Is there one company whose shares you'd never put in your portfolio?
Last week, I took a look "The 6 Best Shares On The Market" according to Foolish readers. As part of the ensuing debate, poster "eccyman" commented: "The exercise was an interesting exercise in crowd-sourcing. How about a similar exercise for one share you'd never buy?" So here we are.
It seems to me the reasons for rejection of companies can be split into two distinct categories; moral and investment-based.
Saying no on moral grounds
Some of the rejections may be obvious. Ethical and socially responsible investment funds invest in companies with social, moral or environmentally responsible agendas -- generally rejecting companies involved in alcohol, tobacco, gambling and defence.
If you agree with these principles, then you wouldn't touch tobacco companies such as British American Tobacco (LSE: BATS) or Imperial Tobacco (LSE: IMT). And purveyors of alcohol, such as Guinness-maker, Diageo (LSE: DGE) and multi-brand beer-maker SABMiller (LSE: SAB) would be out.
A whole host of defence companies would also get the heave-ho, including companies like BAE Systems (LSE: BA), while bookmakers and gambling sites like Ladbrokes (LSE: LAD) William Hill (LSE: WMH) are no-nos.
To make things really complicated, there are the supply chains of companies which some people may have objections to, or the deals they do with certain dodgy regimes around the world. In other words, there is the potential for rejection on too many grounds to go into in detail with too many companies.
Then there are a whole host of personal / "moral" decisions specific to individuals. For example, I have an investing friend who is a Manchester City fan who eschews Vodafone (LSE: VOD) purely because they used to sponsor City's neighbours.
Investment-based rejections
The trouble with such moral decisions is they're complicated and full of contradictions.
Personally, I'm not aware of any share I would never buy in relation to what a company actually does (though that could change if new information came to light about bad employment practices, for example). But there are plenty I wouldn't touch for other reasons.
1. Hall of shame
I have my own blacklist of companies and people to avoid as a checklist before even thinking about investing.
These I can't share with you for fear of libel. There are some people who haven't done anything illegal I'm aware of -- but whose involvement in any way whatsoever writes a company off for me. I think the personal blacklist is a sound idea for private investors.
2. Blue-sky / growth
Never say never, but generally I avoid blue-sky companies these days and prefer not to have to pay for growth. But former growth stars that have fallen back to cash levels, usually just as they're about to get interesting, are something else.
As an example, renewable energy hydrogen specialist ACTA's (LSE: ACTA) valuation was more than doubly accounted for by its cash holdings a couple of years ago, and the shares grew 10-fold at one point.
Companies can become a combination of value and growth, i.e. GARP -- growth at a reasonable price.
3. No divi no buy?
If I'd always followed the "no divi, no buy" rule I believe I'd be a wealthier man today. A dividend helps indicate that profits are real.
But again, it isn't a matter of "never" so much as "seldom" these days for me.
4. Don't buy what you don't understand
"Don't buy what you don't understand" or don't invest in anything you can't draw with a crayon or explain to a child etc. are all ways of saying the same thing.
I don't think you always have to understand the technology, or the business itself in detail. But if you don't, and you don't understand the numbers either, don't invest!
I'm sorry I haven't answered my own question here. But I don't know of a single share I'd never buy if its circumstances changed to make it compelling value, for example.
What do you think? Let us know in the comments box below...
More from David Holding:
> The Motley Fool owns shares in BAE Systems.
