Socially Responsible Investing

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Re: Socially Responsible Investing

Postby assumer » Wed Aug 28, 2013 10:25 pm

cheese_breath wrote:OK, here's one.

viewtopic.php?f=1&t=118603&p=1731638


Here's another:

viewtopic.php?f=10&t=119934
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Re: Socially Responsible Investing

Postby protagonist » Thu Aug 29, 2013 12:26 am

abuss368 wrote: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.


As per my post above: Actually, the Domini Social Index (KLD400 or DS 400), which supposedly tracks companies identified as "socially responsible", has outperformed the S+P 500, annualized since 1990. http://www.aabri.com/LV2010Manuscripts/LV10107.pdf

There is an ETF that tracks the KLD 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 as low as our index funds but is not outrageous.

Here is a graph of the KLD 400's performance vs the S+P 500, 1990-2011: http://www.newground.net/Chart_DSI_Domi ... 1.0425.pdf
Here is a graph of DSI vs the S+P 500 performance since Jan 2007: http://finance.yahoo.com/q/bc?s=DSI&t=m ... &c=%5EGSPC
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Re: Socially Responsible Investing

Postby stoub » Thu Aug 29, 2013 1:14 am

I've owned SRI funds for some of my portfolio for nearly two decades. I'm under no illusion that continuing to do so is rational behavior, makes an impact on the world, or that the holdings of SRI funds are pure as snow (I have qualms with many of the holdings of most SRI index funds) but I don't see any compelling reason to switch away from the SRI funds I still own.

The idea of my money being associated with tobacco companies, oil companies, or weapons manufacturers simply feels icky to me. All things being equal, I'd prefer funds that tend to avoid these sectors, simply to avoid the icky feeling which I know is irrational.

There are indeed many SRI funds with high fees and I have invested in some of them in the past. But the two SRI funds I continue to hold are TIAA-CREF Social Choice Equity, Retail Class (TICRX) [ER: 0.49%], and the Pax MSCI EAFE ESG Index ETF (EAPS) [ER: 0.55%]. The expense ratios are certainly higher than the non-SRI equivalents, say Vanguard Total Stock Market Index Fund, Admiral Shares (VTSAX) [ER: 0.05%] and Vanguard Tax-Managed International Fund Admiral Shares (VTMGX) [ER: 0.10%], but in looking at the Morningstar growth charts since inception, which are net of fees, I don't see much of a difference.

Image

Image

Past performance is no guarantee. And if either of these underperforms the Vanguard non-SRI equivalent fund in a meaningful way, I suspect I may wobble. But for now, for me, I don't see the harm in continuing to hold these.
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Re: Socially Responsible Investing

Postby kingjimmy » Thu Aug 29, 2013 8:20 am

To play devil's advocate here: Don't we all profit from the evil's of other companies, regardless if we own their stocks or not. If we buy a product at a cheap price at the grocery store, we are probably benefiting from the immorality of others in some way. Even if you "buy local" or "Made in America," the prices of those products are still impacted by companies who use child/slave labor in China. The price at the store must be low enough to compete with products made with such labor. Thus, you gain off what is happening in the market.

Just some thoughts...
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Re: Socially Responsible Investing

Postby nisiprius » Thu Aug 29, 2013 4:32 pm

DARN! DefectiveByDesign wants me to "dump my Netflix stock" to protest Netflix's attempt to subvert Web standards in order to promote the use of DRM.

And here I am with my Total Stock... so, let's see, am I holding any Netflix stock within Total Stock? Yes. Does Vanguard FTSE Social Index hold any Netflix Stock? No. Probably not because of its social screening, but no. So, is it time to swap out my Total Stock for FTSE Social Index? Hmmm.... Naaahhhh...
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Re: Socially Responsible Investing

Postby protagonist » Thu Aug 29, 2013 4:36 pm

nisiprius wrote:DARN! DefectiveByDesign wants me to "dump my Netflix stock" to protest Netflix's attempt to subvert Web standards in order to promote the use of DRM.

And here I am with my Total Stock... so, let's see, am I holding any Netflix stock within Total Stock? Yes. Does Vanguard FTSE Social Index hold any Netflix Stock? No. Probably not because of its social screening, but no. So, is it time to swap out my Total Stock for FTSE Social Index? Hmmm.... Naaahhhh...


Does FTSE SI hold Netflix? If so, no way will I invest in it. They were responsible for the closing of my favorite neighborhood video store, and they put my friend Bill out of a job. Now it's an Irish pub.
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Re: Socially Responsible Investing

Postby protagonist » Thu Aug 29, 2013 5:05 pm

stoub wrote:I've owned SRI funds for some of my portfolio for nearly two decades. I'm under no illusion that continuing to do so is rational behavior, makes an impact on the world, or that the holdings of SRI funds are pure as snow (I have qualms with many of the holdings of most SRI index funds) but I don't see any compelling reason to switch away from the SRI funds I still own.

The idea of my money being associated with tobacco companies, oil companies, or weapons manufacturers simply feels icky to me. All things being equal, I'd prefer funds that tend to avoid these sectors, simply to avoid the icky feeling which I know is irrational.

There are indeed many SRI funds with high fees and I have invested in some of them in the past. But the two SRI funds I continue to hold are TIAA-CREF Social Choice Equity, Retail Class (TICRX) [ER: 0.49%], and the Pax MSCI EAFE ESG Index ETF (EAPS) [ER: 0.55%]. The expense ratios are certainly higher than the non-SRI equivalents, say Vanguard Total Stock Market Index Fund, Admiral Shares (VTSAX) [ER: 0.05%] and Vanguard Tax-Managed International Fund Admiral Shares (VTMGX) [ER: 0.10%], but in looking at the Morningstar growth charts since inception, which are net of fees, I don't see much of a difference.

Image

Image

Past performance is no guarantee. And if either of these underperforms the Vanguard non-SRI equivalent fund in a meaningful way, I suspect I may wobble. But for now, for me, I don't see the harm in continuing to hold these.


I haven't looked into the KLD 400, or the two funds that stoub has graphed above, but I would guess that the reason they so closely track the S+P 500 is that they contain most of the same stocks, minus the most evil players, and that the most evil players are not a significant enough chunk of the entire index to widely skew results. I don't know if that is the case- I haven't looked that closely- but it would make sense. What is interesting is that, despite higher ER's, all of them still beat the broad index (by a slim margin). It does give me second thoughts about holding the broad index, if similar results can be achieved with a clearer conscience (not, apparently, an issue for the other posters here, but it is an issue for me). And yeah, I know...past performance does not guarantee anything....
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Re: Socially Responsible Investing

Postby JoMoney » Thu Aug 29, 2013 5:16 pm

protagonist wrote:...minus the most evil players, and that the most evil players....

So we've gone from them being Socially Iresponsible to being EVIL :twisted: ?
The judgment just gets worse and worse.

Leo Tolstoy, War and Peace wrote:“It's not given to people to judge what's right or wrong. People have eternally been mistaken and will be mistaken, and in nothing more than in what they consider right and wrong.”
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Re: Socially Responsible Investing

Postby umfundi » Thu Aug 29, 2013 5:39 pm

My point, misunderstood by some, is that Socially Responsible Investing is just another (unmanageable) constraint on what you choose as your available options. Also, I do not see how SRI criteria can be consistently applied in other aspects of your life.

Just one example: Oil companies. BP is the current villain, but was not before the Gulf disaster. You may not invest in BP, but how do you harmonize your other life choices with that? How could you possibly know where the gasoline you put in your car comes from?

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Re: Socially Responsible Investing

Postby bertilak » Thu Aug 29, 2013 6:58 pm

JoMoney wrote:
protagonist wrote:...minus the most evil players, and that the most evil players....

So we've gone from them being Socially Iresponsible to being EVIL :twisted: ?
The judgment just gets worse and worse.

Leo Tolstoy, War and Peace wrote:“It's not given to people to judge what's right or wrong. People have eternally been mistaken and will be mistaken, and in nothing more than in what they consider right and wrong.”

Another one:

Moral certainty is always a sign of cultural inferiority. The more uncivilized the man, the surer he is that he knows precisely what is right and what is wrong. -- H.L. Mencken
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Re: Socially Responsible Investing

Postby umfundi » Thu Aug 29, 2013 7:09 pm

bertilak wrote:
JoMoney wrote:
protagonist wrote:...minus the most evil players, and that the most evil players....

So we've gone from them being Socially Iresponsible to being EVIL :twisted: ?
The judgment just gets worse and worse.

Leo Tolstoy, War and Peace wrote:“It's not given to people to judge what's right or wrong. People have eternally been mistaken and will be mistaken, and in nothing more than in what they consider right and wrong.”

Another one:

Moral certainty is always a sign of cultural inferiority. The more uncivilized the man, the surer he is that he knows precisely what is right and what is wrong. -- H.L. Mencken

Oh, my!

Seriously, this thread has convinced me that I should diversify and expand my moral constraints.

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Re: Socially Responsible Investing

Postby bertilak » Thu Aug 29, 2013 7:31 pm

umfundi wrote:Seriously, this thread has convinced me that I should diversify and expand my moral constraints.

To quote one of our more famous leaders: "But that would be wrong!"
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Re: Socially Responsible Investing

Postby LadyGeek » Thu Aug 29, 2013 7:35 pm

The wiki has background info: Social responsibility indices
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Re: Socially Responsible Investing

Postby LadyGeek » Thu Aug 29, 2013 7:36 pm

Please stay on-topic, which are investing aspects.
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Re: Socially Responsible Investing

Postby umfundi » Thu Aug 29, 2013 7:38 pm

bertilak wrote:
umfundi wrote:Seriously, this thread has convinced me that I should diversify and expand my moral constraints.

To quote one of our more famous leaders: "But that would be wrong!"

You're killing me!

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Re: Socially Responsible Investing

Postby protagonist » Fri Aug 30, 2013 12:23 am

JoMoney wrote:
protagonist wrote:...minus the most evil players, and that the most evil players....

So we've gone from them being Socially Iresponsible to being EVIL :twisted: ?
The judgment just gets worse and worse.

Leo Tolstoy, War and Peace wrote:“It's not given to people to judge what's right or wrong. People have eternally been mistaken and will be mistaken, and in nothing more than in what they consider right and wrong.”


You are missing three points...
1. I am an index investor myself. Like I said above, I live in the same glass house as you do....I have no right to throw stones.
2. I suggested that some companies were evil players, not those who invest in them (like me, or you). Am I wrong? Was 2008 so long ago that we forgot? An example: http://ccrjustice.org/learn-more/faqs/f ... st-shell-0
3. I was also having fun with words.

And regarding Leo Tolstoy's comment: “It's not given to people to judge what's right or wrong. People have eternally been mistaken and will be mistaken, and in nothing more than in what they consider right and wrong.”...
Let's not judge the moral value of anything, because there is always a chance we might be wrong? Wow. Moral Anarchy. The only other person I ever heard say that in all seriousness in my lifetime was Anton LeVey. Was 1939-1945 so long ago?
Last edited by protagonist on Fri Aug 30, 2013 12:53 am, edited 1 time in total.
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Re: Socially Responsible Investing

Postby protagonist » Fri Aug 30, 2013 12:38 am

Moral certainty is always a sign of cultural inferiority. The more uncivilized the man, the surer he is that he knows precisely what is right and what is wrong. -- H.L. Mencken


Now this one I like, and I wholly agree with. I never suggested I know precisely what is right and wrong. Evidence of that is that I am questioning the morality of my investment strategy. Questioning your own morality, or any of your beliefs, I always thought was a good thing. To live a moral life, I have to make decisions, based on what I believe is right or wrong, rightly or wrongly, and I have to constantly re-evaluate my beliefs. I think Mencken would probably agree with me on that as well. We'd get along, I am sure. After all, Mencken also said ; "God is a comedian, playing to an audience who is afraid to laugh".
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Re: Socially Responsible Investing

Postby lindisfarne » Fri Aug 30, 2013 1:39 am

As I said (a long way) above, I've thought about SRI but decided it wasn't for me, for the reasons I listed.

However, aside from the fact all SRI's are managed funds, I don't have any particular problem with people choosing them if they understand there are probably some criteria the fund uses which don't perfectly agree with their own values. I also like the example given above about how one assesses a company that manufactures some good (for example, steel), which goes towards some good things and perhaps some bad things (are "tanks" good (self-defense) or "bad" (war machines)?).

Even when the fund does not agree perfectly with all one's values, it could still be seen as better than other funds that don't try to be socially responsible. An individual just cannot assess every company's practices and so it's reasonable to invest in a fund that vets those companies for you.

(I shop at a food co-op for this reason: they're fairly conscientious in vetting what products they sell, thus, I know I'm generally buying products which were produced in ways that are good for the earth, the ingester (eater), and any animals involved. I'm sure I could find something to quibble with but I'm happy that they do quite a good job (and if I really had a concern, could write a letter & not purchase the given product/from the relevant company). It helps keep my life simple & I just could not research everything.

Index funds keep my life simple, too. As I said above, I just don't think avoiding certain stocks is going to make much of a difference, given that a very small % of the population controls over half of the wealth in the US.
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Re: Socially Responsible Investing

Postby VictoriaF » Fri Aug 30, 2013 7:49 am

Investing in socially ir-responsible companies via broadbased index funds can be hedged similarly to hedging other investments. The idea is that you hold what you must, and use other resources to compensate for the risk or the unpleasantness.

For example, puts and calls are used to hedge employee stock options and restricted stock, those who don't want to sell their mutual funds to avoid taxable income reduce risk by shorting them, etc.

Likewise, if one holds TSM but objects to the business of some of its large holdings, he can counteract it in various ways. He can invest directly in the types of businesses that compete with the objectionable ones, he can contribute to relevant charities and political campaigns and he can buy from underdogs.

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Re: Socially Responsible Investing

Postby nisiprius » Fri Aug 30, 2013 8:06 am

The great mystery, however, is the linkage between the decisions of an individual and the effect on society. This isn't limited to SRI, of course.

It is not a simple, linear, aggregation, or I don't think it is. The relation between an individual free-will decision--a single vote, a single purchase--and the effect on a society of millions of individuals is just about incomprehensible. It's not a simple cumulative thing. About the biggest social phenomenon I can understand is a standing ovation in an auditorium of a few hundred people. The first person who stands probably makes a difference. Or is the decision to stand a quantum wave, and would happen anyway, and the first person who stands is just the place where the wave-function collapses? It is a mystery.

The point of socially responsible investing ought to be to influence the behavior of corporations. And as a shareholder I have a perfect right to ask for this. If what the shareholders of a corporation want is responsible behavior, there is nothing that says the corporation has a duty to give them money instead of what they want. Just what things actually influence society is a mystery. Most of the time, a Rosa Parks just gets thrown off the bus. Most of the time, a shareholders' resolutions just get voted down 99.9% to 0.1%.

Something else that needs to be considered is that people are usually unwilling to admit that they are being influenced, even when they are being influenced. A head of state may claim to be watching sports and unaware of hundreds of thousands of people demonstrating outside his palace, but that does not make it true. The very existence of SRI mutual funds is a sort of very mild, low key demonstration. It tells corporations that someone is watching. One imagines some high level meeting and some high level executive sighing and saying, "Well, maybe we should at least do thus-and-such or the press will be all over us," and someone else saying "Yeah, when the FTSE4Good people were here they seemed really bugged by that plant in you-know-where, that one really is pretty bad you know, can't we get them to clean up their act a little?"

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Re: Socially Responsible Investing

Postby nisiprius » Fri Aug 30, 2013 8:28 am

In my opinion, there IS an issue with mutual fund ownership in that in most cases it means you are effectively just throwing away your shareholder's vote. Most mutual funds never ask for guidance in voting their shares, and most never do anything but go with management's recommendations. SRI funds would be an exception.

In my opinion, John C. Bogle's push for mutual funds to influence governance by voting their shares is unquestionably a call for a kind of socially responsible investing, although he is talking about a very capitalistic kind of social responsibility quite different from that espoused by SRI funds.

He's been very concerned with the transition from control of corporations by owners to control of corporations by managers.

The point is that in Bogle's view, mutual funds should not just be saying "Yeah, whatever, do anything you think will give us the most spondulix." He talks of an interesting interchange between him and another fund executive--I'm too lazy to look up the details--but he was fulminating about how mutual funds ought to use their shareholders' votes to rein in executive compensation, and the other guy said "Jack, I think we can leave that to the invisible hand," and John C. Bogle said "You and I are the invisible hand."

Well, once you say anything but "Whatever gives me the most moolah, the green stuff, the shekels" you're into social responsibility of some kind.
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Re: Socially Responsible Investing

Postby protagonist » Fri Aug 30, 2013 8:57 am

Brilliantly expressed.
Thank you, nisiprius!!
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Re: Socially Responsible Investing

Postby BigOil » Fri Aug 30, 2013 9:58 am

stoub wrote:The idea of my money being associated with ... oil companies simply feels icky to me. All things being equal, I'd prefer funds that tend to avoid these sectors, simply to avoid the icky feeling which I know is irrational.


Hmmm. As a (former) insider in this sector, that "icky feeling" leads to interesting investment desires, and interesting PR + public policy and/or political pandering.

The data-driven (Bogleish?) Socially Responsible response for SRI is for "good regulation" (which is ugly at times, but done pretty well by USA...pains me to say that, but it's all relative).

Good regulation drives material external costs (pollution, global warming(if materially driven by oil), defense costs driven indirectly by oil security needs, road building and infrastructure, etc...) into the companies' cost, and thus into the stock price and what consumer pay helping make good decisions. "Externalities" to the Economists if you missed that part of Econ 101... This is NOT a political view but well accepted academic teaching.

I think SRI is a very very week tool to change things with legal business. But I totally get the not unreasonable "ickyness" , especially given the neanderthal things (developed market, non-nationalized) big companies can do by virtue of their business model and structure (not "evil", nor are they "good" - they are economic/Capitalist). Plus a near total lack of nuance and thoughtful data in almost all public debate until things get really, really bad or obvious on a issue (ironically...things are sensationalized, and have been since the first newspapers, because media companies are pursuing their stock price to sell eyeballs too).

As for me!, Oil Companies make me feel warm, happy, and full in the tummy!, not so icky..."Your mileage may vary"...but you will not drive(or keep warm) without them for now (Volt & Tesla owner's exempted) haha...

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Re: Socially Responsible Investing

Postby BigOil » Fri Aug 30, 2013 10:01 am

protagonist wrote:Brilliantly expressed.
Thank you, nisiprius!!

+++1 Weak governance is definitely an area for improvement!
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Re: Socially Responsible Investing

Postby afan » Fri Aug 30, 2013 12:19 pm

Even when the fund does not agree perfectly with all one's values, it could still be seen as better than other funds that don't try to be socially responsible. An individual just cannot assess every company's practices and so it's reasonable to invest in a fund that vets those companies for you.


This presumes there is a unidimensional scale from less to more "responsible." The problem is that given a set of companies people would not agree on how responsible they might be.


To avoid delving into politics I have replaced the name of an industry with "X". You can substitute what you like for "X" and still get the point:


For example, many SRI funds avoid companies that make X. That is great if you want X to go away. But, at least in America, people LOVE X. Some very large proportion of the population owns X, they are buying them at record rates, They belong to X enthusiast organizations, they use X for entertainment. They attack any politician who tries to restrict access to or use of X. It is hard for me to believe that these people would agree that X manufacturers are irresponsible and should be shunned.

This is a fairly simple example. It gets more complicated if you give the X makers a pass if they sell to (public welfare organization) but not to the public, or if they make Xa, but not Xb or Xc. What if they sell X to (foreign government whose policies you abhore)? Do they get a pass if they sell more X to (foreign government whose policies you adore)?

If you want a fund that does SRI, what guidelines should it use for X makers? None at all? X makers are great? Somewhere in between? If in between, then where?

If you really dislike oil companies, do you refuse to buy anything that is made or transported using fossil fuels? In some parts of the country, out in the wilderness, it may be possible to live like that, but I suspect very few people do this.

Can you invest in banking stocks if you know that they do business with irresponsible companies? What if they have no direct business with them, but accept credit card transactions for an "irresponsible" company? Without that the company perhaps could not function, but the banks that make it possible for the company to exist get a pass?

Our economy is too complicated, and too integrated, to find companies that avoid everything that some people find irresponsible. Even if one could agree as to what constituted irresponsible.

Just not practical at the fund level.

At the individual stock level one can find companies of whose behavior one approves, but the purer the approach the smaller the universe of such companies.
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Re: Socially Responsible Investing

Postby lindisfarne » Fri Aug 30, 2013 4:53 pm

Regarding the X makers:

Managers of the SRI fund decide whether or not to buy X based on their stated fund values & the values of the market they are targeting.
VICEX targets a different market than the Domini fund. (Some Amerikans might see VICEX as socially responsible! It depends on one's definition.)

==
Plastic uses oil in its production. Food uses oil to get to you.Tools & manufacturing equipment have plastic parts. It's hard to avoid oil. All you can do it try to minimize how much you "use" oil - based on thorough understanding of what oil goes into.

Plastic can be lighter than other materials thus can reduce the oil required to transport some good. Plastic 2 liter bottles weight much less than glass, thus transporting plastic bottles is cheaper. But then you have to factor in long term effects of ultimately, nonbiodegradable plastic. Figuring out which is better environmentally is tricky.
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Re: Socially Responsible Investing

Postby afan » Sat Aug 31, 2013 10:03 pm

Managers of the SRI fund decide whether or not to buy X based on their stated fund values & the values of the market they are targeting.


Yes, but that simply says "they buy the stocks they buy, and not those that they do not". To have confidence that a particular fund invests according to an individual's beliefs, that individual would need to know much more about how the fund makes these decisions. How far from, or close to, certain industries does the fund get? How does it resolve the problems caused by the highly integrated nature of our economy?

Just saying that "they do what they do" does not begin to tell anyone whether the investments held would match someone's principles.
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Re: Socially Responsible Investing

Postby Drewman » Sat Aug 31, 2013 10:17 pm

search the internet for TIMOTHY PLAN.

I, too, struggled with the same choice as this thread starter.....but then I realized I was against gambling but find myself buying home insurance, life insurance, and, gasp....investing in the stock market....
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Re: Socially Responsible Investing

Postby wshang » Sat Aug 31, 2013 11:21 pm

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence.

-Need I even state of the source of this wisdom? The road to hell is paved with good intentions - to state the contra positive.
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Re: Socially Responsible Investing

Postby JoMoney » Sun Sep 01, 2013 1:52 am

I stumbled on to this Buffett quote. When it comes to ethical investing, he seems to make a differentiation between owning the traded stock in a company and actually owning the company:
http://www.thebuffett.com/quotes/Invest ... html#p4new
Warren Buffett wrote:It’s impossible to grade marketable securities on moral activity. Berkshire Hathaway has and will buy what trades, but will not buy companies that engage in certain behaviors. PetroChina owns 40% of the oil in the Sudan that is government owned. If they did not own it, someone else would. Also, you have to keep in mind, if PetroChina did not buy it its possible the Sudanese would own 100% of the oil rights and that’s not so good either.
I find it funny that people find time to protest PetroChina for ownership of the Sudanese oil, but with the $300 billion or so of imported goods from China, these same people don’t protest Chinese goods. They protest investment in Chinese companies though.
(Related to Berkshire's ownership of PetroChina stock and shareholder resolution to sell http://www.bloomberg.com/apps/news?pid= ... QL8OlRK6lM )

http://www.imca.org/sites/default/files ... -Bogle.pdf
(Page 11 - labeled as page 18 - Has some of John Bogle's view on SRI)

So how far do you take it? if you won't own cigarette companies, will you own retailers that sell cigarette's? If you won't own the retailers will you own the shipping companies that do their distribution? What if a completely unrelated company owns bonds/commercial paper of one of these companies?
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Re: Socially Responsible Investing

Postby protagonist » Sun Sep 01, 2013 10:01 am

JoMoney wrote:
So how far do you take it? if you won't own cigarette companies, will you own retailers that sell cigarette's? If you won't own the retailers will you own the shipping companies that do their distribution? What if a completely unrelated company owns bonds/commercial paper of one of these companies?


Many here are using the argument that if our reasoning is not perfect, and if we risk making mistakes, we are incapable of making decisions. Following that logic, none of us should, for example, vote for a candidate in an election, because we might be making the wrong choice. The whole idea is simple. If you are opposed to the idea of supporting cigarette manufacture, you don't invest in it. How far you take that depends on your own conscience- I do know people who will not shop in convenience stores that sell cigarettes and lottery tickets, and I respect their moral decision. I don't know what the outcome of their decisions will be, but they are trying to make a better world, and that is commendable. One who invests in the Domini index reviews what is contained in that index, and what is not, and makes their decision to the best of their conscience, realizing that things are more complex than black and white and nothing is perfect. Just as we do when we vote for a candidate who may or may not live up to our expectations. Simple.
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Re: Socially Responsible Investing

Postby umfundi » Sun Sep 01, 2013 3:23 pm

So,

It seems to me that Socially Responsible Investing should come under the heading, Behaviorial Investing Issues?

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Re: Socially Responsible Investing

Postby nisiprius » Sun Sep 01, 2013 3:57 pm

wshang wrote:
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.
How exactly does Mr. Smith know that this is true? Where is the hard data that shows that people do not factor their self-opinions, their wish to see themselves as moral people, into their economic behavior? Not at all? Not even a little bit? Perhaps they are very wicked people for allowing their actions to be shaped in such a evil way, but, don't they ever do it?
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Re: Socially Responsible Investing

Postby bertilak » Sun Sep 01, 2013 4:48 pm

nisiprius wrote:
wshang wrote:
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.
How exactly does Mr. Smith know that this is true? Where is the hard data that shows that people do not factor their self-opinions, their wish to see themselves as moral people, into their economic behavior? Not at all? Not even a little bit? Perhaps they are very wicked people for allowing their actions to be shaped in such a evil way, but, don't they ever do it?

The quote is slightly out of context. Here is a bit more context:
[M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens.

I underlined some things I think give the quote a different flavor than the truncated version. Note especially the "only" near the beginning and the "chiefly" near the end. The wider quote is less absolutist than the truncated version.

I think the key point is that of mutual benefit.

Also, taken out of context, the wording in the shorter quote tends to deny the possibility that part of the benefit one receives may be the satisfaction of providing a valued service or product at a fair price, nor does it rule out charity as an activity driven by non-commercial goals that are financed by, and made possible by, commercial activity.

And further note how the whole passage is started by talk of help from one's brethren.
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Re: Socially Responsible Investing

Postby lindisfarne » Sun Sep 01, 2013 7:06 pm

JoMoney wrote:So how far do you take it? if you won't own cigarette companies, will you own retailers that sell cigarette's? If you won't own the retailers will you own the shipping companies that do their distribution? What if a completely unrelated company owns bonds/commercial paper of one of these companies?


This made me realize - Target doesn't sell cigarettes! Or ammunition & guns. I gripe about Target at times but this raises it a few notches in how I regard it. Of course, it sells alcohol in states where it can -some might see this as bad, and all of its chocolate comes from sources using (child) slave labor. Many of its products are probably made in foreign factories without great track records for worker treatment (I know they say they monitor it but the recent factory tragedy in Bangladesh shows how imperfect those claims are - Walmart labels were found in that factory).
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Re: Socially Responsible Investing

Postby tetractys » Sun Sep 01, 2013 7:16 pm

Many of the biggest fund managers and pension funds have divested from PetroChina because of it's well known funding of Sudan genocide and questionable investments in Myanmar and Iran. Vanguard is still holding despite several years now of steadily increasing investor pressure. It appears that where there's a clear moral line, SRI can make an impact. -- Tet
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Re: Socially Responsible Investing

Postby protagonist » Sun Sep 01, 2013 7:51 pm

tetractys wrote:Many of the biggest fund managers and pension funds have divested from PetroChina because of it's well known funding of Sudan genocide and questionable investments in Myanmar and Iran. Vanguard is still holding despite several years now of steadily increasing investor pressure. It appears that where there's a clear moral line, SRI can make an impact. -- Tet



Plus, if you believe the charts and statistics above, it is profitable.....the Domini index has consistently beat the S+P since 1990 (that's quite a long stretch of outperformance- can the same be said of any sector?) , and its related ETF has been beating the S+P despite an ER of .50%. If those results are consistent I can conceive of a few possible reasons:
1. The Domini would normally track the S+P quite closely because those stocks that are not included in the index do not make up a big enough percentage of the index to significantly skew results, and
2. Those stocks that are not included may incur problems, expensive legal defenses, whatever..... that drag their performance (or perhaps it is just coincidence).

I think one can very simply make an excellent ethical and financial argument for SRI- contrary to what I might have thought they do not seem to be in conflict with each other - and I don't understand the degree of opposition and vitriol in this thread (other than feeling like the sacred cow of broad market investing is being attacked). Certainly, a high degree of diversity is still maintained- the only valid argument against SRI that I can see is the higher ERs, though performance does not seem to suffer historically. As a result of this thread I am considering switching in my tax-advantaged account.
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Re: Socially Responsible Investing

Postby lindisfarne » Sun Sep 01, 2013 9:14 pm

protagonist wrote:Plus, if you believe the charts and statistics above, it is profitable.....the Domini index has consistently beat the S+P since 1990 (that's quite a long stretch of outperformance- can the same be said of any sector?) , and its related ETF has been beating the S+P despite an ER of .50%. If those results are consistent I can conceive of a few possible reasons:
1. The Domini would normally track the S+P quite closely because those stocks that are not included in the index do not make up a big enough percentage of the index to significantly skew results, and
2. Those stocks that are not included may incur problems, expensive legal defenses, whatever..... that drag their performance (or perhaps it is just coincidence).

I think one can very simply make an excellent ethical and financial argument for SRI- contrary to what I might have thought they do not seem to be in conflict with each other - and I don't understand the degree of opposition and vitriol in this thread (other than feeling like the sacred cow of broad market investing is being attacked). Certainly, a high degree of diversity is still maintained- the only valid argument against SRI that I can see is the higher ERs, though performance does not seem to suffer historically. As a result of this thread I am considering switching in my tax-advantaged account.


http://www.domini.com
has Domini social equity fund listed at a 1.25% expense ratio. It's not clear what the expense ratio will be after Nov. 30, 2013 ("1. Until November 30, 2013, Domini Social Investments LLC has contractually agreed to waive certain fees and/or reimburse certain expenses, including management fees, so that the Fund's expenses will not exceed, on a per annum basis, 1.25% of the daily net assets representing Investor shares, absent an earlier modification by the Fund’s Board of Trustees.")

According to Morningstar charts, VTSAX for the last 10 far outperformed it. If you look at the performance tab for DSEFXyears, it performed roughly on par with the S&P 500 TR from 2008-current, except in 2009 it did quite a bit better.

Up until Nov 30, 2006, it was an index fund; at that point, it switched to active management.

"Social and Environmental Standards
Domini evaluates the Fund’s current and potential investments against its social and environmental standards based on the businesses in which they engage, as well as on the quality of their relations with key stakeholders, including communities, customers, ecosystems, employees, investors, and suppliers.

Domini may determine that a security is eligible for investment even if a corporation’s profile reflects a mixture of positive and negative social and environmental characteristics."
In other words, Domini wouldn't completely pull out of a sector but they would perhaps avoid the worst players in that sector.

Domini's bond fund has an expense ratio of .95% & its international social equity fund's is 1.60%.
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Re: Socially Responsible Investing

Postby lindisfarne » Sun Sep 01, 2013 9:32 pm

Social equity investing in a way reminds me of the Working Assets long-distance phone option (still exists). Working Assets was a privately owned corporation so it had little reporting requirements. As far as I could figure out back in the early 2000s, they gave some tiny percentage of their profits to "good causes" and used that as a marketing technique to get people to sign up for their long-distance, rather than use the available "mainstream" companies like AT&T, sprint, etc. People who wanted to support the "good cause" were willing to pay more for the long distance (through monthly fees, sometimes higher per minute costs). Working Assets never provided accounting for what % of their profits they donated (plus the owners employed themselves at what was likely very high salaries, given all the evidence, including their lifestyle). There was a journalist or two who tried to get the details but Working Assets never really provided them. I'm not saying Working Assets donations didn't do *some* good - but the private owners also made an obscene amount of money (that was not donated to "good causes") off of their customers. In a way, it is a brilliant marketing technique. They say "to date we've raised 75 million" - but the owners have pocketed far more than that.

While SRIs do have to account to the SEC (whereas Working Assets had to account to almost no one), and while Domini's 1.25% ER is not as high as some, I personally find Domini's "investment criteria" pretty wishy-washy. They may be more transparent than Working Assets, but I question how "socially responsible" their criteria really are. But, it's all a matter of semantics. Their criteria are not "socially responsible" enough to even tempt me, though.

Their total funds invested are just 135 million in the bond fund and some 800 million in their social equity fund.

As for Vanguard's holdings: if you hold an index fund, that's what you choose to hold. I guess holders of the mutual fund can try to influence those holding a bit (the index fund does not have to hold every company that's in the index) and call on Vanguard to avoid some company. But that's not really the nature of index investing.
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Re: Socially Responsible Investing

Postby stoub » Sun Sep 01, 2013 10:24 pm

lindisfarne wrote:
protagonist wrote:Plus, if you believe the charts and statistics above, it is profitable.....the Domini index has consistently beat the S+P since 1990 (that's quite a long stretch of outperformance- can the same be said of any sector?) , and its related ETF has been beating the S+P despite an ER of .50%.


http://www.domini.com
has Domini social equity fund listed at a 1.25% expense ratio. It's not clear what the expense ratio will be after Nov. 30, 2013 ("1. Until November 30, 2013, Domini Social Investments LLC has contractually agreed to waive certain fees and/or reimburse certain expenses, including management fees, so that the Fund's expenses will not exceed, on a per annum basis, 1.25% of the daily net assets representing Investor shares, absent an earlier modification by the Fund’s Board of Trustees.")

According to Morningstar charts, VTSAX for the last 10 far outperformed it. If you look at the performance tab for DSEFXyears, it performed roughly on par with the S&P 500 TR from 2008-current, except in 2009 it did quite a bit better.

Up until Nov 30, 2006, it was an index fund; at that point, it switched to active management.

The evolution of the "Domini Index" and funds in which it is used isn't immediately obvious. This article explains how the index created by Amy Domini and her partners at KLD in 1990 as the "Domini 400 Social Index" is now the "MSCI KLD 400 Social Index" [factsheet, methodology], which is currently licensed by BlackRock for use in the iShares MSCI KLD 400 Social ETF (ticker symbol DSI, which has a 0.50% expense ratio; this is the fund protagonist mentioned upthread). As lindisfarne points out, the "Domini Index" hasn't been licensed to Domini Social Investments LLC for any of their funds since 2006.

Since the inception of the "Domini Index" fund in its current incarnation (i.e., the DSI ETF) on 11/14/2006, Morningstar growth charts show that $10K investments in VTSAX, DSI, and TICRX (the US SRI index fund I hold, mentioned upthread) have grown, as of market close Friday to ~$14.1K, ~$13.4K, and ~$13.8K respectively, reflecting some outperformance by VTSAX during this timeframe.

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Re: Socially Responsible Investing

Postby protagonist » Sun Sep 01, 2013 11:35 pm

lindisfarne wrote:
protagonist wrote:Plus, if you believe the charts and statistics above, it is profitable.....the Domini index has consistently beat the S+P since 1990 (that's quite a long stretch of outperformance- can the same be said of any sector?) , and its related ETF has been beating the S+P despite an ER of .50%. If those results are consistent I can conceive of a few possible reasons:
1. The Domini would normally track the S+P quite closely because those stocks that are not included in the index do not make up a big enough percentage of the index to significantly skew results, and
2. Those stocks that are not included may incur problems, expensive legal defenses, whatever..... that drag their performance (or perhaps it is just coincidence).

I think one can very simply make an excellent ethical and financial argument for SRI- contrary to what I might have thought they do not seem to be in conflict with each other - and I don't understand the degree of opposition and vitriol in this thread (other than feeling like the sacred cow of broad market investing is being attacked). Certainly, a high degree of diversity is still maintained- the only valid argument against SRI that I can see is the higher ERs, though performance does not seem to suffer historically. As a result of this thread I am considering switching in my tax-advantaged account.


http://www.domini.com
has Domini social equity fund listed at a 1.25% expense ratio. It's not clear what the expense ratio will be after Nov. 30, 2013 ("1. Until November 30, 2013, Domini Social Investments LLC has contractually agreed to waive certain fees and/or reimburse certain expenses, including management fees, so that the Fund's expenses will not exceed, on a per annum basis, 1.25% of the daily net assets representing Investor shares, absent an earlier modification by the Fund’s Board of Trustees.")


Yes, but if this is accurate, the ETF (DSI) has a 0.50% ER: http://finance.yahoo.com/q/pr?s=DSI+Profile I was considering DSI as an investment (as stoub referenced above), not DSEFX.

According to Morningstar charts, VTSAX for the last 10 far outperformed it. If you look at the performance tab for DSEFXyears, it performed roughly on par with the S&P 500 TR from 2008-current, except in 2009 it did quite a bit better.


I was not considering DSEFX. I was considering DSI (NYSE). The performance graph I referenced above showed DSI outperforming the S+P. I cannot vouch for its accuracy, nor did I compare it to VTSAX, though such a comparison would be valid. stoub provides one above, dating from 2006.

Up until Nov 30, 2006, it was an index fund; at that point, it switched to active management.


I believe DSI is still passive and tracks the index- at least that is what I recall reading.

If I am wrong about any of this, I stand to be corrected.
Last edited by protagonist on Mon Sep 02, 2013 12:16 am, edited 2 times in total.
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Re: Socially Responsible Investing

Postby protagonist » Mon Sep 02, 2013 12:00 am

lindisfarne wrote: I'm not saying Working Assets donations didn't do *some* good - but the private owners also made an obscene amount of money (that was not donated to "good causes") off of their customers. In a way, it is a brilliant marketing technique. They say "to date we've raised 75 million" - but the owners have pocketed far more than that.


I would be concerned about that as well. But one cannot damn all social investing because of the behavior of Working Assets.

While SRIs do have to account to the SEC (whereas Working Assets had to account to almost no one), and while Domini's 1.25% ER is not as high as some, I personally find Domini's "investment criteria" pretty wishy-washy. They may be more transparent than Working Assets, but I question how "socially responsible" their criteria really are. But, it's all a matter of semantics. Their criteria are not "socially responsible" enough to even tempt me, though.


Again, I was talking about DSI (ER=.50%), not the mutual fund. Of course they are somewhat "wishy-washy", and imperfect- there is no universal ethos that everybody can agree upon, and I am sure it would be easy for anybody to find fault with many of their "ethical decisions". Just as I am sure we all have issues with the political candidate's decisions of our choice after he/she takes office (regardless of whether you vote republican or democrat). But if the social investors eliminate even one company that you consider ethically reprehensible from your portfolio, and you are roughly breaking even in terms of performance, that should be an improvement. And of course they are in business to make a profit, as are John Bogle and most businessmen/women....that is not to say that they do not have other motivations or that they are, by definition, unethical or that they do not want to do good for their investors, society, or both.

As for Vanguard's holdings: if you hold an index fund, that's what you choose to hold. I guess holders of the mutual fund can try to influence those holding a bit (the index fund does not have to hold every company that's in the index) and call on Vanguard to avoid some company. But that's not really the nature of index investing.


Right. And I am not suggesting that you or I change our strategy. I do think that it is valid food for critical thought, and that it is worth re-evaluating our sacred cows from an ethical perspective, or any other perspective for that matter. I don't think it is an empty issue. or that ethics should be separated from making money or anything else you do in life. But that's me.
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Re: Socially Responsible Investing

Postby umfundi » Mon Sep 02, 2013 12:42 am

But if the social investors eliminate even one company that you consider ethically reprehensible from your portfolio, and you are roughly breaking even in terms of performance, that should be an improvement.

To what end? You feel better?

If removing a company from your portfolio has no effect on your performance, it seems obvious that removing a company from your portfolio has no effect on that company's performance.

Is there any evidence that SRI is a factor that affects companies' behaviors? (I have no idea, I am just asking.)

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Re: Socially Responsible Investing

Postby stoub » Mon Sep 02, 2013 3:05 am

umfundi wrote:Is there any evidence that SRI is a factor that affects companies' behaviors? (I have no idea, I am just asking.)


The trade association for the U.S. SRI industry publishes a report called The Impact of Sustainable and Responsible Investing; Chapter 2 covers the impact on companies by activist and SRI shareholders.

Do companies trumpet their inclusion in SRI indexes as they might be proud of their inclusion in, say, Fortune's list of Most Admired Companies? Obviously, it's not as prestigious, but my guess is that since most large companies employ corporate social responsibility (CSR) departments (the report above said that the Gap--a clothing store that was under pressure about its labor practices--has 70 people on its CSR team) and take the time to document their efforts in annual corporate responsibility reports, they're very much interested in being perceived as being socially responsible.

On a whim, I just looked at the latest corporate responsibility reports for the top 10 holdings in the MSCI KLD 400 Social Index to see if they played up the fact they they were included in any SRI index. The reports from half (Johnson & Johnson, Proctor & Gamble, Merck, Cisco, and PepsiCo) did, but the ones from Microsoft, IBM and Qualcomm didn't; Google and Home Depot didn't publish a glossy annual CSR report.
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Re: Socially Responsible Investing

Postby lindisfarne » Mon Sep 02, 2013 3:14 am

In terms of the impact of SRI:

could more good be done by investing in a Vanguard index fund at a very low ER, and then taking the compounded earnings on the difference in ERs & donating that money to a non-profit (which manages its $ well)? You take out the middle-people: everyone employed by the socially-responsible fund & all the $ that goes to run that fund.

I guess it all depends on how bothered one is by the $ earned by an index fund, which certainly include corporations with questionable moral & ethical practices. I'm not particularly when it comes to investing, but in other areas of my life, I can certainly insist on doing things on principle, at least to a point.
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Re: Socially Responsible Investing

Postby protagonist » Mon Sep 02, 2013 8:37 am

umfundi wrote:
But if the social investors eliminate even one company that you consider ethically reprehensible from your portfolio, and you are roughly breaking even in terms of performance, that should be an improvement.

To what end? You feel better?

IKeith


Yes, Keith, partially. [OT comment removed by admin LadyGeek]
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Re: Socially Responsible Investing

Postby LadyGeek » Mon Sep 02, 2013 9:13 am

Please stay on-topic. Corporate morality and ethics are off-topic.

Understand that certain topics are not permitted in order to reduce contentious disagreements and maintain a civil discussion.
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Re: Socially Responsible Investing

Postby tetractys » Mon Sep 02, 2013 5:05 pm

lindisfarne wrote:... As for Vanguard's holdings: if you hold an index fund, that's what you choose to hold. I guess holders of the mutual fund can try to influence those holding a bit (the index fund does not have to hold every company that's in the index) and call on Vanguard to avoid some company. But that's not really the nature of index investing.

Companies like TIAA-CREF, American Funds, and T. Rowe Price, all of which I believe are custodians of large index funds, have divested in certain condemned companies. Whether or not that's against the nature of index investing is a matter of opinion. A case in point might be: The S&P 500 invests by committee, does it not? Then by extension, a group of investors of an index fund might be considered a committee, and their decision to exclude company-X-unwanted from the index would hold.

Vanguard has included divesting from some genocide friendly companies on its proxy vote in the past. The issue could very well come up again, especially since statistics are showing upwards of 80% of US investors are in favor of excluding certain really nasty companies from their list of investments. So in the not too distant future we may see something like X-US Total Stock Market Sans a Few Really Yucky Companies. -- Tet
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Re: Socially Responsible Investing

Postby squibby » Mon Sep 02, 2013 6:24 pm

Didn't the U.S. do this with Solyndra? Founded 2005, defunct 2011. Now, THAT was flummery!
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Re: Socially Responsible Investing

Postby papito23 » Mon Sep 02, 2013 8:59 pm

z3r0c00l wrote: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.


^Right-on. Look, OP, I know it's depressing coming on here and having everyone shoot down SRI. Sorry. That was me too. Eventually, I concluded that SRI was mostly akin to straining out a gnat and swallowing a camel, as one guy put it long ago. There are many, many things that you should spend your creative energies (and $) on that can make the world a better place. Having the "right" funds in your port mostly only helps you feel puritanical. Better to actually be holy than just feel holy.

That said, IMO actually loaning money directly to make something you believe in happen (vs. a stock purchase, which is just buying someone else's share) might actually do some good. That is, it might actually make something happen that would not have happened without you. For that reason, I have chosen to support orgs such as Sun Funder, Energy in Common, Kiva, and Microplace with some fun money, fully knowing that it's not a really big deal, but just maybe a moderate deal.
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