Monday, December 10, 2012

Ethical Investing

According to an article published by the Motley Fool, the number one best possible single stock investment of the last 50 years would be the cigarette powerhouse, Altria Group (ticker symbol MO). It has returned a stunning average 20.5% a year since 1968. That would have turned your $1,000 investment into $3,700,000 in fewer than 50 years. I don’t own any Altria stock. My wife is not comfortable profiting from a product that turns its customers into addicts then slowly kills them off. I would not invest in anything that grieved her conscience even if I believe it to be a really good idea. I think tobacco products are a legal as well as a traditional part of American culture. I don’t smoke; in my blog I recommend you don’t smoke for financial reasons, but if you want to smoke, I consider it your business.

I believe a company has a moral obligation to serve three groups customers, shareholders, and employees. I also believe they have an obligation to obey the law of the countries where their operations are located.

I haven’t invested in companies like Microsoft and Walmart because something about their business model makes me queasy. I consider Microsoft a classic 19th century predatory monopoly. Many of their products have not been all that good. They don’t take care of their customers. Microsoft eliminates innovative competitors by making crude copies of their products, then packaging them at a low cost into the Windows Operating System or by buying their competitor’s company. Their use of large numbers of “permanent temporary” employees bothers me. They haven’t treated their shareholders (other than insiders with stock options) all that well since the dotcom crash of 2000.

Walmart really is a two edged sword. On the one hand no retailer in history has done more to provide the best possible value to the largest number of customers. On the other hand the appearance of a Walmart on the edge of town has the same effect on local small business as a nuclear weapon. Walmart has consistently provided their shareholders with more than respectable returns. But then the value Walmart has provided to customer and investor alike has been at the expense of their employees and their suppliers’ employees. I seldom shop at Walmart; to be honest in part because it is not convenient. I have never invested in Walmart, as I question some of their business practices. However, I hope that someday Walmart will offer the same level of benefit to their employees as they do to the customers and investors they have served so well.

If ethical investing is really an issue in your mind there are 150 mutual funds and 17 exchange traded funds that will screen tobacco, alcohol, weapon systems, or environmentally offensive companies out of your life. There are funds for conservative Christians, environmentalists, and even Moslem fundamentalists. Normally, these funds underperform their competition. This is not surprising since the universe of acceptable investments is smaller for funds with a conscience.

The following information is from “The 7 Top Funds for Ethical Investing by Thomas Anderson.

Kiplinger reports that the best of these funds over recent history are Amana Income and Amana Growth. Over the last five years they rank in the top 1% of all funds in their respective categories. These funds invest according to Islamic principles, no pork, pornography, gambling, or alcohol. In the past year they have not done all that well since they do not invest in financial firms that are involved in usury. They invest a lot of their money in health care companies.

If you are big fan of alternative energy, check out Portfolio 21. They are really serious about ecologically safe and sustainable products. They are also opposed to the use of nuclear power to address global warming. As you might expect, they like companies that produce wind turbines. They also invest a lot of money in health care.

If you don’t like alcohol, gambling, pornography, tobacco, or weapons you might like the Appleseed Fund. They seek “ethical” bargains and keep about 8% of their portfolio in gold to protect their investors against high inflation they see in our future. Over the last three years the Appleseed fund has topped the S&P 500 by 12% per year. Not too shabby.

Christianity is a religion of freedom and grace, not a religion of rules and regulations. If a particular investment bothers your conscience, don’t buy it. If your brother has no problem investing in that same company extend him the grace to follow his own conscience. Don’t be too proud of your own righteous behavior. If you have a 401K, investments in an index fund, or any kind of a managed account, the chances are pretty good you own some minuscule speck of something you would find offensive.

Romans 14: (NIV)

Accept the one whose faith is weak, without quarreling over disputable matters. 2 One person’s faith allows them to eat anything, but another, whose faith is weak, eats only vegetables. 3 The one who eats everything must not treat with contempt the one who does not, and the one who does not eat everything must not judge the one who does, for God has accepted them. 4 Who are you to judge someone else’s servant? To their own master, servants stand or fall. And they will stand, for the Lord is able to make them stand.

5 One person considers one day more sacred than another; another considers every day alike. Each of them should be fully convinced in their own mind. 6 Whoever regards one day as special does so to the Lord. Whoever eats meat does so to the Lord, for they give thanks to God; and whoever abstains does so to the Lord and gives thanks to God. 7 For none of us lives for ourselves alone, and none of us dies for ourselves alone. 8 If we live, we live for the Lord; and if we die, we die for the Lord. So, whether we live or die, we belong to the Lord. 9 For this very reason, Christ died and returned to life so that he might be the Lord of both the dead and the living.

10 You, then, why do you judge your brother or sister? Or why do you treat them with contempt? For we will all stand before God’s judgment seat.

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