Our latest Investment Digest featured an interesting stock from the Cabot China & Emerging Markets Report. Paul Goodwin, the Report’s editor, wrote about the stock:
“When we first got to know Mindray Medical International Ltd. (MR) back in 2006, it was a company with annual sales of just $173 million. Its product line of patient monitoring and life-support, medical imaging and in vitro diagnostic instruments was selling well within China, and revenue had been growing by more than 50% a year for four years.
“As to the originality of its designs, it would be polite to say that the company knew a good design when it saw it—and copied it. But Mindray’s owners had both discipline and ambition, and the company was committed to spending 10% of revenue to improve its designs. The aim was to become more than a supplier of cheap knockoffs to the hospitals and clinics of China.
“These days, Mindray is a thriving company with a market cap of $4.1 billion and sales of just under one billion dollars ($969 billion), 58% of which comes from outside China. The company has hundreds of patents protecting improvements and refinements of the western designs that were the original models for its products. Mindray devices compete successfully with major western manufacturers on their value proposition and quality. In addition to its 29 provincial sales and service centers within China, Mindray has a significant presence in the U.S. and has placed its devices in more than 90 countries.”
Obviously, the company’s history is a great success story that partially reflects the larger China story: from the West’s supplier of cheap knick-knacks and knockoffs to a full-blown global powerhouse in its own right. But if you’re somewhat aware of existing trade issues between China and the rest of the world, the acknowledgement that “the company knew a good design when it saw it—and copied it,” may have set off some alarm bells for you, as it did for me.
To put it simply, many in the U.S. have taken umbrage to some Chinese companies’ rather casual attitude toward patents, copyrights and other intellectual property protections.
I can’t say I blame them: when I was in China, the knock-off economy was shockingly huge and out-in-the-open. But, of course, there are two sides to every story (and I won’t deny buying my fair share of bootleg DVDs while I was there).
Some have argued that knock-off luxury goods actually increase demand for the genuine article by making the brand more visible and desirable. And when it comes to anything to do with health care, as in Mindray’s case, I can see a convincing argument that copying actually saves lives and, again, barely competes with the real McCoy.
That’s why I included the stock in the Digest. There are multiple sides to every story, and every investor has different values. While I don’t think there’s anything wrong with including an ethical test among your investing criteria (in fact, I think you probably should), I can’t possibly make that judgment for thousands of investors. Values are subjective.
That becomes obvious when you consider the variety of ethical or “socially responsible” funds and investments available today (a few are listed here). Some avoid nuclear power companies, while others avoid environmentally unfriendly companies, presumably including most other kinds of power generators.
But the most common prohibitions of “socially responsible” funds are against alcohol, tobacco and gambling companies, with many also avoiding companies that make weapons or publish pornography. I have no problem with at least two of those things, and know the same could be said for many investors.
And then there is Amana Trust Income (AMANX), which avoids the banking industry because it invests according to Islamic principles, while Ave Maria Rising Dividend (AVEDX) will have nothing to do with companies that “support abortion in any way,” including many hospitals, insurance providers and any companies that donate to Planned Parenthood.
And I could think of hundreds of other ethical criteria to consider in your investments: employee well-being, animal cruelty or testing, tax evasion, outsourcing, making fattening food and doing business in countries with poor human rights or corrupt governments, just to name a few.
So as I said before, while I won’t make that judgment for anyone, I do think it’s important to make it for yourself. After all, as an investor, you are supporting the companies you invest in—and there are plenty to choose from.
Wishing you success in your investing and beyond,
Chloe Lutts
Editor of Dick Davis Investment of the Week
