"Good" Stocks Are Losers
Socially Responsible Investing (SRI) is financially irresponsible, writes CNBC mutual funds columnist Tim Middleton. The Domini Social Equity Fund, an index of 400 most socially conscious companies, ranks in the 88th percentile of comparable funds over the past 12 months. The downfall of SRI in recent years has been its concentration on three sectors: tech, health care, and financial services. In contrast, a vice fund made up of gun makers, liquor, tobacco and gambling stocks is performing in the top 2% of its peer group.
SRI fund criteria are highly questionable. For instance, at one time Enron had the heaviest weighting among SRI-approved energy companies, because of its lobbying for CO2 emissions controls. The primary source of its earnings was still burning fossil fuels. Can Cemex, a giant cement maker, really be considered “environmentally friendly?� The financial services stocks in the SRI portfolio provide financing to the naughty companies excluded from it. Absurdly, Starbucks was recently ejected from SRI portfolios because a minor licensed product contains liqueur.
Comments (14)
The media need to check their premises. Why is a company that supports the leftist-cause-of-the-week "socially responsible"? That sounds socially irresponsible to me.
Also, what's wrong with manufacturing guns? Providing people the means to protect themselves and provide food for their families via hunting sounds like a very socially responsible endeavor.
Published: April 12, 2005 10:45 AM
What a coincidence that right before I went to sleep last night I was reading chapter 6 of Rothbard's MES where he says "each individual attempts to maximize his psychic income, and this will translate itself into maximizing his monetary income only if other psychic ends are neutral". Some people aren't going to invest in certain "stuff" no matter what the potential return.
Published: April 12, 2005 11:19 AM
Do fortune-telling mediums maximize psychic income?
The media do check their premises - upon entering their premises with their coats and hats.
"Socially Responsible" is the politically correct term for "Politically Correct".
Published: April 12, 2005 11:26 AM
Two points:
1. I'm fine with people investing based on their flawed social values, as long as they're willing to take the losses from not investing based on economic motivators
2. Everything is interdependant. As you state, the financial services companies invest in the "naughty" companies, tech companies may buy components from "exploitative" producers, or sell products to oppressive governments. Corporations are not made "evil" by the products they sell, or what their customers do with their products.
Published: April 12, 2005 11:40 AM
Another question: in my experience (back in standardized tests), "88th percentile" means that they performed better than 88% of the other funds, whereas it's obvious in this usage the author means "performed better than only 12% of the other funds). I suppose it depends on what variable you put on the Y axis.
"Do fortune-telling mediums maximize psychic income?"
I know I derive psychic income from knowing that "Socially Responsible" funds are failing while "sin stocks" are booming. :)
Published: April 12, 2005 11:44 AM
The subjective preferences of investors who wish to eschew investment in companies engaged in "socially irresponsible" activities" (however defined) cannot be judged as "flawed" per Brian Moore or "politically correct" per tz. These preferences are what they are and differ among individuals. An anti-abortion advocate might forego investing in a profitable abortion provider, while one offended by Israeli policy might divest himself of Israeli investments. That they do so is neither rational nor irrational; it is simply the expression of individual moral choice.
Published: April 12, 2005 12:59 PM
I'll invest in anything profitable short of the white slave trade...
Published: April 12, 2005 5:04 PM
"I'll invest in anything profitable short of the white slave trade..."
Interesting qualifier.
Published: April 12, 2005 5:14 PM
Mr. Fulwiler, there was a computer game some years ago, called "Privateer". Basically one gets to play a Han Solo type character. I enjoyed it very much.
One of the "commodities" one could trade in, but only on pirate (meaning truly free market) stations was slaves. Very profitable. That was also the one commodity which I never traded in, not even in a game, not at any price.
Interesting how people reflect their real values in their private choices when no one is looking.
Published: April 12, 2005 6:36 PM
Ok Pete, I'm also against investing in the black slave trade. :-)
Published: April 13, 2005 12:42 PM
"The subjective preferences of investors who wish to eschew investment in companies engaged in "socially irresponsible" activities" (however defined) cannot be judged as "flawed" per Brian Moore or "politically correct" per tz."
Vache is correct. They are only 'flawed' if one's goal is ROI, which is obviously not the case.
"One of the "commodities" one could trade in, but only on pirate (meaning truly free market) stations was slaves. Very profitable. That was also the one commodity which I never traded in, not even in a game, not at any price."
I played (and enjoyed) the same game, and I also would never trade slaves. No one ever watched me play, and there were no in-game impacts for doing so, but I still couldn't do it. Even the simulation of it was too distasteful to me.
The interesting part is that I've played dozens of other games (such as war simulations) where I've committed far more terrible virtual actions, but it never had the same impact as the slave trade in Privateer.
Published: April 13, 2005 2:37 PM
The original game Privateer has been graphically updated by individuals fans, and re-released. It can easily be found on google.
On an off-topic note, the analysis of the market simulations in certain computer games (SimCity, Civilization, Capitalism, Port Royale, Privateer) is absolutely fascinating.
The ultimate value choice game is Alpha Centauri. The free market economy choice is vastly superior to the "socialist" or "green" economies, but carries with it extreme penalties for offensive war.
I've spoken to many people regarding their choices in this game, and they were invariably so compelled to choose to base their society on their personal beliefs. I was categorically incapable of choosing the "socialistic" economy or "religious fundamentalism" government, even if it would have granted an in-game benefit.
And as Vache points out, since my playing of the game (like life) was to maximize my psychic profit rather than "score," I made my choices based on my principles.
Published: April 13, 2005 2:45 PM
Over ten years ago, when I introduced the web's first metal-backed e-currency and took around a business plan that used terms like "Privateer," "...upcoming game code-named 'Quake'," "...realistic economy," "...virtual gold rush," "...entrepreneurial renaissance," "...we are all artists," "...new career paradigm," and "...revolutionary economic cybersystems," the so-called experts called me crazy.
By now I have spent over a decade trying to get people to listen to the merits of my invention, and I am very cash-poor. Still, though, I understand that particular subject better than any other two people put together.
Published: April 14, 2005 1:32 AM
I guess everyone has their own idea of what is "politically correct" or companies that are socially responsible. I figure everyone has to, in the end, live with how they made their money. The most important thing is to make sure to do the research before investing and feel good about what you do.
Published: June 3, 2005 3:00 PM