Investing in Vices


A tricky question in investing is how much of a role ethics should play in your stock selections.

Should you invest in companies that manufacture weapons? What about nuclear power? Alcohol? Gambling? Tobacco? Those are the “Big Five” in terms of ethical decisions. They tend to provoke the strongest emotions, and come up most often in discussions of ethical investing. But the list could go on and on. Should you invest in companies that have been fined for polluting the environment? Companies that have been sued for racial discrimination? Companies that don’t have women in key positions? Companies that do animal testing? Companies that sponsor sexually explicit TV shows or art exhibitions?

The world being what it is, too fine an ethical filter could quickly screen out almost every large company and many small ones. I tend to be tolerant of most vices in life, and also in investing. I am currently seeking out defense stocks. I’m eyeing at least one nuclear-power stock, and am favorably disposed toward gambling stocks. There’s no liquor stock I want to own, but if the numbers looked attractive, I’d buy one.




Smoke-Free Zone

In my personal portfolio, the only industry I won’t invest in is tobacco. Tobacco causes disease and suffering when used as intended, whereas most of the others cause problems only when they are abused.

Client portfolios are a different matter. When you are managing other people’s money, your job is to maximize performance. We don’t have any tobacco stocks at Dorfman Investments, but I’m on the stock selection committee for a money management firm, Dreman Value Management, that has tobacco holdings. As for performance, the 80 “socially responsible” mutual funds tracked by Morningstar Inc., the Chicago research company, returned 15 percent a year on average in the five years through October. That compares to an 18 percent return for all U. S. stock funds, and 26 percent for the Standard & Poor’s 500 Index during the same period.

At my firm, and many others, clients with their own separate accounts can specify whatever ethical restrictions they want. One of my clients doesn’t want to own weapons stocks. For her, I won’t buy stocks such as Lockheed Martin Corp., Litton Industries Inc., Cordant Technologies Inc. or Kaman Corp. But stocks of that type will be in many other clients’ portfolios.





Weapons of Defense

The question of whether military force can be used ethically is one of the oldest and most difficult in history. To me, Hitler and World War II are sufficient proof that maintaining a strong U. S. Military force is a moral act.

Some of my best friends disagree. To them, the ends do not justify the means. I asked one friend, who is a Quaker, what the U. S. should have done about Hitler. His response: “I don’t know. But I believe we should have found an alternative other than force.”

That is an intellectually honest position, but to me not persuasive. On the whole, I feel the world is a better place if the U.S. has rocket fuel (Cordant), defense electronics (Litton), and Seasprite naval helicopters (Kaman), than if we don’t.





Power Sources

Nuclear power is another issue that people feel strongly about. In the wake of Chernobyl and Three Mile Island, I can’t argue that it’s wrong to be concerned about the safety of nuclear plants. And yet, I believe people forget the hundreds of injuries and the massive pollution caused by oil-and coal-fueled electrical generating plants. Nuclear power, at least potentially, is a less polluting energy source than most of its competitors. The green so of cutting hack on energy use strikes me as misguided. Economic opportunity and social justice are much easier to achieve in an expanding economy. And an expanding economy virtually requires abundant energy.

Alcohol, to some people, is the worst villain. And yet, when the nation tried to ban alcohol during prohibition, the experiment proved a failure. I can’t resist adding that moderate drinkers have much lower death rates from heart attack than teetotalers. There are no liquor stocks I want to own presently. But at the right price, I would own one.




The Gambling Vice

Anita Green, the director of social research at Pax World Fund, the third-largest social responsibility mutual fund, recently referred to gambling as “a vice that inflicts crushing social costs on American society”. Noting that seven of the largest 20 mutual funds in the U . S. hold one or more gambling stocks, she suggests that investors pick a fund that has sworn to avoid them–namely, her own.

Gambling, which Green opposes so strongly, is to me a pleasurable activity. I go to the racetrack, watch the pageantry of the horses, jockeys and silks, and enjoy the spectacle more because I have a $ 2 or $ bet on the outcome. I enjoy spending a day or two in Las Vegas or Atlantic City. But I go only once every year or two, and set myself a limit of $ 50 or $ 100 a day. When that’s gone, I walk around and see the sights.

For better or worse, it appears that America is still moving in the direction of more gambling. So I think that casino and lottery stocks–issues like Scientific Games Holdings Corp., Mirage Resorts Inc. and Mandalay Resort Group–are good bets.

The impulse to invest ethically is praiseworthy, but I’m skeptical of “one size fits all” approaches to it. And I think anyone attempting to invest ethically should have respect for the complexity and difficulty of the task

Gap’s problem

For example, Pax World Fund, based in Portsmouth, New Hampshire, says it invests only in companies “that treat their employees, their environment, and their communities with respect”. I’m sure it makes every effort to do so, but in an imperfect world, these decisions get mighty tricky.

Pax World’s largest stockholding is Gap Inc. Friday, Gap (along with some other retailers) lost in its attempt to dismiss a lawsuit accusing it of selling clothes made under sweatshop conditions in the U.S. territory of Saipan. In August, four other defendants in that suit, including Nordstrom Inc. and J. Crew Group Inc., agreed to settle the claims against them by establishing a $ 1.25 million fund to monitor working conditions of their Saipan workplaces.

None of this necessarily means that Gap is a bad company, or culpable in the Saipan case. But it does illustrate the difficulty in making ethical investing decisions.







举个例子,派克斯世界基金,总部设在新罕布什尔州的朴次茅斯,说它只投资于那些“尊重员工,尊重环保,尊重社区”的公司。相信它是尽力这样做的,但在一个不完美的社会里,这些决策是非常困难的。 派克斯世界基金所持有的最多的股票是盖普公司的股票。周五,盖普(及其他一些零售商)输了一场官司,他们本想驳回被指控销售美国西潘地区血汗工厂生产的衣物伽诉讼案。8月,包括诺德斯道姆公司、J.克鲁集团公司在内的其他四个被告同意出资125万美元设立基金来监督西潘工厂的工作条件,以此解决向他们提出的索赔要求。


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