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Minyan Mailbag: Sin Stocks


Social investing could be taken to an extreme...



I live in Colorado Springs....and if you don't like living in Boulder I'll trade places with you anytime. I think you'd find that living with the 'socialists' in Boulder is more tolerable (and more fun) than living with the 'Focus-on-the-Family' fundamentalists here in the Springs.

But seriously, I don't think screening out the biggest social culprits is that big of a hurdle. I find that most of our investors prefer not to invest in alcohol, tobacco, gambling, or military contractors. Actually, we've done several points better than the S&P 500 over the years without investing in those industries. So, the hurdle really isn't that great. True, some social screens are much tighter than that, but then again, so are other fund screens based on market cap, value, growth, etc. I don't hear Jim Awad complaining that he can only invest in small caps.


Minyan William Moyer, CFA


I live in Denver but probably would not mind living in Boulder. Though I've been told by my friends who live in Boulder that the liberal brush I've painted of the city may not apply to it any longer.

Avoiding sin stocks (i.e. defense, tobacco, gambling and alcohol) doesn't severely limit an investor's stock universe and is not very taxing on time and effort, as sin stocks are easily identifiable. That is not something I would do, it is an issue of personal values. As you mentioned, and I agree, following that strategy should not have significant consequences on the return achieved in the portfolio. However, social investing could be taken to an extreme if one decides to do so:

  • Political donations - A company is giving money to the wrong (another very subjective criteria, unless it is something black and white like Al Qaeda) cause or party
  • Treatment of employees (very subjective) - Does Wal-Mart (WMT) treat their employees fairly? Do you start looking at employee compensation of every company you invest in?
  • Labor practices (use of child labor) - Do you avoid companies that use parts made in China or manufactured in China?
  • Environmental citizenship - Do you avoid oil companies and refineries? What about auto companies who make gas guzzling SUVs?

I probably missed a dozen categories, but you get the idea. When social investing is taken to the extreme it turns into a very taxing exercise and substantially limits the 'investable' universe.

Best regards,

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