To paraphrase Warren Buffett and Charlie Munger, “Buying a good company at a good price is a good idea. Buying a great company at a bargain price is better.” But to note this in light of L’ Affaire Sokol – Lubrizol, “Buying a great company at a good price when a stick-picker on my staff just bought it for his account is a really stupid idea.  And making excuses is even stupider.” (See this article by Joe Nocera at the NYTimes.)

Buffett claims to practice “Value Investing” as defined by Ben Graham, Phil Fisher, Ken Fisher, Joel Greenblatt, Bruce Greenwald, and others. I see “Sustainable investing” as a subset of “Value Investing.” Value Investing seeks to find companies that are currently undervalued by “Mr. and Ms. Market” but that are really effective at delivering Shareholder value. Sustainable Investing would seek to find companies that are currently undervalued but that are really good at delivering Stakeholder value.

A Value investor might buy an oil or tobacco company on a crash, on the expectation that they sell products with high margins, strong customer bases, and a monopolistic market segment, which are therefore likely to bounce back after the crash. BP, for example, dropped from about 60 before the Deepwater Horizon catastrophe started on April 20, 2010 to about 30 very shortly thereafter. It has since recovered to about 45. (This is also a “Vulture” strategy.) A value investor could have realized a 50% RoI in less than a year by buying the stock at 30 and selling it at 45. I expected the market to crash after the earthquake, tsunami, nuclear situation in Japan, but it hasn’t (which I don’t understand. (Maybe I am wrong about nuclear power.) Or the Value theorists are right about the market being irrational – “a herd ruled by a mob.”)

A Sustainable investor, however, would pass on oil or tobacco companies.

While a Value Investor who buys companies like BP after events like the Deepwater Horizon might outperform a Sustainable Investor who passes up the opportunity, investing in well run sustainable companies will probably consistently outperform metrics such as the Dow, the Fortune 500, etc., and the Sustainable investor, and his or her bleeding heart liberal future-minded children will sleep better. Refer to Cary Krosinsky’s book, Sustainable Investing, the Art of Long Term Performance.

Thus evaluating the companies on the Dow Jones Sustainability Index or other indices thru the filter of Value Investing might be a very effective strategy.