"Sin stocks"

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Locked
Topic Author
ARB57
Posts: 90
Joined: Sun Aug 07, 2011 4:00 pm

"Sin stocks"

Post by ARB57 » Sun Nov 29, 2015 7:12 am

I think there comes a time in life, when we all take a closer look at our priorities and our values. This post is not about debating what's right and what's wrong, it's about figuring how best to accomplish my financial goals, while sticking to MY values. Here's the deal:

Currently, the equity portion of my portfolio is invested in the Vanguard Total Stock index fund, but I'm uncomfortable with some of the stocks that are in the fund (so called sin stocks). I know that you can parse a LOT of stocks, bonds, CD's etc., and find SOMETHING that doesn't fit your values, but I'm sticking to the more obvious ones (at least obvious for me). My question is: do I utilize an index fund that excludes these stocks with a .45% expense ratio...or do I go through the S & P 500, compare it to the "morally responsible" index fund and purchase, individually, some or all of the stocks that make both lists (we're talking about 480 stocks).

It's certainly cheaper to buy the stocks individually, even if I buy all 480 ($2 a trade at Vanguard). Again, I'm not here to debate the moral issues...but...how many stocks in the S & P do I need (the top 50...top 100...all of 'em)? Do I also need to purchase some small cap and mid cap stocks? Is there another option that I'm missing.

Thanks.
Last edited by ARB57 on Sun Nov 29, 2015 8:51 am, edited 2 times in total.

kiddoc
Posts: 474
Joined: Mon Aug 24, 2015 10:52 pm

Re: A moral hazzard...

Post by kiddoc » Sun Nov 29, 2015 8:16 am

https://www.bogleheads.org/wiki/Social_ ... ex_returns

That number of stocks maybe too complicated. Consider an index fund.
Larry Swedroe's "The only guide to alternative investments you will ever need" goes over socially responsible mutual funds. Consider a read before you invest.
"The four most dangerous words in investing are: 'this time it's different.'" - Sir John Templeton

Valuethinker
Posts: 39437
Joined: Fri May 11, 2007 11:07 am

Re: A moral hazzard...

Post by Valuethinker » Sun Nov 29, 2015 8:19 am

ARB57 wrote:I think there comes a time in life, when we all take a closer look at our priorities and our values. This post is not about debating what's right and what's wrong, it's about figuring how best to accomplish my financial goals, while sticking to MY values. Here's the deal:

Currently, the equity portion of my portfolio is invested in the Vanguard Total Stock index fund, but I'm uncomfortable with some of the stocks that are in the fund (so called sin stocks). I know that you can parse a LOT of stocks, bonds, CD's etc., and find SOMETHING that doesn't fit your values, but I'm sticking to the more obvious ones (at least obvious for me). My question is: do I utilize an index fund that excludes these stocks with a .45% expense ratio...or do I go through the S & P 500, compare it to the "morally responsible" index fund and purchase, individually, some or all of the stocks that make both lists (we're talking about 480 stocks).

It's certainly cheaper to buy the stocks individually, even if I buy all 480 ($2 a trade at Vanguard). Again, I'm not here to debate the moral issues...but...how many stocks in the S & P do I need (the top 50...top 100...all of 'em)? Do I also need to purchase some small cap and mid cap stocks? Is there another option that I'm missing.

Thanks.
My advice to you would be to stick with the lowest cost, broadest market index fund you can find (ie the VG TSM one).

If you have social concerns, then give cash to groups that fight for your point of view. For example I have given money to rainforest groups (this is just an example, not to suggest anyone else should do the same!). I am not eligible for any US tax deductions.

"Not holding" (in Albert O Hirschman's typology of influencing organizations) is equivalent to Hirshman's "exit"

https://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty

It's not very effective to my mind, by an individual, given the scale of global capital markets. One risks essentially "greenwashing" ie feeling good because you recycle your rubbish, but making no difference to the fate of society or the planet.

There are "social activism" type funds (I have seen them advertised in The Atlantic) which practice "Voice" ie they build a stake in a company and lobby for social change.

Valuethinker
Posts: 39437
Joined: Fri May 11, 2007 11:07 am

Re: A moral hazzard...

Post by Valuethinker » Sun Nov 29, 2015 8:27 am

BTW Moral Hazard as an economic phenomena is different

The classic idea of moral hazard is someone gets car insurance, so they take more risk driving. Or household insurance and they take less good care of their possessions.

How much this actually happens in real life is hotly debated (eg for medical insurance-- do people really smoke and drink more if they have medical insurance?). However it seems to be empirically true that longer eligibility for unemployment insurance leads to longer periods of unemployment (on average). With the Savings & Loan debacle, the existence of "brokered" deposits that were split to be within Federal insurance limits allowed investors to enjoy high rates of interest from the S&Ls, and the S&Ls to carry on with their bad practices for longer than otherwise.

There is *some* evidence that increased car safety devices leads to more reckless behaviour on the roads. That's called "risk budgeting". It's not a consensus opinion amongst road and traffic engineers by any means. But too straight a road seems to encourage speeding and a misjudgment of risk and distance.

https://en.wikipedia.org/wiki/Moral_hazard

randomguy
Posts: 8607
Joined: Wed Sep 17, 2014 9:00 am

Re: "Sin stocks"

Post by randomguy » Sun Nov 29, 2015 11:49 am

ARB57 wrote:I think there comes a time in life, when we all take a closer look at our priorities and our values. This post is not about debating what's right and what's wrong, it's about figuring how best to accomplish my financial goals, while sticking to MY values. Here's the deal:

Currently, the equity portion of my portfolio is invested in the Vanguard Total Stock index fund, but I'm uncomfortable with some of the stocks that are in the fund (so called sin stocks). I know that you can parse a LOT of stocks, bonds, CD's etc., and find SOMETHING that doesn't fit your values, but I'm sticking to the more obvious ones (at least obvious for me). My question is: do I utilize an index fund that excludes these stocks with a .45% expense ratio...or do I go through the S & P 500, compare it to the "morally responsible" index fund and purchase, individually, some or all of the stocks that make both lists (we're talking about 480 stocks).

It's certainly cheaper to buy the stocks individually, even if I buy all 480 ($2 a trade at Vanguard). Again, I'm not here to debate the moral issues...but...how many stocks in the S & P do I need (the top 50...top 100...all of 'em)? Do I also need to purchase some small cap and mid cap stocks? Is there another option that I'm missing.

Thanks.
You might be able to use sector funds to buy huge chunks of the market and only do individual stocks for the tricky sectors. It will really come down to what you define as a sin stock. Are you willing to hold companies like Nike/Apple/Chick-fil-a or do you just want to exclude GE and phillip morris? As you get more selective you will end up having to buy your own.

miles monroe
Posts: 1279
Joined: Mon Jan 20, 2014 12:14 pm

Re: "Sin stocks"

Post by miles monroe » Sun Nov 29, 2015 11:56 am

while i refuse to buy individual cigarette stocks as a matter of principle, i own index funds which hold them. i accept the fact that is inconsistent. but i see no other reasonable alternative.

i also refuse to go shopping on thanksgiving and other holidays which should be spent imo with family and friends.

Twins Fan
Posts: 2775
Joined: Fri Mar 08, 2013 1:02 pm

Re: "Sin stocks"

Post by Twins Fan » Sun Nov 29, 2015 12:26 pm

ARB57 wrote:My question is: do I utilize an index fund that excludes these stocks with a .45% expense ratio...or do I go through the S & P 500, compare it to the "morally responsible" index fund and purchase, individually, some or all of the stocks that make both lists (we're talking about 480 stocks).

It's certainly cheaper to buy the stocks individually, even if I buy all 480 ($2 a trade at Vanguard). Again, I'm not here to debate the moral issues...but...how many stocks in the S & P do I need (the top 50...top 100...all of 'em)? Do I also need to purchase some small cap and mid cap stocks? Is there another option that I'm missing.

Thanks.
If it's really that much of an issue for you, I don't think a .45 ER is unreasonable if that fund fits your wants. There are much more expensive funds out there. Call it, the price you pay to be sin free. :happy

I seem to remember reading somewhere that 50 stocks from different sectors and such would be fairly well diversified. That would still be too much for me to want to keep track of... and would there be some rebalancing system, or...

You certainly don't need small or mid cap. That would be up to you.

However you go about this, you're likely to hear from the majority of Bogleheads you are not diversified enough. But, investing is an individual thing.

tim1999
Posts: 3641
Joined: Tue Dec 16, 2008 7:16 am

Re: "Sin stocks"

Post by tim1999 » Sun Nov 29, 2015 12:38 pm

While I respect everyone's individual values, and I happen to be anti-smoking myself, I think it's pointless to think that by avoiding a mutual fund that holds a certain sin stock, that you are somehow preventing the spread or success of whatever the product or service is of the sin company. It makes no difference, though some like to think that it does. Buying 480 individual stocks to avoid the sin stocks is borderline insanity. Especially if you are making ongoing contributions and need to buy 480 individual stocks every week/month!

Many people will disagree with me on this, I'm sure.

Valuethinker
Posts: 39437
Joined: Fri May 11, 2007 11:07 am

Re: "Sin stocks"

Post by Valuethinker » Sun Nov 29, 2015 12:56 pm

ARB57 wrote: It's certainly cheaper to buy the stocks individually, even if I buy all 480 ($2 a trade at Vanguard). Again, I'm not here to debate the moral issues...but...how many stocks in the S & P do I need (the top 50...top 100...all of 'em)? Do I also need to purchase some small cap and mid cap stocks? Is there another option that I'm missing.

Thanks.
It used to be 40 stocks was said to achieve 98% diversification but I now believe the number is closer to 90-100.

And you have a real issue with diversification. If you owned Microsoft, Oracle, IBM, Cisco, Yahoo and Intel but not Apple or Amazon you would have done significantly worse than the index, I believe. Especially Apple.

Yes you should have non S&P500 exposure, and the best way to do that is through ETFs or mutual funds, it is too difficult to construct a portfolio that is representative out of those thousands of stocks.

User avatar
Blue
Posts: 1161
Joined: Sat Jul 12, 2008 10:18 pm

Re: "Sin stocks"

Post by Blue » Sun Nov 29, 2015 1:07 pm

When I read the thread titled I wondered if sin stocks would provide additional returns and wonder even more so after reading the thread. Hmmm, another factor :D

On a serous note, perhaps it might be simpler to buy the TSM fund and then short the few stocks/sectors which bother you to net a neutral position?

User avatar
Blue
Posts: 1161
Joined: Sat Jul 12, 2008 10:18 pm

Re: "Sin stocks"

Post by Blue » Sun Nov 29, 2015 1:21 pm

Blue wrote:When I read the thread titled I wondered if sin stocks would provide additional returns and wonder even more so after reading the thread. Hmmm, another factor :D

On a serous note, perhaps it might be simpler to buy the TSM fund and then short the few stocks/sectors which bother you to net a neutral position?
https://www.portfoliovisualizer.com/fac ... sisResults

Looking at VICEX five factor regression on portfoliovisualizer has an annual alpha 1.3%.

On the OP's question, I'd be inclined to find an ETF version of VICEX and short it to net a neutral position.

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: "Sin stocks"

Post by Leeraar » Sun Nov 29, 2015 1:27 pm

Blue wrote:When I read the thread titled I wondered if sin stocks would provide additional returns and wonder even more so after reading the thread.
There's a fund for that! Take a look at the symbol VICEX.

It's not just investing. It is virtually impossible to dissociate yourself from any activity that society, on balance, tolerates.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
bertilak
Posts: 7107
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: "Sin stocks"

Post by bertilak » Sun Nov 29, 2015 1:54 pm

Cherokee8215 wrote:While I respect everyone's individual values, and I happen to be anti-smoking myself, I think it's pointless to think that by avoiding a mutual fund that holds a certain sin stock, that you are somehow preventing the spread or success of whatever the product or service is of the sin company. It makes no difference, though some like to think that it does. Buying 480 individual stocks to avoid the sin stocks is borderline insanity. Especially if you are making ongoing contributions and need to buy 480 individual stocks every week/month!

Many people will disagree with me on this, I'm sure.
Although I am not in favor of avoiding "sin stocks" I think many people who do want to avoid them are not motivated by the point you make.

There is another point of view that may or may not be important to people: They don't want to make money from the activities practiced by or encouraged by those companies. It is not a matter of not wanting to support the companies, but of not wanting to support their own life by accepting money generated by those sinful activities, be it in the form of company dividends or NAV growth. It is in a sense "dirty money."

I don't know if this is the OP's situation or not.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

bhsince87
Posts: 2643
Joined: Thu Oct 03, 2013 1:08 pm

Re: "Sin stocks"

Post by bhsince87 » Sun Nov 29, 2015 4:40 pm

bertilak wrote:
There is another point of view that may or may not be important to people: They don't want to make money from the activities practiced by or encouraged by those companies. It is not a matter of not wanting to support the companies, but of not wanting to support their own life by accepting money generated by those sinful activities, be it in the form of company dividends or NAV growth. It is in a sense "dirty money."

I don't know if this is the OP's situation or not.
This describes me exactly. For a few years, I actually calculated what percentage of gains and dividends I earned from the companies that disturbed me. Then I would take that dollar amount and donate it to charity.

After a few years, I decided that was just too much effort. Now I just ballpark a certain percentage based on those few years' trends.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

User avatar
bertilak
Posts: 7107
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: "Sin stocks"

Post by bertilak » Sun Nov 29, 2015 5:02 pm

bhsince87 wrote:
bertilak wrote:
There is another point of view that may or may not be important to people: They don't want to make money from the activities practiced by or encouraged by those companies. It is not a matter of not wanting to support the companies, but of not wanting to support their own life by accepting money generated by those sinful activities, be it in the form of company dividends or NAV growth. It is in a sense "dirty money."

I don't know if this is the OP's situation or not.
This describes me exactly. For a few years, I actually calculated what percentage of gains and dividends I earned from the companies that disturbed me. Then I would take that dollar amount and donate it to charity.

After a few years, I decided that was just too much effort. Now I just ballpark a certain percentage based on those few years' trends.
There is a refinement you could justify.

Even though you made $X on those companies you COULD have been investing in other things instead. That's lost opportunity cost. It is probably a break even because, on average, the sin stocks probably perform about the same as the others in your fund. Being in a near break even situation, you have no NET sin money. Whatever sin money you DID earn, you also lost about the same because you traded away the opportunity to invest elsewhere.

If sin stocks perform WORSE than the general market you have actually sustained a LOSS, because the alternatives would have paid more.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

bonn
Posts: 106
Joined: Wed Mar 05, 2014 1:48 am

Re: "Sin stocks"

Post by bonn » Sun Nov 29, 2015 5:26 pm

Consider what would happen if half of all investors invested in this way, avoiding "sin" companies and also agreeing on what companies are "sin" companies. The other half of the market would notice that that those companies were available at a good price and invest more in them. If you want to do something about these "sin" companies, investments is not the way to do it. I'd take the time and money you save in not doing this and do some actual good with it.

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: "Sin stocks"

Post by Leeraar » Sun Nov 29, 2015 5:44 pm

bertilak wrote:There is a refinement you could justify.

Even though you made $X on those companies you COULD have been investing in other things instead. That's lost opportunity cost. It is probably a break even because, on average, the sin stocks probably perform about the same as the others in your fund. Being in a near break even situation, you have no NET sin money. Whatever sin money you DID earn, you also lost about the same because you traded away the opportunity to invest elsewhere.

If sin stocks perform WORSE than the general market you have actually sustained a LOSS, because the alternatives would have paid more.
There is evidence that socially responsible (SR) mutual funds have lower returns. Whether this is simply because they are managed funds, I do not know.

I am pretty sure that you would not have to dig very deeply into any organization to raise issues subject to moral objections. I definitely do not seek out sin in investing, nor do I actively shun it. It seems to me a broad market index fund is simply buying into society's norms, whether I agree with all of them or not.

One tactic might be to buy an index fund, and donate the excess returns over some SR fund to charity. But then, I personally have some deep objections to the charity industry.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

bhsince87
Posts: 2643
Joined: Thu Oct 03, 2013 1:08 pm

Re: "Sin stocks"

Post by bhsince87 » Sun Nov 29, 2015 5:57 pm

bertilak wrote:
bhsince87 wrote:
bertilak wrote:
There is another point of view that may or may not be important to people: They don't want to make money from the activities practiced by or encouraged by those companies. It is not a matter of not wanting to support the companies, but of not wanting to support their own life by accepting money generated by those sinful activities, be it in the form of company dividends or NAV growth. It is in a sense "dirty money."

I don't know if this is the OP's situation or not.
This describes me exactly. For a few years, I actually calculated what percentage of gains and dividends I earned from the companies that disturbed me. Then I would take that dollar amount and donate it to charity.

After a few years, I decided that was just too much effort. Now I just ballpark a certain percentage based on those few years' trends.
There is a refinement you could justify.

Even though you made $X on those companies you COULD have been investing in other things instead. That's lost opportunity cost. It is probably a break even because, on average, the sin stocks probably perform about the same as the others in your fund. Being in a near break even situation, you have no NET sin money. Whatever sin money you DID earn, you also lost about the same because you traded away the opportunity to invest elsewhere.

If sin stocks perform WORSE than the general market you have actually sustained a LOSS, because the alternatives would have paid more.
There was at least one year when the unappealing stocks I owned had a net loss. (I don't like the term "sin", because I chose to avoid some stocks for their stated political or social platforms)

I had no idea how to handle that in a way that assuaged my conscience.

That was another factor that fed into my decision to just stop worrying about it.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

Angelus359
Posts: 845
Joined: Tue Mar 04, 2014 12:56 am

Re: "Sin stocks"

Post by Angelus359 » Sun Nov 29, 2015 6:02 pm

Have you considered that owning these assets is just a way to siphon money from them?
IT-DevOps System Administrator

User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: "Sin stocks"

Post by in_reality » Sun Nov 29, 2015 6:33 pm

ARB57 wrote: My question is: do I utilize an index fund that excludes these stocks with a .45% expense ratio...or do I go through the S & P 500, compare it to the "morally responsible" index fund and purchase, individually, some or all of the stocks that make both lists (we're talking about 480 stocks).
Given that typically the answer given here is to Vanguard, I'm surprised it's not been mentioned.

Why not use Vanguard FTSE Social Index Fund Investor Shares (VFTSX) 0.25%ER.

Per Morningstar:
Companies are ineligible if they are involved in gambling, tobacco sales, the production of alcoholic beverages, or nuclear weapons. Also ineligible are companies where adult entertainment makes up more than 10% of revenue. The criteria also exclude firms with records of polluting the environment, violating international human rights principles, or violating International Labor Organization core principles. Finally, the FTSE4Good US Select Index requires constituents to have a baseline level of diversity in their management and board.

bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: "Sin stocks"

Post by bogleenigma » Sun Nov 29, 2015 6:47 pm

in_reality wrote:
ARB57 wrote: My question is: do I utilize an index fund that excludes these stocks with a .45% expense ratio...or do I go through the S & P 500, compare it to the "morally responsible" index fund and purchase, individually, some or all of the stocks that make both lists (we're talking about 480 stocks).
Given that typically the answer given here is to Vanguard, I'm surprised it's not been mentioned.

Why not use Vanguard FTSE Social Index Fund Investor Shares (VFTSX) 0.25%ER.

Per Morningstar:
Companies are ineligible if they are involved in gambling, tobacco sales, the production of alcoholic beverages, or nuclear weapons. Also ineligible are companies where adult entertainment makes up more than 10% of revenue. The criteria also exclude firms with records of polluting the environment, violating international human rights principles, or violating International Labor Organization core principles. Finally, the FTSE4Good US Select Index requires constituents to have a baseline level of diversity in their management and board.
This fund has also historically performed well.

Stonebr
Posts: 1472
Joined: Wed Jan 21, 2009 11:19 am
Location: Maine

Re: "Sin stocks"

Post by Stonebr » Sun Nov 29, 2015 6:58 pm

The geniuses with the Nobel Prizes tell us that any random sample of stocks should perform about the same, minus expenses, tax effects, and trading costs, as the market averages so any mutual fund with low expenses and low turnover should have an expected return about equal to Total Stock. VFTSX has low expenses and low turnover, so go for it.

As for perfection, no human being is perfect so you can't expect any corporation, government, church or NGO to be perfect either.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

User avatar
bertilak
Posts: 7107
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: "Sin stocks"

Post by bertilak » Sun Nov 29, 2015 7:06 pm

Stonebr wrote:The geniuses with the Nobel Prizes tell us that any random sample of stocks should perform about the same, minus expenses, tax effects, and trading costs, as the market averages so any mutual fund with low expenses and low turnover should have an expected return about equal to Total Stock. VFTSX has low expenses and low turnover, so go for it.

As for perfection, no human being is perfect so you can't expect any corporation, government, church or NGO to be perfect either.
Another problem is that there is more than one version of "perfect." I always felt it was a bit presumptuous to appoint one's self as judge and jury of "perfect."
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

User avatar
jfn111
Posts: 1118
Joined: Fri Nov 08, 2013 10:42 pm
Location: Minnesota

Re: "Sin stocks"

Post by jfn111 » Sun Nov 29, 2015 8:40 pm

Per Morningstar:
Companies are ineligible if they are involved in gambling, tobacco sales, the production of alcoholic beverages, or nuclear weapons. Also ineligible are companies where adult entertainment makes up more than 10% of revenue. The criteria also exclude firms with records of polluting the environment, violating international human rights principles, or violating International Labor Organization core principles. Finally, the FTSE4Good US Select Index requires constituents to have a baseline level of diversity in their management and board.
Wow, If I threw in my dislike for the politics of some companies, I don't think there would be any left I could invest in. :oops:

User avatar
stratton
Posts: 11083
Joined: Sun Mar 04, 2007 5:05 pm
Location: Puget Sound

Re: "Sin stocks"

Post by stratton » Sun Nov 29, 2015 8:42 pm

The 1.34% ER for VICEX is a sin.

Paul
...and then Buffy staked Edward. The end.

Karamatsu
Posts: 1348
Joined: Mon Oct 27, 2008 2:42 am

Re: "Sin stocks"

Post by Karamatsu » Sun Nov 29, 2015 9:00 pm

Although back when I was buying individual stocks I would avoid those that I felt made their money by doing evil (primarily because their annual reports were disgusting), once I began index investing I just let it go. The questions of share ownership, influence, and responsibility are too diffused. That said, if I could invest in the Vanguard social index mutual fund, or they offered an ETF share class, I would at least investigate.

There is no point in buying an index and then selling the evil companies short. Gains and losses from share prices have little to do with the underlying companies. We buy and sell shares from each other, with gains (typically, except at IPO) going to brokers and whoever takes the other side of the trade, not to the underlying companies. Dividends are a different matter. If those cause concern, then I kind of like the irony of donating the dividends to a group working to oppose the company's activities.

On the other hand, this:
The geniuses with the Nobel Prizes tell us that any random sample of stocks should perform about the same, minus expenses, tax effects, and trading costs, as the market averages so any mutual fund with low expenses and low turnover should have an expected return about equal to Total Stock
is demonstrably false, First, on the larger point, the result you're talking about is a statistical average. Some random samples will do better than the market, some worse. It's only on average, in aggregate, that random samples give market returns, and the reason for that is obvious: gather enough random samples and you have the whole market. Second, even if the first statement were true in the general case, clearly not all mutual funds with low ER and turnover provide market returns. One obvious reason would be that no mutual fund buys and holds stocks chosen at random. They're all targeted in some sense or another, so (for good reason) no fund gives investors the random sample case.

Topic Author
ARB57
Posts: 90
Joined: Sun Aug 07, 2011 4:00 pm

Re: "Sin stocks"

Post by ARB57 » Mon Nov 30, 2015 5:42 pm

Thank you all. Appreciate the variety of ideas, perspectives and insight. There were a number of things I hadn't thought about.

Valuethinker
Posts: 39437
Joined: Fri May 11, 2007 11:07 am

Re: "Sin stocks"

Post by Valuethinker » Mon Nov 30, 2015 7:19 pm

ARB57 wrote:Thank you all. Appreciate the variety of ideas, perspectives and insight. There were a number of things I hadn't thought about.
My spouse worked in charities/ not for profits for much of their career.

If you want to change the world, the direct effect of small, regular, predictable contributions is much greater than any "statement" you could make by not owning certain stocks (at which point other investors would find them cheap, and rush in and hold them). It's the predictability which is key because it allows the NFP to plan its campaigns and actions ahead.

Believe me, the key to changing the world (besides active personal involvement) is regular sums of money. The leverage or multiplier you get on that is far superior than what you could do as an investor.

Tobacco smoking is not ended by us refusing to invest in tobacco stocks. The gains that have been made have come as the result of decades of research and public health measures.

Valuethinker
Posts: 39437
Joined: Fri May 11, 2007 11:07 am

Re: "Sin stocks"

Post by Valuethinker » Mon Nov 30, 2015 7:20 pm

Blue wrote:
Blue wrote:When I read the thread titled I wondered if sin stocks would provide additional returns and wonder even more so after reading the thread. Hmmm, another factor :D

On a serous note, perhaps it might be simpler to buy the TSM fund and then short the few stocks/sectors which bother you to net a neutral position?
https://www.portfoliovisualizer.com/fac ... sisResults

Looking at VICEX five factor regression on portfoliovisualizer has an annual alpha 1.3%.

On the OP's question, I'd be inclined to find an ETF version of VICEX and short it to net a neutral position.
I suspect a small cap value index portfolio fund would have done as well as VICE. It may be that investors' distaste for such stocks causes them to be cheap on value grounds, but that is true of more than just "sin" stocks.

bhsince87
Posts: 2643
Joined: Thu Oct 03, 2013 1:08 pm

Re: "Sin stocks"

Post by bhsince87 » Mon Nov 30, 2015 8:49 pm

Valuethinker wrote:
ARB57 wrote:Thank you all. Appreciate the variety of ideas, perspectives and insight. There were a number of things I hadn't thought about.
My spouse worked in charities/ not for profits for much of their career.

If you want to change the world, the direct effect of small, regular, predictable contributions is much greater than any "statement" you could make by not owning certain stocks (at which point other investors would find them cheap, and rush in and hold them). It's the predictability which is key because it allows the NFP to plan its campaigns and actions ahead.

Believe me, the key to changing the world (besides active personal involvement) is regular sums of money. The leverage or multiplier you get on that is far superior than what you could do as an investor.

Tobacco smoking is not ended by us refusing to invest in tobacco stocks. The gains that have been made have come as the result of decades of research and public health measures.
Excellent point. And I'll go a bit further.

A well respected, retired relative of mine heads up a local foundation. I've pondered leaving them the bulk of our estate, since we have no direct heirs. When I asked him about that, he said, "That would be great! But it would be even better if you could start giving us a regular contribution today."

And he went even further and said, "But if you REALLY want to help us out, you could give us your time. Volunteers with your skills, abilities, and integrity are hard to find."

That's one reason I'm pondering retiring much earlier than I originally planned. Money isn't always the most important thing.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

breeks
Posts: 50
Joined: Fri Sep 11, 2015 4:49 pm

Re: "Sin stocks"

Post by breeks » Mon Nov 30, 2015 8:55 pm

To each their own, but it seems that the interconnected nature of global finance would make teasing out the "sin stocks" from the virtuous stocks an almost impossible endeavor. For instance, are you going to invest in a corporation like Berkshire Hathaway, which has many equity holdings, some of which may be "sinful" depending on your definition? Among other things, Berkshire has significant stakes in fast food chains (Dairy Queen) and sugary soda manufacturers (Coca Cola). So you're now profiting from people's lack of self control and accelerating the global obesity crisis. Or Alphabet Inc (Google) which has many strategic investments in AI research. In other words, you're in favor of robots taking people's jobs. Thanks a lot, jerk. :wink:

protagonist
Posts: 6127
Joined: Sun Dec 26, 2010 12:47 pm

Re: "Sin stocks"

Post by protagonist » Tue Dec 01, 2015 12:40 am

Leeraar wrote: There is evidence that socially responsible (SR) mutual funds have lower returns. Whether this is simply because they are managed funds, I do not know.
What about the KLD 400? My understanding is that it has beaten the market since its inception in 1990, with (I believe I read) a bit less volatility. Please correct me if I am wrong.

And yes, I agree with the posters who state it would be impossible to weed out all the "sinners" in the S+P 500, but some are worse than others, nothing is perfect, and any attempt is better than no attempt at all.

http://divhut.com/2015/11/socially-resp ... he-market/
Last edited by protagonist on Tue Dec 01, 2015 12:59 am, edited 2 times in total.

jj987
Posts: 83
Joined: Mon Nov 19, 2007 4:13 pm

Re: "Sin stocks"

Post by jj987 » Tue Dec 01, 2015 12:55 am

While I sometimes have a moral moment (rarely) in terms of "I own Atria" or "I own XOM" in TSM I usually gloss over it due to the fact there are lots of other companies you own in the index that are doing good stuff as well. Also "sin" is relative as to who you ask and what society's opinion is at the time. Tobacco has become a "sin" but 50-60 years ago it was considered to be good to smoke. People today consider oil a "sin" due to green house gases, but it has fueled the modern economy we have today. Would you consider Amazon a "sin" stock? Because of it I can get anything within 2 days. That is using oil, causing me to be lazy, thus knock on health effects. What about Mcd, Taco Bell, etc? They all serve unhealthy foods increasing the obesity epidemic in the States. "Sin" stock is relative as to what your moral stance is.

As the famous emperor said Vespasian "Pecunia non olet" ("money does not stink"). Or as my mom told me growing "Principles don't mean @#!% if you can't pay the rent." That landlord does not care if you want to save the polar bears. They want their rent 1st of the month or else you are out on the street.

User avatar
BigOil
Posts: 225
Joined: Wed May 23, 2012 2:45 pm

Re: "Sin stocks"

Post by BigOil » Tue Dec 01, 2015 12:48 pm

Leeraar wrote: C) I hate big oil. OK, no XOM, BP, or CVX. But really, petroleum is so pervasive you cannot isolate yourself in any credible way.
"hate" is such a harsh term... :annoyed :moneybag :wink:

I only "hated" the non-public, non-FCPA applicable, non-western, junta-run, non-transparent, corrupt, self-dealing folks of foreign/national oil companies... They overwhelmingly have most of the oil anyway.

That said, I'd use a social justice fund or simply donate to "offset" the impact (to you) of owning "sin bits" in a mutual fund.

--BigOil
(who used to occasionally leave work literally through the back exits to avoid the protests at work ! LOL)

Guest9876
Posts: 109
Joined: Fri Jun 19, 2015 10:21 am

Re: "Sin stocks"

Post by Guest9876 » Tue Dec 01, 2015 1:59 pm

Do, or do not. Ownership or divestment in stocks has no effect on the broader market. This is capitalism: the only value is profit (and its flip side, consumption). If anything, the stocks price in this sort of disruption as well.

If you're investing to make money, and posting on this board, there is really no room for romanticism. You can lobby for political fixes (ban X Y Z), or you can buy someone out and shut it down (this is not a solution), or you can act illegally, or you can attempt to change the market (find a substitute for cigarettes, for example, or monopolize the cigarette market to destroy it).

But using the scraps that fall off the table (dividends, cap gains, investment, divestment) to attempt to change the system is a fool's errand.

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: "Sin stocks"

Post by Leeraar » Wed Dec 02, 2015 4:16 am

Please understand that I am not intending to criticize anyone. I was just trying to point out that I, personally, find the boundaries difficult to define.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: "Sin stocks"

Post by in_reality » Wed Dec 02, 2015 5:15 am

Leeraar wrote:Please understand that I am not intending to criticize anyone. I was just trying to point out that I, personally, find the boundaries difficult to define.

L.
I agree the boundary is extremely difficult to locate.

The Vanguard fund for instance cuts out nuclear energy. Others argue fossil fuels do more harm.

What about biotech? Are they going to turn people into Frankenstein eventually --DNA in human embryos was modified at a university for the first time this year and perhaps someday it'll be the basis for some company -- or find a cure for the next virulent strain of drug resistant bacteria that some along. Speaking of which, isn't American feeding low does of antibiotics to much of it's meat and perhaps inviting disaster.

My point is that the critical things we need to do to protect our future can't be done I think by choosing not to invest in particular stocks.

Flashes1
Posts: 889
Joined: Wed May 07, 2008 7:43 am

Re: "Sin stocks"

Post by Flashes1 » Wed Dec 02, 2015 7:37 am

I've struggled with the so called "sin" stocks for a long time.

Apple: hate their views on marriage and how it's affected families.
New York Times: hate their views on killing babies and protecting the U.S. from religious fanatics.
Amazon: hate their treatment of unskilled laborers.
Google: hate how they've cozied up with China to squash the free flow of information, and help get people yearning for freedom thrown in jail.

As much as detest these company's human rights abuses, I'm not sure what investment vehicles avoid them? Ideas anyone?

Maverick3320
Posts: 533
Joined: Tue May 12, 2015 2:59 pm

Re: "Sin stocks"

Post by Maverick3320 » Wed Dec 02, 2015 10:11 am

Guest9876 wrote:Do, or do not. Ownership or divestment in stocks has no effect on the broader market. This is capitalism: the only value is profit (and its flip side, consumption). If anything, the stocks price in this sort of disruption as well.

If you're investing to make money, and posting on this board, there is really no room for romanticism. You can lobby for political fixes (ban X Y Z), or you can buy someone out and shut it down (this is not a solution), or you can act illegally, or you can attempt to change the market (find a substitute for cigarettes, for example, or monopolize the cigarette market to destroy it).

But using the scraps that fall off the table (dividends, cap gains, investment, divestment) to attempt to change the system is a fool's errand.
+1

randomguy
Posts: 8607
Joined: Wed Sep 17, 2014 9:00 am

Re: "Sin stocks"

Post by randomguy » Wed Dec 02, 2015 11:21 am

protagonist wrote:
Why?

Some things are easy to tease out. Tobacco for example. It kills people. It does not transport you from NYC to London like Boeing. It does not manufacture state of the art medical equipment like GE. It does not keep you warm at night like utilities. It just addicts and kills people. If that bothers you, what is wrong with not supporting the industry with your dollars?

Most of us give to some charity. Should we not give selectively, because there are other charities that do good too, maybe more good, that we don't support?

Isn't taking some ethical stance better than taking none at all?

Whenever you spend your money, consciously or not, you are supporting something.

I'm not an investor in socially responsible funds. But I respect those who are, and when I read threads like this I think that perhaps I should be, too. If you can get fairly similar returns, and MAYBE do SOME good in the process, I fail to see why people object.
Tobacco provides pleasure for millions of people. Now you can argue that pleasure isn't worth the cost (and I would agree) but I personally don't want to be running other peoples lives. To take your logic to the conclusion, you would have been happy holding RJR Nabisco because the food part (feeding people is good right) balances out the killing part? How much good does something have to have to put up with its evil part? Mabye if you stopped supporting companies like boeing and GE, more ethical competitors would come out.

The overall point is that you can find fault with pretty much any large company if you look hard enough depending on your belief system. Deciding what you are avoiding is going to drive how you invest. And then you have to decide how pure (Can you hold Berkshire if they have 1 division you don't like) you want to be.

Personally I think ownership at a retail level has zero effect on a company. Buying and index fund and donating the time I save results in more net good in the world. YMMV.

dc81584
Posts: 581
Joined: Sat Apr 04, 2015 7:47 am

Re: "Sin stocks"

Post by dc81584 » Wed Dec 02, 2015 3:02 pm

I hate cigarettes. I hate cigarette smoking. I hate companies that make cigarettes. BUT...if individual stock investing were my thing, I'd purchase Altria shares in a New York minute.

MN Finance
Posts: 1832
Joined: Sat Dec 22, 2012 10:46 am

Re: "Sin stocks"

Post by MN Finance » Wed Dec 02, 2015 7:01 pm

I run an investment firm and about a quarter of our clients request SRI screens. For many years I would advocate for investing in un screened vehicles and then taking money to donate to local causes that support their values, rather than just screening out.

I think this argument is effective but somewhat shortsighted. First, it ignores the need to feel good about your investment discipline, which isn't just a warm and fuzzy thing. Like taking appropriate risk it allows you to stay disciplined through uncertain times. Second, it ignores the fact that there's a macro economic case to be made for components of SRI. To use a simple example, what would the world economy look like if 100% of the population smoked? It wouldn't be good. Like global warming, the entire economy theoretically benefits over the long term in a healthy world. SRI and public demand for ethical practices at least improves the odds for a better future. One poster said they don't care if someone else smokes. Sure, on the basis of individual freedoms that's true, but that smoker doesn't smoke for free - it costs you something.

As for vehicles, it's very difficult, in part because it's such a personal set of criteria. VG has one fund. TIAA had a stock and bond fund. The KLD etf is ok. DFA has a good compliment of funds but those are harder to access. Btw, there's no evidence the screens result in underperformance, despite a previously posted claim, though by definition there's tracking error.

User avatar
LadyGeek
Site Admin
Posts: 59646
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: "Sin stocks"

Post by LadyGeek » Wed Dec 02, 2015 7:08 pm

I removed comments expressing strong opinions on why they hate certain asset classes or vices. The discussion remains derailed. This thread has run its course and is locked.

Search this forum for "Socially responsible investing" to find relevant threads. Also, see the wiki: Social responsibility indices
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Locked