Socially Responsible Investing

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Socially Responsible Investing

Postby kingjimmy » Tue Aug 27, 2013 11:19 am

Hello,

What are your thoughts on retirement investing that is "socially responsible." Let's say I have some moral issues in regard to possibly investing in a broad index fund because I might invest in some so-called "sin stocks" in the process, and such might bother me a bit. Does the Boglehead philosophy have a solution for this?

Thanks,

Jimmy
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Re: Socially Responsible Investing

Postby cheese_breath » Tue Aug 27, 2013 11:22 am

There was another thread on this awhile ago. I'm not going to find it for you, but you can search for yourself.
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Re: Socially Responsible Investing

Postby kingjimmy » Tue Aug 27, 2013 11:31 am

Searching didn't yield anything for me. So I thought tossing this question out there might yield better results.
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Re: Socially Responsible Investing

Postby cheese_breath » Tue Aug 27, 2013 11:34 am

The surest way to know the future is when it's the past.
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Re: Socially Responsible Investing

Postby nisiprius » Tue Aug 27, 2013 2:20 pm

kingjimmy wrote:Hello,

What are your thoughts on retirement investing that is "socially responsible." Let's say I have some moral issues in regard to possibly investing in a broad index fund because I might invest in some so-called "sin stocks" in the process, and such might bother me a bit. Does the Boglehead philosophy have a solution for this?

Thanks,

Jimmy
There are broad-based index funds that follow indexes that use social screens. And others that are not actually index funds but are "closet index funds" that don't depart too much from the indexes. And some of them have fair-to-good expense ratios.

One obvious example of, a) a socially responsible b) index fund with c) low expenses would be the Vanguard FTSE Social Index Fund, VFTSX, 0.29% ER.

THAT IS NOT ANY KIND OF RECOMMENDATION and is not being put forward as a "Boglehead solution" to something which many Bogleheads do not see as a problem. If you're intrigued by SRI, you should read the chapter of Swedroe and Kizer's "Only Guide to Alternative Investments" that deals with them. That book is divided into sections on "The Good," "The Flawed," "The Bad," and "The Ugly," and that chapter is in the "flawed" section.

For the rest, see the other threads.
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Re: Socially Responsible Investing

Postby bertilak » Tue Aug 27, 2013 3:44 pm

The difficulty is that one man's "social responsible" is another man's flummery.
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Re: Socially Responsible Investing

Postby hillman » Tue Aug 27, 2013 3:59 pm

bertilak wrote:The difficulty is that one man's "social responsible" is another man's flummery.


This is for, you know, anyone that didn't know what flummery meant. Because I totally did.

flum·mer·y
ˈfləmərēSubmit
noun
1.
empty compliments; nonsense.
"she hated the flummery of public relations"
2.
a sweet dish, typically made with beaten eggs, sugar, and flavorings.



Great word.
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Re: Socially Responsible Investing

Postby afan » Tue Aug 27, 2013 4:34 pm

If you mean it that you don't want to invest any of your money in certain stocks, then you cannot do index funds. Of course, you will have to do very deep research to figure out whether the companies in which you are willing to invest are pure enough by your metrics. They do business in a world filled with bad actors, and it may be tricky to find companies with completely clean hands.

If you really want to do this, you probably have to do individual stocks. A socially responsible fund will have the problem that "socially responsible" means different things to different people. I will not give examples to avoid getting into politics, but some people will object to corporate behavior that others will applaud. You would have to be sure that your fund was guided by your principles.
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Re: Socially Responsible Investing

Postby gkaplan » Tue Aug 27, 2013 4:36 pm

afan wrote:If you mean it that you don't want to invest any of your money in certain stocks, then you cannot do index funds.


If I'm not mistaken, Vanguard has a socially responsible index fund.
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Re: Socially Responsible Investing

Postby lindisfarne » Tue Aug 27, 2013 6:11 pm

I've thought about these myself and I've decided that since so much of the wealth of this country is concentrated in relatively few individuals, it's pretty difficult to make much of a social impact using such funds (because those that control most of the wealth simply won't use "socially responsible investing"), and it can hurt your retirement funds immensely. Look at the different in returns of these funds vs. VTSAX & then look at the compounding effect over 20 years for your current retirement balance. Then, ask yourself if you cannot have a much greater social impact in some other way, such as through volunteering on a regular basis, or shopping at a socially responsible co-op that pays a living wage, provides decent benefit, and vets products for socially responsible production/manufacturing (humane treatment of animals, organic/sustainable practices, doesn't buy products that use chocolate/cocoa from sources using child slave labor (the vast majority of chocolate does come from such sources!)).

There is no one set of values that equals "socially responsible", thus even such funds may not match your values. Should petroleum products be included? What about products that are produced in factories using essentially slave labor, or child labor, or unsafe practices (how many companies would be eliminated on this criterion alone)? How about tobacco products? alcohol? Do you only include companies which have good track records on how women are treated (do women on average at those companies make as much as men?) and how employees in general are treated, and which pay a living wage? The questions go on & on.

Finally, if you're going to do "socially responsible investing", does your personal purchasing behavior match those values? If you don't want to own petroleum stocks, do you abstain from purchasing products based on petroleum (this would include cars & gasoline, but also most products which include plastic).
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Re: Socially Responsible Investing

Postby Calm Man » Tue Aug 27, 2013 6:45 pm

1 Johnson & Johnson
2 Google Inc.
3 Wells Fargo & Co.
4 Procter & Gamble Co.
5 JPMorgan Chase & Co.
6 Pfizer Inc.
7 Citigroup Inc.
8 Bank of America Corp.
9 Merck & Co. Inc.
10 PepsiCo Inc.

OP, above are the top ten holding of Vanguard's Social Index Fund. I do not mean to be a wise guy here, just to show you that there is no such thing as a publicly traded corporation that is social responsible. Or at least I would love to find one. What do we see above? Holding #1, 6 and 8 are all pharmaceutical companies. (I have worked as a consultant in the pharma indsutry.) Are you aware that pharmaceutical companies use lab animals including higher level primates to conduct research and euthanize so tissues can be analyzed? Are you aware of the scandals that routinely occur as pharma companies selectively publish research, bribe physicians and give large amounts of money to physicians to influence prescribing behavior? Are yo aware that you could not get a single one of these companies to spend a dime on a drug that would cure a horrible illness if the patient #s available to treat were too small to make a profit? Also, check out the salaries and total comps of the CEOs and 5 highest paid employees. Let us know if you think these are socially responsible companies.

How about google? Founders are billionaires. Have privacy policies where they look at every word you write. Then we have 4 giant banks. These are probably the most irresponsible companies that ever existed. Pepsi isn't too bad except it makes bundles of money selling people sugary drinks and fat, salt and sugar loaded snacks. They do sell water which basically gives what you can get from the tap expect it leaves a big carbon and garbage footprint. Proctor and Gamble isn't too bad I suppose although 99% of what they sell is overpriced compared to what a lower priced competitor sells.
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Re: Socially Responsible Investing

Postby nisiprius » Tue Aug 27, 2013 6:58 pm

afan wrote:If you mean it that you don't want to invest any of your money in certain stocks, then you cannot do index funds.
You can, if you can find an index that doesn't contain that stock, and a fund that tracks it.
lindisfarne wrote:I've thought about these myself and I've decided that since so much of the wealth of this country is concentrated in relatively few individuals, it's pretty difficult to make much of a social impact using such funds (because those that control most of the wealth simply won't use "socially responsible investing")...
This assumes that the only social impact of investing in such a fund is a direct result the number of dollars it controls. Maybe, and, then again, maybe not.
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Re: Socially Responsible Investing

Postby Ged » Tue Aug 27, 2013 7:19 pm

Calm Man wrote:1 Johnson & Johnson
2 Google Inc.
3 Wells Fargo & Co.
4 Procter & Gamble Co.
5 JPMorgan Chase & Co.
6 Pfizer Inc.
7 Citigroup Inc.
8 Bank of America Corp.
9 Merck & Co. Inc.
10 PepsiCo Inc.


I seriously doubt ANY large company is as pure as the driven snow. This is why SRI is difficult if not completely futile.
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Re: Socially Responsible Investing

Postby lindisfarne » Tue Aug 27, 2013 9:01 pm

Ged wrote:
Calm Man wrote:1 Johnson & Johnson
2 Google Inc.
3 Wells Fargo & Co.
4 Procter & Gamble Co.
5 JPMorgan Chase & Co.
6 Pfizer Inc.
7 Citigroup Inc.
8 Bank of America Corp.
9 Merck & Co. Inc.
10 PepsiCo Inc.


I seriously doubt ANY large company is as pure as the driven snow. This is why SRI is difficult if not completely futile.


Johnson & Johnson & Proctor & Gamble both produce products which are not really great for the environment (bleach is just the start of the list!; most housecleaning products fall into this category - use things like vinegar, baking soda, instead - in most cases they work as well if not better.) Try googling _"johnson & johnson" toxic products _

I can think of many socially irresponsible things done by #3, 5, 7, 8! Most of #10's product do nothing for people's health.
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Re: Socially Responsible Investing

Postby umfundi » Tue Aug 27, 2013 9:11 pm

You might contemplate the returns of VICEX.

Five stars across the board.
It normally invests at least 80% of net assets in equity securities of companies that derive a significant portion of their revenues from alcohol, tobacco, gaming and defense/aerospace industries.


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Re: Socially Responsible Investing

Postby z3r0c00l » Tue Aug 27, 2013 9:13 pm

This is one of the many little, easy things that someone can do to feel better, but not really accomplish any good in the World.

Really giving back looks an awful lot like donating tons of time and working very hard to help others, say weekends at a soup kitchen, or volunteering to tutor children in the inner city. Want to help the environment? Stop eating meat, move to a city, sell the car, don't own any pets, and don't have any biological children. If the little things, like recycling or investing in a social fund, keep you from really putting in the effort to do something important, then they cause more harm than good.

When it comes to investing, stick to the purpose of investing; to make money.
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Re: Socially Responsible Investing

Postby protagonist » Wed Aug 28, 2013 1:15 am

umfundi wrote:You might contemplate the returns of VICEX.

Five stars across the board.
It normally invests at least 80% of net assets in equity securities of companies that derive a significant portion of their revenues from alcohol, tobacco, gaming and defense/aerospace industries.


Keith


It really exists? Actually it does. I just looked it up. It has outperformed the S+P 500 by 3.47% annually for the past 10 years, and is in the top 1 %ile out of 763 funds in its class for 10-yr performance. With a whopping 1.64% expense ratio. That's sad.

I actually think that an all-porno fund would outperform it. In fact, it might outperform everything. I would not be surprised if one exists.
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Re: Socially Responsible Investing

Postby protagonist » Wed Aug 28, 2013 2:00 am

Actually, the Domini Social Index (DS 400), which supposedly tracks companies identified as "socially responsible", has supposedly outperformed the S+P 500, annualized since 1990. http://www.aabri.com/LV2010Manuscripts/LV10107.pdf

There is an ETF that tracks the DS 400, called the iShares MSCI Socially Responsible ETF (NYSEMKT: DSI) which is passively managed and directly tracks the KLD400. The top 10 largest holdings in the KLD400 are Microsoft 4.1%, Johnson & Johnson ( 3.62%), Google A (3.58%), IBM (3.46%), Procter & Gamble (3.26%), Merck & Co (2.20%), Cisco Systems (1.98%), PepsiCo (1,94%), Intel (1.87%), and Home Depot (1.82%) comprising only 27.84% of the index. The expense ratio is 0.50%, which is not outrageous.

You might consider this option. You need to consider your own definition of "socially responsible" to decide if this would meet your criteria. This is not an investment recommendation, but rather something worth considering. I respect your decision.
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Re: Socially Responsible Investing

Postby kingjimmy » Wed Aug 28, 2013 4:16 am

I read elsewhere yesterday that somebody said that when you own an index fund you don't necessarily own every stock in that fund, but that your money just goes in part of a larger pool, and from that pool they use your money to buy stocks that are part of what that fund represents. So in theory you could own the entire stock market without your money going towards a stock that is a "sin stock." At the end of the day you don't really know what your money is going towards apart from the fund itself. Is this correct? If so I think one could sleep well knowing that they don't know what their money is actually supporting. Ignorance is bliss?
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Re: Socially Responsible Investing

Postby nisiprius » Wed Aug 28, 2013 8:34 am

kingjimmy wrote:I read elsewhere yesterday that somebody said that when you own an index fund you don't necessarily own every stock in that fund, but that your money just goes in part of a larger pool, and from that pool they use your money to buy stocks that are part of what that fund represents. So in theory you could own the entire stock market without your money going towards a stock that is a "sin stock." At the end of the day you don't really know what your money is going towards apart from the fund itself. Is this correct? If so I think one could sleep well knowing that they don't know what their money is actually supporting. Ignorance is bliss?
These days, most of the index funds that represent popular broad indexes do hold nearly all the funds in the index. You can check this out easily for Vanguard, under the "portfolio" tab. Hoo hah, it's always interesting to check things, isn't it? I wonder what those 3 extra stocks in 500 Index are? :)
Image
Image
Image

You are right, index funds are not automatically obligated to hold every stock in the index. They usually state a goal of tracking the index, and there are various tricks managers can use to track the index while holding only a sample of the stocks in the index, or play some active management games to try to overcome expenses and reduce tracking error.

It is very easy to find out exactly which stocks are in a mutual fund, as they have to report the full holdings quarterly. They are also listed in the annual and semiannual reports. So, let's give it a try. Let's find out what the biggest single stock holding in VICEX is, and then let's see whether it's in Vanguard FTSE Social Index.

First, I go to Morningstar and look at the ten largest holdings in VICEX, under "Portfolio," "Holdings." There are many other places I could get this.
Image

Now, I go to Vanguard's web page for Vanguard FTSE Social Index Fund Investor Shares (VFTSX) and click on "View Prospectus and Reports," and then download the Semiannual Report:

Image

On page 8, I find the "Statement of Net Assets:"

Image

There are some 371 stocks so it's hard to take in at a glance, but it's not too hard to do a text search. Altria is not there, and in fact none of those ten stocks is included in VFTSX.
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Re: Socially Responsible Investing

Postby protagonist » Wed Aug 28, 2013 10:19 am

kingjimmy wrote:I read elsewhere yesterday that somebody said that when you own an index fund you don't necessarily own every stock in that fund, but that your money just goes in part of a larger pool, and from that pool they use your money to buy stocks that are part of what that fund represents. So in theory you could own the entire stock market without your money going towards a stock that is a "sin stock." At the end of the day you don't really know what your money is going towards apart from the fund itself. Is this correct? If so I think one could sleep well knowing that they don't know what their money is actually supporting. Ignorance is bliss?


That's a bit like arguing that if your particular tax dollars went to support education and recycling, and somebody else's went to buying the bombs, that you are not supporting the war effort.

Pretty shallow logic, if you ask me.

If you invest in broad-based low cost index funds, like most of us, you need to accept what you are doing and supporting. I have a problem with it myself, but I do it and I don't lose sleep over it. If you have enough of a problem with it, do something else. IMHO, It's more important to be able to sleep nights and look yourself in the mirror than to make a few extra bucks.
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Re: Socially Responsible Investing

Postby Ketawa » Wed Aug 28, 2013 10:23 am

You could invest in a total stock market index fund and short individual stocks for companies you dislike. This is probably cheaper than using the higher expense ratio socially responsible funds.

Let's say your portfolio is 60% equities and 40% fixed income. You don't like 5% of the companies in your equities. Increase your holdings in equities to 63%, short the companies that you don't like for -3%, and still hold 40% fixed income.
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Re: Socially Responsible Investing

Postby bertilak » Wed Aug 28, 2013 10:50 am

Ketawa wrote:You could invest in a total stock market index fund and short individual stocks for companies you dislike. This is probably cheaper than using the higher expense ratio socially responsible funds.

Let's say your portfolio is 60% equities and 40% fixed income. You don't like 5% of the companies in your equities. Increase your holdings in equities to 63%, short the companies that you don't like for -3%, and still hold 40% fixed income.

I've heard that said before, but I wonder if it actually accomplishes the objective of the "socially responsible investor."

I guess I need to state my assumption as to what that objective is. I say the objective is NOT to support the price of a company's stock by bidding up the price via a buy action, or at least by holding and not selling it.

My second assumption is that shorting a stock does not counteract the above. Here is my thinking on that. Shorting a stock involves borrowing stock someone already owns. In practice it may actually induce someone buy the stock just so they can loan it to you. if you own an index that covers that stock you have created a (small) demand for the stock, contributing (however slightly) to upward pressure on its price. If you then short the stock you may have created additional demand for the stock -- that is, someone who wouldn't have bought it otherwise does so just to loan it to you.

I am pretty fuzzy on the above logic so would appreciate any corrections!
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Re: Socially Responsible Investing

Postby Ketawa » Wed Aug 28, 2013 11:43 am

bertilak wrote:Shorting a stock involves borrowing stock someone already owns. In practice it may actually induce someone buy the stock just so they can loan it to you. if you own an index that covers that stock you have created a (small) demand for the stock, contributing (however slightly) to upward pressure on its price. If you then short the stock you may have created additional demand for the stock -- that is, someone who wouldn't have bought it otherwise does so just to loan it to you.


IMO, in the end there's still only demand for 1 net unit of the stock. Demand may increase so that someone can buy it to loan it to you, but they you turn around and get rid of it, completely counteracting the demand of the person you loan it to.
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Re: Socially Responsible Investing

Postby bertilak » Wed Aug 28, 2013 12:11 pm

Ketawa wrote:
bertilak wrote:Shorting a stock involves borrowing stock someone already owns. In practice it may actually induce someone buy the stock just so they can loan it to you. if you own an index that covers that stock you have created a (small) demand for the stock, contributing (however slightly) to upward pressure on its price. If you then short the stock you may have created additional demand for the stock -- that is, someone who wouldn't have bought it otherwise does so just to loan it to you.


IMO, in the end there's still only demand for 1 net unit of the stock. Demand may increase so that someone can buy it to loan it to you, but they you turn around and get rid of it, completely counteracting the demand of the person you loan it to.

I think I get it.

When I short a stock I am selling it to someone who would have bought it one way or another anyway. I simply acted as middleman between the buyer and whoever loaned the stock to me. Throughout it all, I continued to own the shares in my index fund. I have accomplished nothing (demand-wise) by shorting the stock, but at least I didn't create MORE demand for it.

Well, maybe. Don't I eventually need to buy some to give back to whoever loaned it to me?
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Re: Socially Responsible Investing

Postby afan » Wed Aug 28, 2013 1:21 pm

Although others have pointed this out, some of the posts seem to have missed the problem with socially responsible funds.

To be as clear as possible, they only work for you if you completely agree with the criteria applied for social responsibility AND you agree with the individual decisions the managers make about how "responsible" each company must be to make the cut. Unless you are very lucky, it is highly unlikely you are going to completely agree.

There are very wide ranges of opinion about what constitutes acceptable corporate behavior. As others have noted, there are companies that derive most of their revenue from things to which other people might object. Some might be attracted to a fund that avoided such companies. However, just as there are varying opinions on other political issues, there are varying opinions about whether some of these activities should be avoided, or they should be reasons to buy the stocks.

It will be almost impossible to find an index that would fit any one individual. The composition of the index will (should) change as companies buy or start new divisions, and as they close or shed old ones. The composition will change as the raw materials one company might produce go from being sold only (more more realistically, MAINLY) to companies that make "socially responsible" products to companies that make less favorable items.

For example, one can make a lot of things with steel. Is a steel company OK if its product mainly sells to companies that produce "good" things, but bad if it lands contracts with companies that make "bad" things? What if a customer company makes good things, but sells them to a bad regime somewhere? Does your socially responsible company, without changing its behavior at all, cycle between responsible and not based on what these third parties do? How often does the index check? What proportion of revenue can come from business with "socially irresponsible" or second or third hand irresponsible entities without driving a company out of the index?

Finding a fund that would do what you would do is going to be just about impossible. It is more complicated than articulating principles or picking an individual stock to avoid.
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Re: Socially Responsible Investing

Postby bertilak » Wed Aug 28, 2013 1:45 pm

afan wrote:It is more complicated than articulating principles ...

And that's the rub. I personally find it insulting that the "socially responsible" funds claim to have a monopoly on principles. Do the people running these funds have some special skill in recognizing what is socially responsible; what is good vs. bad?

The implication is that anyone not agreeing with their principles and not limiting investments to their fund is being irresponsible. Why are people who invest in these funds willing to turn over THEIR judgement of good vs. bad to others? Do they accept being TOLD what is acceptable? Do they believe it is that simple?
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Re: Socially Responsible Investing

Postby sls239 » Wed Aug 28, 2013 2:29 pm

Socially Responsible Investing -

Put money into a TSM fund, wait, then donate the appreciated stock to the socially responsible charity of your choice.

Trust me, they will not turn their noses up at that.
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Re: Socially Responsible Investing

Postby protagonist » Wed Aug 28, 2013 2:46 pm

bertilak wrote:
afan wrote:It is more complicated than articulating principles ...

And that's the rub. I personally find it insulting that the "socially responsible" funds claim to have a monopoly on principles. Do the people running these funds have some special skill in recognizing what is socially responsible; what is good vs. bad?

The implication is that anyone not agreeing with their principles and not limiting investments to their fund is being irresponsible. Why are people who invest in these funds willing to turn over THEIR judgement of good vs. bad to others? Do they accept being TOLD what is acceptable? Do they believe it is that simple?


I think that is unfair and an affront to principled individuals...a rationalization by throwing the baby out with the bath water. Of course, no company is perfect, but some are clearly more "imperfect" than others.

I am an index fund investor. I could have chosen to invest completely, say, in companies specializing in renewable energy. In addition to helping the world, I would probably do ok,though my knowledge of index investing tells me that, over time, I will probably profit more by investing in the broad market...ie in companies that manufacture weapons of mass destruction, companies that are involved in the wholesale despoiling of the environment, companies that get rich by profiting off what is essentially slave labor, companies that enrich me solely by peddling addiction, companies that enrich me by selling derivatives and putting poor people out of their homes, companies that sell arms to despots...... And the fact is, if we all refused to do so, we would probably make a little less money and the world would be an infinitely better place.

Let's not make excuses for ourselves and pat ourselves on the back, just because we recycle our garbage and dry our clothes in the sun. We are part of the problem. A huge part, actually. There are many more ethical ways to invest than the way we do. They are also probably a bit less profitable.
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Re: Socially Responsible Investing

Postby MathWizard » Wed Aug 28, 2013 3:01 pm

My solution has been not to mix socially responsible and investing.

I invest to make money in index funds, doing nothing to favor one company over
another due to my politics or sensibilities.

I take my politics into the political arena, and my charity into helping charities directly
and monetarily.

Trying to do two things at once generally means you don't do either well, I find it better to
work directly rather than indirectly. There is much more control and impact then.
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Re: Socially Responsible Investing

Postby protagonist » Wed Aug 28, 2013 3:09 pm

MathWizard wrote:My solution has been not to mix socially responsible and investing.

I invest to make money in index funds, doing nothing to favor one company over
another due to my politics or sensibilities.

I take my politics into the political arena, and my charity into helping charities directly
and monetarily.

Trying to do two things at once generally means you don't do either well, I find it better to
work directly rather than indirectly. There is much more control and impact then.


(trying to understand....) So, for example, one hand gives your profits to a charity that, say, feeds homeless children, while the other makes your profits by putting them out of their homes or bombs their villages or addicts them? That's an interesting ethical balance. Maybe it would be easier just to keep the money under your pillow and break even.

Please don't feel attacked. I live in the same glass house you do. I have no right to throw stones.
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Re: Socially Responsible Investing

Postby bertilak » Wed Aug 28, 2013 3:38 pm

protagonist wrote:
bertilak wrote:Do they believe it is that simple?

Of course, no company is perfect, but some are clearly more "imperfect" than others.

So the answer is "yes?"
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Re: Socially Responsible Investing

Postby umfundi » Wed Aug 28, 2013 3:39 pm

It strikes me that "socially responsible" investing may be just another marketing ploy. High expense ratios and inferior returns.

Maybe we should diversify our investment ethics to include those with which we do not agree?

How should a vegan invest?

Keith
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Re: Socially Responsible Investing

Postby protagonist » Wed Aug 28, 2013 3:59 pm

umfundi wrote:
How should a vegan invest?

Keith



Beats me, Keith. I'm not a vegan. Maybe invest in tobacco companies? *laugh*
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Re: Socially Responsible Investing

Postby MathWizard » Wed Aug 28, 2013 4:01 pm

protagonist wrote:
MathWizard wrote:My solution has been not to mix socially responsible and investing.

I invest to make money in index funds, doing nothing to favor one company over
another due to my politics or sensibilities.

I take my politics into the political arena, and my charity into helping charities directly
and monetarily.

Trying to do two things at once generally means you don't do either well, I find it better to
work directly rather than indirectly. There is much more control and impact then.


(trying to understand....) So, for example, one hand gives your profits to a charity that, say, feeds homeless children, while the other makes your profits by putting them out of their homes or bombs their villages or addicts them? That's an interesting ethical balance. Maybe it would be easier just to keep the money under your pillow and break even.

Please don't feel attacked. I live in the same glass house you do. I have no right to throw stones.


You missed my point. If I try to control things indirectly, (through investing) it never works.

I invest in company A rather than B. Company B goes out of business, so company A starts doing what company B did.

I know of no company that makes money by bombing villages. Governments do that. So I try to stop that through political means,
not by investing.

I actually believe that many things are better approached through economic means. If it costs a company more if they pollute because
they are forced to clean up their own messes, then they will find a cleaner method, because it will be cheaper. The market as a whole
is good at adapting to changing circumstances. If a compnay changes to evolve, it thrives. If it does not, then some other company will
come along.
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Re: Socially Responsible Investing

Postby MathWizard » Wed Aug 28, 2013 4:03 pm

umfundi wrote:It strikes me that "socially responsible" investing may be just another marketing ploy. High expense ratios and inferior returns.

Maybe we should diversify our investment ethics to include those with which we do not agree?

How should a vegan invest?

Keith


In Apple (orchards) :happy
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Re: Socially Responsible Investing

Postby ObliviousInvestor » Wed Aug 28, 2013 4:56 pm

MathWizard wrote:My solution has been not to mix socially responsible and investing.

I invest to make money in index funds, doing nothing to favor one company over
another due to my politics or sensibilities.

I take my politics into the political arena, and my charity into helping charities directly
and monetarily.

This is precisely what I do.

protagonist wrote:(trying to understand....) So, for example, one hand gives your profits to a charity that, say, feeds homeless children, while the other makes your profits by putting them out of their homes or bombs their villages or addicts them?

Yes.

For what it's worth, I don't have any ethical qualms about owning shares in companies that do things I find abhorrent. The critical point here is that I do not see how not owning those shares would make the world a better place at all. Buying shares of a company in a secondary market does not aid the company in any meaningful way.
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Re: Socially Responsible Investing

Postby leonard » Wed Aug 28, 2013 5:08 pm

Unless you're investing in an IPO - your invested money in stocks or funds doesn't go directly to the company. The money goes to the counterparty of your purchase.

So, even if you buy shares in the cleanest, greenest, feel-good-est company - the counterparty from which you purchased the shares may be taking the proceeds to buy a Hummer and drugs for a party and (insert your favorite evil here). You get the point.
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Re: Socially Responsible Investing

Postby abuss368 » Wed Aug 28, 2013 5:11 pm

I have always found this to be based on the individual. Some investors do not want to be invested in alcohol, tobacco, even certain foreign countries. I can understand and respect that.

For us, it does not even enter the thought process. We invest in total or whole markets and stay the course.

At the end of the day, the best portfolio is the one that works for you.
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Re: Socially Responsible Investing

Postby JoMoney » Wed Aug 28, 2013 5:16 pm

ObliviousInvestor wrote:...Buying shares of a company in a secondary market does not aid the company in any meaningful way.

I just want to point out that companies will often come out with new stock issues to raise capital for new projects, take over of another business etc.. When the market values the companies shares highly, it makes it easier for them to raise capital to grow and expand their potentially "Socially Irresponsible" business.
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Re: Socially Responsible Investing

Postby leonard » Wed Aug 28, 2013 5:25 pm

abuss368 wrote:I have always found this to be based on the individual. Some investors do not want to be invested in alcohol, tobacco, even certain foreign countries. I can understand and respect that.

For us, it does not even enter the thought process. We invest in total or whole markets and stay the course.

At the end of the day, the best portfolio is the one that works for you.


So, it's all okay - even though the actual cash flows indicate it has zero effect? Not sure how well that stands up to logic - but they feel good, so they have that going or them.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: Socially Responsible Investing

Postby leonard » Wed Aug 28, 2013 5:31 pm

JoMoney wrote:
ObliviousInvestor wrote:...Buying shares of a company in a secondary market does not aid the company in any meaningful way.

I just want to point out that companies will often come out with new stock issues to raise capital for new projects, take over of another business etc.. When the market values the companies shares highly, it makes it easier for them to raise capital to grow and expand their potentially "Socially Irresponsible" business.


At the quantities we deal with, individual investors are "price takers" in the market. Our individual investments do not appreciable impact the price.
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Re: Socially Responsible Investing

Postby protagonist » Wed Aug 28, 2013 6:23 pm

abuss368 wrote:For us, it does not even enter the thought process. We invest in total or whole markets and stay the course.



Exactly my point. We are like the Swiss banks during World War II. We don't care, or even want to know, where our money is coming from. So long as it keeps on coming.

leonard wrote:At the quantities we deal with, individual investors are "price takers" in the market. Our individual investments do not appreciable impact the price.


Great. That's also a perfect argument for never donating to charity.
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Re: Socially Responsible Investing

Postby protagonist » Wed Aug 28, 2013 6:33 pm

ObliviousInvestor wrote:Buying shares of a company in a secondary market does not aid the company in any meaningful way.


That's interesting. In that case, I wonder why they bother to sell them to us (directly or through intermediaries).
Last edited by protagonist on Wed Aug 28, 2013 6:34 pm, edited 1 time in total.
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Re: Socially Responsible Investing

Postby leonard » Wed Aug 28, 2013 6:34 pm

protagonist wrote:
abuss368 wrote:For us, it does not even enter the thought process. We invest in total or whole markets and stay the course.



Exactly my point. We are like the Swiss banks during World War II. We don't care, or even want to know, where our money is coming from. So long as it keeps on coming.

leonard wrote:At the quantities we deal with, individual investors are "price takers" in the market. Our individual investments do not appreciable impact the price.


Great. That's also a perfect argument for never donating to charity.


Yes. All those....market driven.....charities? Can't find a flaw in that argument.

btw - "price taker" is an economic concept. It's not a statement of futility as you seem to have taken it.
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Re: Socially Responsible Investing

Postby ObliviousInvestor » Wed Aug 28, 2013 6:43 pm

protagonist wrote:
ObliviousInvestor wrote:Buying shares of a company in a secondary market does not aid the company in any meaningful way.


That's interesting. In that case, I wonder why they bother to sell them to us (directly or through intermediaries).

Who? The previous shareholders? Most likely because they have decided the company has a lower expected ROI than other alternatives for their cash.
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Re: Socially Responsible Investing

Postby SGM » Wed Aug 28, 2013 8:42 pm

Whether a company makes its profits ethically or not is opinion. I have worked on the inside of companies considered "abhorrent" by some on this site, and have found that the companies on balance performed an important service to society in a responsible manner.

I have worked and trained under individuals who disparaged companies that they refused to deal with as unethical. These individuals felt superior to those who associated with employees of these companies. It was interesting to me to see that several of these "holier than thou" individuals were later publicly humiliated for unethical behavior themselves.

I would tread carefully when judging the behavior of others, lest you be judged yourself. If it makes you feel good use "socially responsible" funds. I decline to use this approach.
"Let us endeavor, so to live, that when we die, even the undertaker will be sorry." Mark Twain
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Re: Socially Responsible Investing

Postby Brian2d » Wed Aug 28, 2013 9:02 pm

This graph shows Vanguard Socially responsible index, Vanguard total stock market index, TIAA-CREF Social Choice fund, and TIAA-CREF Equity index over the last five years.
https://www.google.com/finance?chdnp=1& ... oLk0gGnmwE

If you look at the 10 year graph, the Vanguard Socially Responsible index trails the others but the other three are very close.

Does this mean that social responsibility screens have very minimal impact?
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Re: Socially Responsible Investing

Postby jginseattle » Wed Aug 28, 2013 9:11 pm

My friend is very involved in the movement to divest from fossil fuel companies. He recently shared with me some literature that mentioned several actively managed mutual funds with this particular agenda which supposedly have beaten the S&P 500 Index for the last 10 years. I am dubious about this claim, but I have not researched the funds. Depending on their holdings, the 500 Index may be an inappropriate benchmark.
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Re: Socially Responsible Investing

Postby abuss368 » Wed Aug 28, 2013 9:36 pm

leonard wrote:
abuss368 wrote:I have always found this to be based on the individual. Some investors do not want to be invested in alcohol, tobacco, even certain foreign countries. I can understand and respect that.

For us, it does not even enter the thought process. We invest in total or whole markets and stay the course.

At the end of the day, the best portfolio is the one that works for you.


So, it's all okay - even though the actual cash flows indicate it has zero effect? Not sure how well that stands up to logic - but they feel good, so they have that going or them.



I am curious too if these funds have a higher cost than simply owning the market. Vanguard's Total Stock fund has an expense ratio of .05 presently.
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