Unfortunately, securities regulations put in place in the Depression era make this difficult to do. Indeed, it is easier for most folks to invest in a company halfway around the world than one in their own backyard!
Despite the limitations, a grassroots local investing movement is flourishing within the narrow openings of U.S. securities law. The models being created—local investment clubs, community ownership, crowdfunding, direct “do-it-yourself” public offerings (DPOs) and local stock exchanges—provide alternatives to the Wall Street casino and promise a more inclusive form of capitalism. I discuss these and other models, along with dozens of examples, in my book, Locavesting.
Two things I’d like to make clear:
- Local companies are not just confined to mom & pops shops; they can be large, established employers or high growth startups. The distinction is that they are locally owned and rooted in a place.
- I’m not suggesting that people sink all of their money into the local hardware store. Small businesses are risky, to be sure. But local investments can help diversify a portfolio and buffer it from the global macroeconomic shocks that rock the market with increasingly frequency. Companies with a localized business model are also less likely to be hurt by rising oil and commodity prices.
Indeed, there is a very strong argument to be made for investing in companies that are familiar parts of your landscape and life. As legendary investor Peter Lynch has long advised, it’s best to invest in what you know. What’s more risky, a global firm engaged in complex activities (hello, AIG, Lehman and Enron, to name just a few Hall-of-Shamers) or a company that you know and love and has a reputation in the community?
Just ask the residents of Vermont that invested in Ben & Jerry’s 1984 in-state direct public offering, or the investors in Organic Valley and many less familiar cooperatives who received 6% annual dividends over a “lost” decade when the stock market delivered negative returns.
Local investments, I submit, can reap rich rewards for investors, their communities, and the nation.
Amy Cortese is an award-winning journalist whose work has appeared in the New York Times, Business Week and many other publications, and the author of "Locavesting, The Revolution In Local Investing And How To Profit From It" (Wiley & Sons). Find out more at www.locavesting.com or on Twitter @locavesting.
Email me at firstname.lastname@example.org — And follow me on Twitter @BullishonBooks