Socially Responsible Investing's Bull's Pen
by Rick Munarriz ([email protected])

I am no Dudley Do-Right on a sugar high. Sorry Nell, save yourself. Like a lot of people, I surf up and down the sea of mores. I will cut off the teenager in the Camaro to let the elderly pedestrian cross the road ahead of me. I have no problem with going to church on Sunday and tuning into Howard Stern on Monday morning. I guess I'm a Goody One Shoe. I am all things left and right, right and wrong, yet I will be hard pressed to buy into a sin stock.

It is not because I am rabidly righteous. Like most individual investors, I guess I subscribe to a bit of egoistic hedonism. It is not as if I think the world will bow before my personal code of ethics -- not directly anyway. When we pick a stock from the equity litter, when we do our fair amount of research and choose one over the others, what are we doing? We are going with our personal conviction that the market will eventually come to see things our way. We buy that high-tech upstart expecting others to someday embrace our vision. So then why is it so taboo to do the same with social expectations?

If I don't smoke, if I think cigarettes are demonic sticks of fatal addiction, why not shun Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> if I think others may come around to my way of thinking? If I can assume that Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %> will canvas the world with Zip drives, why can't I assume that the anti-smoking sentiment may prove to be another successful export?

It is a bit ironic that socially responsible investing is not politically correct. My best guess is that it has to do with the perception that this must be a universal pan. If you refuse to consider tobacco stocks, you must also avoid gaming, alcohol, and defense companies. While you're at it, forget government bonds because some of that t-bond money is probably aimed at questionable funding you might be against. Stop! Just because you will find mutual funds like Domini Social Equity and Pax World that conform to certain parameters does not mean that you, as an individual, can't mix and match your morality mandates.

If you have an anti-war bent yet feel that casino odds are fair relative to the entertainment they provide, then go ahead and short Lockheed Martin <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %> and buy Mirage Resorts <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MIR)") else Response.Write("(NYSE: MIR)") end if %>. Because what makes us unique as investors are the claim checks on the emotional baggage we carry. We are told never to fall in love with a stock, but the reality is that due diligence is a bit of a courtship. We are all socially responsible investors, even if we don't grasp the personalized tags that that branding entails.

A pretty common salvo at shutting out sin stocks is that anything that limits the pool of choices is bad. By imposing a veto on certain sectors you are prematurely narrowing down your selections. Well, I think most investors are already guilty of this. There are some who avoid international stocks, or energy stocks, or mining stocks. Few people have the time to master all industries. So, if you have to shorten the net you cast anyway, might as well aim for fish you like.

Why buy distiller Brown Forman <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BF.A)") else Response.Write("(NYSE: BF.A)") end if %>? Will one sleep better at night knowing that he or she is banking on alcohol consumption rising? I just don't see the lure in buying into a company that one finds ethically objectionable. Sure, in many cases a great deal of pessimism has been priced into the sin stocks, but apart from being easy targets for new tax hikes, there is also the realistic possibility that things can always get worse. How many people have loaded up on tobacco stocks over the past few years thinking that the value is too good to pass up, only to see those shares continue to slide as the lawsuit tabs get larger and larger?

No, I think I'll pass. Two years ago David Gardner shared an interesting perspective, saying that investors who object to Philip Morris should buy the shares and donate the dividends towards cancer research. My take is that one should find a company whose shares have a better chance to appreciate, financially and ethically, and then sleep better and richer at night.

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