Tuesday, September 11, 2007

An Anti-Emotional Case for Green Investing

The primary mistake made by "sin stock" advocates -- those who emotionally push alcohol, tobacco, defense and gambling stocks as if they have an ideological axe to grind -- is that you must choose between great returns... OR keeping your soul intact.


You don't have to buy Budweiser or Diageo or Lockheed Martin to make money.

You don't have to knowingly invest in companies that profit from things you don't agree with in order to beat the markets.

Personally, I don't give a fig if someone drinks or not... or if you smoke. That's a personal choice, and bravo for you if you drink three pints of scotch a night and smoke yourself to sleep.

But NOT investing in sin companies doesn't make you some kind of naive financial sissy either. That's simply nonesense -- and worse, it's an emotional argument about something where emotions are downright dangerous.

You see, I think SRI makes sense logically. The companies we focus on are at the cutting edge of energy technology, carbon neutrality, efficient use of resources and the zeitgeist itself... These companies are often, in my opinion, driven by people who possess more natural awareness of their environment and better business vision in general.

Why else would Goldman Sachs have gone green? Why is Starbucks working toward carbon neutrality within the next year?

Simply... They see the future better than "money first" businessmen do.

Chances are, if you're more aware of changes in society... more aware of your business's overall impact on its environment... more aware of emerging technologies for improving your energy efficiency... you might just be better equiped to improve your efficiency in general, or to adopt emerging technologies that give you an edge in the markets.

And of course there is the larger human point behind SRI: If the human race is to survive and thrive, we need clean water and air and food.

It also helps if we lower the incidence of diseases like liver cancer, cirrhosis, lung cancer, emphysema and, while we're at it, reduce the occurance of gun-related deaths and wars. This is a baseline survival/quality-of-life question, not an emotional hippy rant from the 1960s.

The SRI perspective is not emotional - it's almost the opposite of emotional. Granted, I feel better about my choices when I'm making them with my kid's future in mind... and especially when they soar 140% in a matter of weeks.

But from my perspective, the real "emotions" come in when you get stirred up and ideological about it, such as you so often see with "sin" advocates who can hardly contain their Limbaugh-like screaming. Human beings are basically weak and vice-oriented, they argue.

That's reality, they say. And when times get tough, buy sin stocks, because a lot of miserable people out there will be turning to cigarettes, booze... and even firearms (some turned on themselves, unfortunately) to escape the nightmare of their lives.

But hey, you'll squeeze an extra 5% from your portfolio, so it's worth it, no?


While the extreme free-market guys see SRI as some left-wing conspiracy to rob investors of their due returns, they're wrong. While they myopically see it as a perversion of "pure free market capitalism" they're wrong.

Again, it's emotion-based, ideological bullshit.

Here's a perfect example from a Minyanville writer who invokes the dusty, heady name of Adam Smith himself to argue against SRI... as if putting the frosting on his cake of an anti-SRI argument:

"Adam Smith’s invisible hand did not wear a social glove and for a good reason: social criterions only add inefficiency to the system of capitalism."

He's arguing that SRI is somehow outside the "system of capitalism." But of course it's just another force operating within the system of capitalism.

Think about it... If every American made the free choice to stop buying booze, cigs and guns... and every company producing these things in America goes belly up in 10 years... and the stocks disappear... is that not part of the efficiency of capitalism at work? SRI is really just the free market at work.

Free choice is part of capitalism. And that includes the choice to NOT invest in stuff that's harming people or the planet in an overt way. Like it or not, most SRI people aren't doing it because someone is forcing their hand.

Again, the anti-SRI guys are offering a false choice: You DON'T have to choose to be part of the capitalist system OR choose to invest responsibly.

You don't have to choose to make money... OR choose to invest responsibly.

Our evergreen portfolio is destroying the S&P 500 exponentially so far this year, returning more than 140% (including losers) versus about 4% for the broad stock market. Even on a share-weighted basis, we're more than quadrupling the S&P right now.

Perhaps that won't go on forever, but at the moment it looks like the real money is in well-chosen, and fortunate, socially responsible investments.



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