ON Dec. 19, 1912, John Pierpoint Morgan, often regarded as the quintessential banker, was testifying before a US congressional committee. When asked about the main consideration for a banker to extend credit, he surprised his audience with his response. “The first thing is character,” he said. “Before money or anything else. Money cannot buy it…. A man I do not trust could not get money from me on all the bonds in Christendom. I think that is the fundamental basis of business.”
Over the course of more than a century since Morgan made his testimony, significant progress has been made in the way investment opportunities are assessed. The process has become much more rigorous, focusing on various quantifiable factors, which are expected to reflect the ability of an investment target to generate value. Too often though, more qualitative factors are left out of the equation. Yet human values such as trust, integrity and honesty matter greatly. A company may have all the right metrics in place, but if its sponsors cannot be trusted, if they lack a strong sense of ethics, this often results in poor investment decisions. What was true in 1912 remains very relevant to this day.
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