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What’s Socially Responsible Investing Costing Us?

Are we selling ourselves short when we invest with a conscience?


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Many investors want to be socially responsible when they buy stocks these days but deciding which companies to invest in isn’t always a black and white decision. Some people buy stock in a company because they buy their products. Others are more financially motivated and buy shares in a because they like the dividend it pays or think they think a stock is cheap and has substantial upside. But there’s another group that actively avoids some stocks because of their conscience.

Years ago, the two stocks that served as the poster children of politically incorrect stocks to own were Exxon and Philip Morris. Exxon was the company responsible for the horrific oil spill in Prince William Sound, Alaska in 1989 and Philip Morris (now called Altria Group) is the behemoth tobacco company responsible for millions of lung cancer deaths over the years. The problem with not owning these two particular stocks is you may have given up tremendous dividend income and long-term growth. In fact, CalPERS, the California Public Employee’s Retirement System, had a 15-year ban on owning tobacco stocks and it cost their retirees over $3 billion dollars in lost profits according to The Sacramento Bee newspaper in 2016.

Today, the stock that many investors find distasteful is Facebook because of a host of privacy issues resulting from its relationship with the strategic consulting firm Cambridge Analytica. Cambridge was able to use personal information from Facebook users to create a profile and sell this information to political operators to potentially influence voters in the 2016 election. Investors who held on to the stock despite these discoveries were severely punished initially, with Facebook’s share dropping 40 percent between July and December 2018.

Facebook isn’t going out of business—they have 2.27 billion users worldwide and are very profitable. For example, had you bought Facebook on December 17 last year at the low price of $124 a share, you would have made a rather quick 35 percent with the stock trading at $167 a share today.

The irony is, prior to the Cambridge Analytica discovery, Facebook was a top holding in most Socially Responsible SRI mutual funds. In fact, it was a top 10 holding in 80 SRI (Socially Responsible Investment) funds because of a strong environmental record, according to Swell Investing. Now, Facebook has all but disappeared from most of the biggest SRI funds.

The reality is there are plenty of companies to invest in and if you don’t like the management of the companies, what they do to the environment or their products, don’t buy their shares. If you’re comfortable sacrificing some profits to pursue investments that are considered more ethical, it may be a small price to pay. But be aware that practicing socially responsible investing can come with a cost.

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Fred Taylor

Fred Taylor is president and co-founder of Northstar Investment Advisors, LLC. The firm specializes in managing personalized investment portfolios for individuals, families, and retirees with a focus on income generation. He is a member of the Colorado Forum and also served as an economic advisor to Colorado Governor Bill Ritter from 2008 to 2010.

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