SINFUL GREED \/ SINFUL STUPIDITY: I accidentally stumbled across an interesting article by a Mr. Charles L. Norton, which appeared recently on RealMoney.com and TheStreet.com. It was entitled “Socially Responsible Investing: It’s a Sin”. Since I have all of my personal retirement money invested in socially responsible mutual funds, the article caught my eye. Just what sort of “sin” does Mr. Norton think that I’m involved in? Just what does Mr. Norton mean by “sin” anyway?<\/p>\n
Quick answer: Sin, to Mr. Norton, is to consider anything other than monetary return in your investment decisions. Background: there is currently about $2 trillion of funds invested through social responsibility funds, mutual funds which promise their investors not to place their money with corporations that are doing nasty, socially short-sighted things like polluting, exploiting employees, pushing harmful products on the public through bombardment advertising, etc. Mr. Norton doesn’t deny that this sort of thing goes on, although he does argue at one point that it’s a complicated world and even the bad guys sometimes do good things. His example is Budweiser (Anheuser Busch). Most social responsibility funds stay out of the alcohol sector. Let’s face it, the big beer producers spend billions to convince America that drinking their products is cool. But a lot of people drink too much of their product and kill people on the roadways. Is that their fault? In my opinion, yes. You don’t saturate the airwaves and cablewaves with attractive, psychologically crafted beer ads and think that people ain’t gonna do stupid things in response (especially young men, who most of those ads are targeted at). I myself don’t want to support that, so I don’t want my money with Bud or Coors. But, Mr. Norton points out, Bud is one of the biggest recyclers of aluminum containers. My response: tell that to MADD, face to face.<\/p>\n
However, recycling is just a side-point for Mr. Norton. His main point is that by staying out of certain “non-responsible” sectors of the economy, we social investors are leaving money on the table. That’s our sin. We’re paying a price to have an effect on the economy and thus the real world. Or so it seems.<\/p>\n
Mr. Norton presents a fascinating analysis to prove his point. He tracks the prices and returns of a major social investment fund (which I have some money in) and the Standard and Poors 500 index from 1998 to 2005. The prices and returns on both are pretty closely correlated. In other words, by investing in a typical social investment fund, you get about what the overall stock market gets in return. But if you were to have invested in a “basket” of tobacco, alcohol, defense and gambling company stocks, you would now have 3 and a half times as much money as if you invested in the social investment fund (or the S&P; 500). Mr. Norton suggests that if you have a conscience, why not invest in nasty companies and give the excess profits to charity? <\/p>\n
Sorry, Mr. Norton. What we social investors are interested in is more than CHARITY. We want CHANGE. And if that means leaving some dirty money on the table, then condemn us of what you call sin. In our view, you obviously just don’t get it. Perhaps it scares you that $2 trillion of investment money is out there seeking social change (especially since your company isn’t involved in social investing, see postscript below). <\/p>\n
I would invite Mr. Norton to consider the implications of his mindset and his definition of “sin”. Consider a young man growing up in an urban ghetto. He can invest his human and financial capital into a career in the legitimate world, or in the “underworld” of selling drugs, pimping, running a gang, organized theft, etc. It sure seems to him as though the returns on investment from the latter path are greater, given the barriers to legitimate economic opportunity that children from the inner city face. So Mr. Norton would agree that our young Bigger Thomas (recall Richard Wright’s novel Native Son<\/b>) should join a gang and sell heroin or crack, right? Or would he say wait, I’m not saying that; even on a rationalist basis, you have to consider risk (ah, so Mr. Norton and his like do consider something other than strict financial returns). Sure, the young man could make big money for a few months, maybe even a few years, but sooner or later either the police are probably going to get him or a rival gang will shoot him. The returns don’t justify the risk.<\/p>\n
OK, Mr. Norton; let\u2019s stay on your rationalist wavelength and forget about the social undesirability of drug gangs who accidentally shoot innocent children and senior citizens during their turf battles. What about the comparable risk level of the alcohol, tobacco, gambling and defense industries? They’ve had a good run since ’98, but what about the future? How do I know that a “nasty company fund” that I invest in would make the right stock picks? I understand these industries to be very volatile; for example, what ever happened to McDonnell Douglas and Ballantine Beer? Are the tobacco companies going to escape bankruptcy after all the lawsuits? And would the casino industry survive even one terrorist suicide-bombing incident? Perhaps social investing keeps me out of a volatile, risky investment sector, just as you would urge the young Bigger Thomas to stay out of the volatile drug and gang sector of the ghetto economy. Perhaps social investing isn’t such a sin against rationality after all. Bottom line: if you’re gonna write an article<\/a> as a ruthless rationalist, at least be an intelligent one.<\/p>\n P.S. Mr. Norton is a principal of GNI Capital, Inc., an investment advisor that provides investment management expertise for separately-managed equity, fixed income and ETF portfolios and a hedge fund. He also authors a twice-monthly newsletter, Supernova Stocks, which focuses on investments in market-leading stocks with unique and extraordinary growth potential. It’s amazing who people will listen to regarding their $$$.<\/p>\n","protected":false},"excerpt":{"rendered":" SINFUL GREED \/ SINFUL STUPIDITY: I accidentally stumbled across an interesting article by a Mr. Charles L. Norton, which appeared recently on RealMoney.com and TheStreet.com. It was entitled “Socially Responsible Investing: It’s a Sin”. Since I have all of my personal retirement money invested in socially responsible mutual funds, the article caught my eye. Just […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/504"}],"collection":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=504"}],"version-history":[{"count":0,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/504\/revisions"}],"wp:attachment":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=504"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=504"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=504"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}