Eileen's picks

Picking a stock for a multi-generational trust

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I feel a responsibility as the manager of the long term investments of three generations of my family to do more than simply make sure that the money is there and safe and growing enough to cover the needs of the extended family. Not that that responsibility doesn't weigh heavily enough when the market drops in all sectors as it has during the past weeks at the same time my 87 year old mother experiences a health crisis!

To me it's also important that a portion of the funds be invested in companies that members of the family can understand and relate to: companies whose products and services are in areas of interest or concern; companies whose business practices reflect the values of the family.

Communicating with the family about these companies helps them appreciate where the money they depend on comes from. It also helps me interest the next generation in investing, a skill that will help them build the capital to put wind in the sails of their dreams. Engaging the younger generation in proposing companies also helps me identify and develop a successor manager of the family trust so, when I'm no longer able to do it, we avoid paying fees to an outsider who will simply manage the money without concern for values or communication.

Clearly, stock picking for these purposes adds an additional dimension to research.

My mother has always had a strong interest in health care, so that's a sector that receives special attention in our family trust. My SLO portfolio is lower in health care than the percentage my diversification system calls for, so the quest began for a company that met all the criteria.

My mother, who was recently diagnosed with it herself, believes that the worldwide aging of the population combined with the global epidemic in obesity is going to make management of diabetes an important part of the health care market for many years to come, so I identified companies specializing in that.

Quick to rise to the top of the list was the Danish company Novo Nordisk A/S. The world's large provider of insulin, it also develops and sells diabetes care and oral anti-diabetic products, and biopharmaceuticals including growth hormone and hormone replacement therapy products. Last year NVO initiated a global Phase III study for the use of liraglutide, the human glucagon-like peptide-1 (GLP-1) analogue, in people with type 2 diabetes like my mother.

Further research showed NVO also passed the "values" test, having a corporate policy that holds management accountable for a Triple Bottom Line.

Being a large growth stock, NVO fit a niche that needed filling in the diversification by market cap part of my system; being Danish it helped round out the foreign allocation (as well as being of interest to a family that has lived for 5 generations in a city known as Little Denmark); having 5 years of stock price growth greatly exceeding the industry average, it passed another test.

All that remained was to get the number of shares we wanted at a bargain price. At noon on the 17th I got the shares at an average price of $102.40 which was less than the price I had mentally set. Time will tell if that is a bargain or not, but for the time being NVO is up, and that's the direction the whole family prefers!