Facebook, the Goliath social media platform, took a historic $120 billion fall on Thursday, winning the top spot for the largest one-day loss of market cap ever on record.
Interestingly, this massive 19% wipeout was heavily related to ethical missteps related to user privacy and data security practices, providing a strong reminder that ethical and moral analysis of a company is not just a feel-good activity, but can help investors identify real, tangible financial risk in an investment.
Scorching Decline And Murky Waters
The scorching decline was sparked by the company’s quarterly earnings call where Facebook’s CFO detailed decreasing user growth, shrinking profit margins and challenges related to new privacy laws in Europe which are hindering Facebook’s growth, engagement and ad revenues in the region.
Facebook’s epic evaporation of shareholder value also comes on the heels of the bombshell Cambridge Analytica scandal which put CEO Mark Zuckerberg in the hot seat before Congress and shed light on the murky waters of Facebook’s privacy and data security practices. That scandal also took a big bite out of Facebook’s share value.
Translation: robust privacy laws make it harder for Facebook to grow and earn a profit. Food for thought.
Ethics As Risk Management
Companies that stretch the boundaries of ethical business practices, or even outright cross them, may find short-term financial success. But, eventually their chickens come home to roost. Facebook — and everyone who owns Facebook stock — is finding this out the hard way.
Financial analysts would explain this by saying that corporations which externalize the cost of ethical issues (such as privacy concerns) are by definition over-monetized. Eventually those externalities manifest themselves in the company’s balance sheet, the over-monetization is corrected and shareholders pay the price.
The Bible says it this way, “Do not be deceived: God is not mocked, for whatever one sows, that will he also reap.” (Galations 6:7)
Jesus And Financial Advice
Sometimes biblically responsible investors are mocked by the Wall Street establishment as bleeding hearts that focus too much on “soft” or “subjective” issues, instead of the cold hard facts of financial analysis. My question is, if focusing only on financial data is supposedly the highest and best way to invest, why did so many of these investing experts just take their share of a $120 billion bath in Facebook stock? Why didn’t they see this coming? Why did they get hit by this bus while biblically responsible investors stood safely on the sidewalk?
Because of ethical concerns, such as Facebook’s data privacy issues, as well as other moral problems like Facebook’s corporate support of abortion and jaw-dropping lack of concern for fighting child pornography which runs rampant on their platform, Facebook stock has never been included in any of the portfolios we manage at Inspire.
As biblically responsible investors, we look at both the financial and moral issues related to a potential investment. Only when both areas of analysis are satisfied do we take a position in a stock. As Jesus said, “Be as wise as serpents and innocent as doves.” (Matthew 10:16)
As it turns out, this is not only great advice for your spiritual life, but for your financial portfolio as well.
Maybe Wall Street should start reading the Bible.
Robert Netzly is the CEO of Inspire Investing and frequent contributor on FOX, Bloomberg, New York Times and other major media. Read more from Robert in his #1 bestselling book Biblically Responsible Investing, available at Amazon.com and other major retailers.
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Advisory Services are offered through CWM Advisors, LLC dba Inspire, a Registered Investment Adviser with the SEC.