 

You don’t need a fancy Wharton MBA degree to understand it. 

None of these statements should be controversial. 

Yet large swaths of corporate America somehow forgot these fundamental truths – or were bullied into setting them aside – over the past few decades. 

Instead, they spent an inordinate amount of management time and energy on diversity, equity, and inclusion (DEI) programs… environment, social, and governance (ESG) efforts… and, more broadly, on corporate activism.

Investors – and consumers – have paid the price.

Now, let me be clear on one point: I’m not against diversity, equality, or inclusion… or environmental or social responsibility. 

There’s not much I’m actually against.

But I AM for making a profit. It’s why we invest. 

Successful and innovative companies naturally find the most productive and talented workers regardless of their race, sex, creed, or whatever demographic box you want to put them in because it gives them a one-up on the competition. 

And they naturally take an inclusive approach to their customers too. Few businesses have become successful turning would-be customers away. 

But DEI initiatives need to be a means to an end, and that end is turning a profit. If the program makes the company money, then by all means, DEI the hell out of it. Ben & Jerry’s turned the Vermont hippy ethos of its two founders into a wildly successful ice cream company. Their social activism is part of the brand. 

But was Ben & Jerry’s successful because of its social activism… 

… or because the ice cream was just that damn good?

Well, I can’t speak for all of their customers. But I’ll admit to regularly gorging myself on Cherry Garcia, and I can promise you it wasn’t because of the hippy activism. I blissfully ignored the activism because the ice cream was that freakin’ delicious.  

But Ben & Jerry’s is the exception to the rule here. Judging other companies by the Ben & Jerry’s standard would be like comparing every other basketball player to Michael Jordan. That’s just not fair. For just about every other business, social activism creates a lot of risk with no tangible reward. 

I don’t know that Anheuser-Busch (BUD) sold a single bottle of Bud Light from its marketing efforts with Dylan Mulvaney. The fiasco that ensued, however, cost the company an estimated $1.4 billion in lost sales… and counting. 

Apart from high-profile implosions like Bud Light, DEI programs have real, quantifiable costs. The consulting firm McKinsey expects the direct cost to rise to over $15 billion in another two years. 

But there are also the harder-to-quantify costs of management time and attention. Your CEO and board of directors only have so many daylight hours to dedicate to company business, and every hour spent reviewing a PowerPoint deck from human resources on the inclusive use of pronouns is an hour not spent growing sales, squeezing out inefficiencies, and running a more effective and profitable business. 

Meanwhile, the benefits are nebulous and hard to define. 

The company ranks three spots higher on the corporate equality index. Great. But last I checked, the corporate equality index doesn’t pay a quarterly dividend.

Here’s the thing about competitive capitalism… 

It has a way of punishing stupid ideas. 

Companies that waste their precious bandwidth on things that don’t matter will lose market share to companies that keep their eye on the prize.

And it seems that corporate America, finally, is getting that through its collective thick skull.

This week Ford (F) announced that it was scaling back its DEI initiatives and will no longer take part in the Human Rights Campaign’s Corporate Equality Index. 

This follows broadly similar recent announcements from Molson Coors (TAP), John Deere (DE), Lowe’s (LOW), Harley-Davidson (HOG), Tractor Supply Co. (TSCO), and Jack Daniel’s maker Brown-Forman (BF.B). 

Your grandmother’s advice to avoid talking about politics and religion at the dinner table was wise. No one wants a woke beer or a MAGA beer. They just want a refreshing cold brew that’s suitably hoppy… and they want to enjoy it without feeling like every sip is a political statement.

The question is, what do we do about this as investors?

First, you may want to take a closer look at some of the companies I just listed.

For my paid-up members, my approach in The Freeport Investor is to find opportunities in the madness. 

We have an entire portfolio dedicated to anti-ESG investments, or stocks that tend to get bullied or ignored by the environmental, social, and governance mob. 

We’ve found fantastic bargains in the energy and defense sectors… and we’re seeing results. Two of our positions are already showing double-digit gains.

More broadly, we should look for companies with management teams focused on boosting long-term profits by running strong businesses attuned to the needs of their customers.

You should do the same.

To life, liberty and the pursuit of wealth.