Question: How do I decide on a trustworthy company to start with?

I asked a question on Instagram the other day, about the biggest challenges that people face when value investing. And one of the comments to a challenge that came back was "Deciding on a trustworthy company to start with..."

Finding trust in an organisational structure like a company is definitely difficult because, at what point have we found the level of trust we need, to start investing in the company? It’s a difficult measure. What I would do in this situation is to ask myself about my values.  Values are the compass of our life – our true north.
  • What are values I want to invest in? 
  • What are some values that I want to avoid?
  • Which value parametres does the company need to follow? 
  • What parametres would it be nice it follows?
  • Spending my money on shares in a company - what makes me feel like I'm making a difference in the world?

I can use these answers as guiding stars.


At the most recent annual meeting for Berkshire Hathaway, Warren Buffett's company, Warren Buffett said:
"If you’re looking for perfection – in your spouse, in companies – you’re not going to find it."
In that part of the meeting they were talking about values. Buffett and Charlie Munger (Warren Buffet's business partner and vice chairman at Berkshire Hathaway) had a dialogue around a meat packing company they visited. It seems to me they didn’t invest in that company because something in that facility went against their values. Warren Buffett owns energy companies, oil companies and other types of companies that goes against many people's values - but something in that meat packing industry was a hard no for him.

I can also share a story from my own experience. I was looking into a company that I found because of their organic selection and local focus. Something I value when grocery shopping. However, as I studied the company I found that the management team all came from conventional grocery industries and large chains, and I got the impression they were running the business the conventional way, but prettied it up as an organic food market.

And there’s was something in their business model that wasn’t quite right for me. On the surface it seemed that they bought left-over produce from local farmers. This way they could ensure the produce wasn't wasted plus they got it for cheap. But as I dug deeper it seemed to me that they were squeezing the local farmers to sell their products cheap - or not getting it sold at all. So I decided it wasn’t for me. It wasn't trustworthy in my book. But one of my investing peers from my mastermind didn’t have the same reservations, he has different values and that's great. And the business had excellent numbers from the past and an audacious strategy. It all came down to values.

PS: The follower, who asked this question is an amazing LEGO toy photographer. Check out his work here: https://www.instagram.com/a_toyphotographer/


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