Confession time: a Grinch bemoaned to me recently that I always talk about the same things every month—I bash buy-to-let, repeatedly saying that it’s going to hell in a handbag, and I bang on about hotel investments being the best thing since the discovery of sunshine. So, seeing as it’s New Year, I thought I’d pick up a different pipe and play a different tune. While I still think that buy to let is a waste of time—at least for now—and hotels with their multiple revenue streams are great (which they are), I’m going to take a slight diversion and look into: ‘What makes a sound investment?’ And by ‘sound’ I mean:

  1. Financially sound
  2. Ethically sound

Now, I don’t know about you, but even though I loveand live to invest, I really don’t want to be an investor at all and any costs. If for example, I felt that any investment I made was having a direct and damaging impact on a certain segment of society, that wouldn’t sit too well with me.

Of course, there are plenty of guys out there sticking their capital into anything that gives them a return. For those people, investing is a zero-sum game, and they’re more than capable of turning a blind eye to the consequences of their decisions — if you’re struggling to picture these types of characters, think Gordon Gekko, Wall Streetor Nicholas Cage in the Art of War.

For me, I think when you invest, it isn’t just about growing your bank balance. Naturally, that’s a big part of it but my point is you want to feel good about your investments, right? You want the capital gains you make to be the result of intelligent decisions, well-orchestrated strategies, and a balanced and risk neutral portfolio. You don’t want bullet perforating your spreadsheets.

It’s for this reason that socially responsible index funds exist. They’re the ones that don’t go near stocks in tobacco, guns, casinos, brothels or anything else that might fall into the ‘sin stock’ category. But they don’t even need to be so-called sin-stocks to throw up ethical questions.

If, for example, I took a look at your diversified portfolio, if you have one, and pointed out that you had stocks in a mining company that was carving out vast swathes of the Amazon rainforest, displacing endangered animals, native communities, and destroying plants that might provide a bonafide cure for a type cancer, just so you could get a decent yield on your investment. Would you be okay with that? It’s possible. Until perhaps we took a trip to see first hand the devastation that ‘sound investment’ was bringing to bear.

But what if, instead of investing in a fund that invested in the mine, you invested in a fund that invested in the pharmaceutical company developing the anti-cancer drug from the plant the mining company was digging up and destroying?

There are plenty of people who just want to see their money make money, and who don’t necessarily consider howthat’s happening. But from a personal point of view, I think it’s vitally important to know where your cash is going and how it’s being used so that you can make an informed decision regarding the qualityof your investments. Quality to my mind is anything that delivers a solid yield of over 8% and allows me to sleep at night without the need for sedatives.

Without wanting to sound too Zen or Starwarsy, money is simply a form of energy that can sit still or flow into light or dark places. And anyone with capital to invest should consider where they direct that flow and how they use that force. Granted, I would be lying if I said that there was a single investment out there that gave an excellent return that didn’t have some sort of minor or even major ethical consideration woven into it. And that goes for property, too.

There’s black, there’s white and in between are infinite shades of grey, and within these degrees and measures, as investors, we have to find a zone of comfort in which we can feel that we are doing more good than harm, adding to the world rather than subtracting from it.

Over the last 25 years that I have been a property investor, I’ve seen the landscape change. I invested in residential property in the late nineties and early part of the millennium until the tables turn on buy-to-let landlords—the very people generating a healthy rental market for those people unable to, for whatever reason, buy a property.

So, what was once encouraged and promoted by the government as a sound investment opportunity has been turned into something sordid and unsavoury forcing many landlords to back away from the sector. When the narrative changed, shifts in perception followed and what was once okay became less acceptable.

Which goes to show that the investment ethics aren’t cast in iron. They’re mutable, movable, malleable. If further proof were needed just look at the feeding frenzy going on around cannabis right now. The drug that has put so many people behind bars is now being freely sold in places like Canada and widely traded on the stock market.

If you think that marijuana is the devil’s weed and the gateway to death and destruction, you probably won’t want to buy shares in it. If, on the other hand, you consider it to be the breakthrough cure for cancer and a resolution for the enduring pains of many epilepsy sufferers, you’d be more inclined to direct your money there.

But as we enter 2019, with stocks riding high after a choppy December, I thought it was worth talking about investing in general, the things I believe are worth considering before you rush to make a buck. As for me, I’m sticking with the very thing I know and love, and we all know what that is—hotels. Apologies to the Grinch. I couldn’t resist. I had to get it in there.

Until next time.

Nick Carlile

If you’d like to find out more about how investing in hotels, and become a contributing partner in a portfolio now worth more than £150million, please get in touch with us at Shepherd Cox.