Ignore socially responsible investing, focus on responsible consumption

Dilbert By Scott Adams
By Scott Adams
It may have been said before but the first time I heard it was in an article by Scott Adams (the creator of Dilbert), “Invest in companies you hate.” of course in his article he also states not to take investment advise from a cartoonist, so you may want to take it all with a grain of salt. But his many points about betting on the bad guys really backs up why many of those companies are good at making money and therefore good investments.

I guess one of the first questions that may come to peoples minds is, what is socially responsible investing? Sometimes it's called ethical investing, others call it following your personal morals. I guess the simplest definition that I can think of, is investing in companies that hold values of importance of the investor. Some of the most common ways people approach socially responsible investing is to not purchase stocks from companies that produce or make money off of war, cigarettes, alcohol, GMO foods, or things that could be bad for the environment. There are many other socially responsible ideas, but those are usually the most common ones that come up.



But how does each individual decide on what is okay or not okay to invest in? That all depends on the individual investor, sometimes people will find a financially solid company but not agree with the product so they will choose not to invest. While some people don't see anything wrong with alcohol if used responsibly, (even the church uses wine at mass) others might not agree with the product so they will not invest in those companies. I could list points on both sides of why you should or should not follow the ideas of socially responsible investing, but is ethical investing really supporting those companies? Let me rephrase that, if I purchase stock in a company, am I supporting that company, or am I just taking on a small share of the companies risk? Am I betting on the company to make money or the am I also supporting the companies cause?

While I consider myself an environmentalist, conservationist, anti-war, non-smoker, and a lot of those other hippy-dippy things, but that doesn't stop me from investing in any company that I want. I have no issues investing in what some may consider morally gray areas, and it's not about chasing the biggest returns.

It's because we are all adults.

We all can make choices on what we want to support, and the most definitive way to show your support for a company is to be it's customer. If you truly did not agree with the company you would not purchase anything from them. Some people say that cigarette companies market to children, but I say, what kid over the age of 10 doesn't know that cigarettes are addictive, cause cancer, and bad for your health? I might believe you if you were born before 1960 but in the modern world I just don’t believe it. Maybe in other parts of the world they don’t get the same D.A.R.E. classes I had growing up but I’m not about to make decisions based on things I don’t know. And while when kids are younger and still might make impulsive decisions, I somehow made it through life making the conscious decision not to do it. I have faith that other kids are aware enough to make the same decision that I did.

But what about things like genetically modified food? Well, if I have any issues with GMO food then I won’t eat it, but that doesn’t mean I will hold a grudge against anyone that does. I have a few vegan and vegetarian friends who complain at meat eaters ALL THE TIME, it's actually quite annoying. But I never complain to them about how gross I think kale is, because we are all free to choose to support whatever we want to support. (Okay, okay, maybe I do complain to them about kale, but do you blame me?) It's the same for me with genetically modified foods, I can simply avoid them if I care enough to do so.

So would socially responsible investing also mean that anyone that is a vegetarian does not own stock of any company that uses animal products? I know that rules out most food related companies and many clothing retailers. If you are a vegetarian that is a socially responsible investor please feel free to chime in now, I would be interested to know if that is something you take into consideration. Or if your are an environmentalist that is into socially responsible investing do you not invest in oil companies because most are known to drill where they can make the most money, not where it's environmentally the least impact?

That being said, buying shares of a company does not mean you support them, that just means you have the possibility of that share increasing or decreasing in value based on the people that do support that company, the customers.

People are free to do what they want, and if people want to smoke, I'm not going to stop them, if people want to eat GMO foods then I will let them. Just because you don't agree with them doesn't mean you can't profit off of them. Personally I'm not a fan of Apple, I just think all of their stuff is waaay to overpriced and I don't understand the cult like mentality behind their following. But that doesn't mean I wouldn't invest in their company.

The idea of socially responsible investing changes over time, as society evolves it adjusts it's view points on what is ethical and what is not. There was a point in time where slavery was legal, but that is no longer the case. Sometimes society takes too long to come to the correct conclusion on some issues but it still evolves none the less. Society will also always have complaints about something, it's human nature. We always strive for something better so this idea of socially responsible investing will always exist and change with the current issues of society. Socially responsible consumption is what will force businesses to change, and therefore it will change ethical investing.

But when do we draw the line? Or how do we draw the line? I think the easiest way to determine that is to say that if the company is working within the current laws defined by society then, "we're probably okay."

Telling someone that they shouldn't invest in a company because that company has shaky ethics, is like telling someone they shouldn't get married because they are gay. You are just projecting your views onto someone else's company, if what the company does or sold was actually not legal within the confines of society then that would be a different story. I admit that perhaps I'm wrong, perhaps there is some product out there where every purchase made puts cigarette into a child's hand, but I just haven't heard of it.

As a consumer you support the company, as a shareholder you believe other people buy what they are offering. So does socially responsible investing really exist or should the topic really be socially responsible consumption?

As a side note, I don't actually own any shares in any companies that produce oil, cigarettes, make bombs, etc. (or Apple) I'm merely stating why this wouldn't stop me from doing it if I felt inclined to do so. Also using this same logic I'm not supporting some of the companies whose stock I do own such as Tesla and Starbucks.

14 comments:

  1. Very much with you on this, Zee. Just because I don't agree with or use cigarette products, that's not to say that I wouldn't invest in a tobacco company if I thought it would make me money. Sure, smoking can kill you but it's a choice and some people choose to smoke.

    Some people just can't help themselves and feel that they MUST impose their views, be that religion, politics or ethics on others. To be a socially responsible investor though, what is there to invest in and how would they know that a company was completely ethical? Would such a person invest in banks for example, when many of them have been fined millions for fixing interest rates, abetting money laundering etc?

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    1. I think it will be really really hard to find a company that you can stand behind 100% because there's always weird exceptions to things. One point that I was going to write about was what if there was nothing wrong with the company, but you didn't agree with the owner or the management? For example the owner of a fast food chain over here called Chick-fil-a was basically a symbol for intolerance when he became very outspoken about being against same sex marriage. I don't think there was anything wrong with his business but as an person he was a jerk.

      Does that mean I couldn't invest in companies where anyone that will possibly profit off of it are intolerant? Or there's also been a lot of bad press over here about professional athletes being accused or even video taped doing domestic violence. Does that mean the fans should completely ban the teams or stop going to games?

      It's just a really tough line to know where to draw. Perhaps my justifications are just that in other peoples eyes and I just can't see it that way, I don't know. But I'm willing to admit my blindness to the other side because it's up to the investor to choose how they feel.

      I personally think it's up to you as the consumer to support or ban causes though, the investor is just betting on the outcome.

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  2. Zee,

    First of all, thank you for mentioning my ethical dilemma of investing in British American Tobacco.

    Second, it seems that the topic of social responsibility and morality have been going around the blogosphere the past few weeks. I think that shows most people do care about what type of company they invest in.

    You raise a lot of good points, but I don't agree that because other people (adults, like you said) make bad choices (i.e. smoking) that gives you carte blanche, morally speaking of course, to invest in an organisation that facilitates that choice (i.e. tobacco company). Moreover, you mainly focussed on the internalized costs people make by purchasing a certain product, but not the externalized ones that are often carried by all of society.

    If a consumer smokes, for example, he or she internalizes the actual cost of smoking, but what about second-hand smoke? What happens when he or she gets lung cancer because of smoking and state healthcare has to step in to pay for his or her treatment? In no way do these things relate to the bottom-line of the company you invest in, but they do have a profound effect on society.

    That's where I draw the line, I guess. Of course, everyone is free to draw his or her own line and I'm not one to judge!

    Totally with you on the vegans though! :D

    Cheers,
    NMW

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    1. NMW,

      It's been an interesting topic to read about other places, and most people fight for being on the ethical side of things, which I totally agree with. Who wants to be on the wrong side of an ethical argument? I just thought it would be interesting to analyze if we're focusing on the wrong point. Should we focus on the investors or the consumers? I believe as consumers we show more support and as investors you just gamble on how the company will perform.

      I could look back on this in a few decades and think I'm a total a-hole for not minding investments in tobacco companies. It could be like on cigarette ad's from the 50's where we all think it's ridiculous now but back then it was just normal. I hope I'm not on that side of things when I look back but you never know.

      You do bring up a great point about second hand smoking though, I hadn't really thought about that piece of it. Where I live, where people are allowed to smoke is highly controlled. I believe the rule is like 15 feet from the entrance to any public buildings. Never inside buildings that aren't private homes. I'm always reminded of what a non-smoking regulated state I live in until I leave it to go on vacation somewhere else and I am overwhelmed by it. Perhaps that's part of the reason I didn't think about it.

      I still don't think it would stop me from investing in those companies if I wanted though. Oil companies would be off limits because every few years they mess up the environment pretty good in some accident. I'm guessing that most food related industries would be off limits because they are usually not very humane to their animals either. I'm betting that Starbucks even has some bad policy about where they harvest their coffee beans that I don't agree with.

      But luckily for me I don't currently invest in those companies (except Starbucks) so I don't have to worry about it.

      And seriously, what do vegans invest in?

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  3. I feel ya in these regards. I dont buy gas guzzlers and try and eat more locally organic sourced foods I do invest in tobacco and oil and unclean energy. I live a life with my own personal choices but invest with dollar signs as my goal.

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    1. I don't think I could buy an SUV if I wanted, I think the gas prices would kill me. I was given an old SUV by my grandfather when an old car broke down, and while I was grateful for the car it was painful to fill up. It was necessary at the time but I'm glad I no longer have that car.

      But I invest with what I think will be a good investment, I don't let what the company does stop me.

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  4. My hubby and I try to make environmentally sound choices in our daily lives, but I have to confess that we have not bothered with trying to extend that to our investing. We like oil as an investment, and one of our best-performing individual stocks is a tobacco company.

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    1. I'm definitely conscious about where I put my money in my everyday life. Though I do admit I'm sure I still buy gas from companies that I think are destroying the environment, but I don't extend it to my investing either.

      I'm guessing that a lot of dividend investors don't think about how poorly Walmart pays it's workers or how Nike makes it's sneakers as cheap as they can. I also remember a lot of bad publicity about Apples working conditions in other countries... I don't know if the reports were true but I don't know if that stopped many investors.

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  5. I once tried to invest 'ethically', but I eventually realized that I was unnecessarily restricting my ability to make money. I mean, it's not like a company is going to do a moral 180 just because they saw DividendDeveloper choose not to buy their stock. MO is still going to sell cigarettes regardless, and RGR is still going to manufacture guns. Might as well make money off of them and spend the money according to my own moral code, as you mentioned.

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    1. Exactly, if I don't buy stock in companies that make bombs will that stop war? No. I think that even if everyone decided not to buy their stock they would still make bombs and war would continue.

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  6. My motto is: blame the consumer not the corporations. Corporations do "evil" things because consumers demand shitty products and shitty services. If those consumer needs weren't there, there would be no money to be made and corporations wouldn't be doing whatever perceived evil activities that occur.

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    1. I hear that Steve! If I don't like a company I don't buy or use their products.

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  7. There are lots of types of socially responsible investing: for example, investing based on morals, based on religious beliefs, or based on pacifistic reasons. If you are serious about this type of investing, there are several mutual funds with these specific guidelines.
    Choosing individual stocks from a socially responsible standpoint is very difficult. I don't like junk food and I haven't eaten in a fast food restaurant for years, yet I own McDonalds. Is that a violation of my social responsibility? I respect the right of people to eat whatever they want, so I'm OK with owning the stock.

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    1. I know that there are a lot of socially responsible ETF's, index funds, etc.. But I think that it would be difficult for the average person to look into each and every company that is a member of that index and agree that each company meets their own personal criteria.

      But I don't let those things get in the way of my investment strategies.

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