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As a somewhat-left-of-center environmentalist, I'd like to believe in the idea of socially responsible investing. But I just can't get behind the notion that by investing in equities of a socially responsible company (whatever your own definitions or criteria might be), you are in any way "helping" or "supporting" that company. A purchase of stock (whether by an individual or a mutual fund or pension manager) is a transaction limited to the buyer, the seller, and a little off the top to the broker. Not one penny goes to benefit the business itself.

The only way I see to help these companies is by buying their products or services. If I buy $10,000 worth of stock in, say, a company that makes solar photovoltaic systems for homes, I am paying off the previous owner of those shares, and I will hold it until I sell it to the next owner. The only impact to the company is now they have a different address to send the annual report to. On the other hand, if I spend $10,000 to buy a solar system from that company, I am immediately impacting their bottom line and the environment as well. So it seems to me that it through the consumer and business market, rather than the stock market, that holds the only real potential of supporting these companies.

Anyway, I'm not really raring for a debate here. I'd really like to believe in the concept of supporting business with investment decisions. It's just that apart from IPOs (when venture capital really is being raised by the company), I don't see any value in pursuing this concept with stocks. Is it primarily a symbolic gesture, or is there some value that I'm not realizing?
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I also wonder if social investing is a symbolic gesture. I feel naïve to hope that if I sold my 10K of irresponsible company X and others sold theirs and the price dropped over time, company X wouldn’t have as much stock capital to grow and wouldn’t be able to cause as much damage. But the company would probably never realize its downfall was due to socially minded folks seeking SR alternatives.

I agree that buying environmentally friendly products or buying services instead of products may better serve the environment and the economy and encourage/nudge those companies not on the green bandwagon to get on it.
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I feel naïve to hope that if I sold my 10K of irresponsible company X and others sold theirs and the price dropped over time, company X wouldn’t have as much stock capital to grow and wouldn’t be able to cause as much damage.

But that just will never happen. Even if you were able to convince all of the 50% of investors who shared your values to do the same, that would only cause a temporary dip in the share prices. Which of course would lower the PE ratio of the company and make it all the more attractive to the rest of the investors, who would bid the shares right back up. Inevitably, the market, the economic cycle, and the company's business model would assert themselves.

Not only does selling shares of bad companies not hurt them in any way at all, but buying companies of "good" companies does not help them either. The demand for their products is the only real way to influence companies in either direction. "Socially responsible investing" hasn't accomplished on iota of real-world influence. But successful consumer boycotts have saved rainforests and endangered species, closed down sweat shops, thrown pollutors out of business, and have changed the practices of repressive governments around the globe. In fact boycotts are so successful and so powerful that it's hard to imagine why this tool is not utilized more often by advocacy groups.
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[5000fingers:]Even if you were able to convince all of the 50% of investors who shared your values to do the same, that would only cause a temporary dip in the share prices. Which of course would lower the PE ratio of the company and make it all the more attractive to the rest of the investors, who would bid the shares right back up. Inevitably, the market, the economic cycle, and the company's business model would assert themselves.

As (as believe it was you) noted above, when you buy or sell shares, you are not buying or selling them from the company, except in the rare case of a new issue. So the company is not a party to the transaction, directly, that is.

BUT - the directors and top management ARE big stockholders, and a large enough selling pressure on the stock will hit them right where they live - in the value of their shares and related stock options. The big problem is that not enough people will SELL over social issues, that I could ever tell. SRI may be reflected more than we realize in people's decisions not to buy, but I don't know how you could ever measure that.

Not only does selling shares of bad companies not hurt them in any way at all, but buying companies of "good" companies does not help them either.

Well it's the flip side of the selling argument. Buying "good" companies rewards management, and other pre-existing shareholders, as it impacts the value of their holdings.

"Socially responsible investing" hasn't accomplished on iota of real-world influence. But successful consumer boycotts have saved rainforests and endangered species, closed down sweat shops, thrown pollutors out of business, and have changed the practices of repressive governments around the globe. In fact boycotts are so successful and so powerful that it's hard to imagine why this tool is not utilized more often by advocacy groups.

Huh? My observation is that of all the boycotts that have been started, very few have accomplished much. Most of them have been started by unions, whose influence decreases daily. SRI hasn't done much either, but only because so few people have tried it. And again, we don't know that precisely, because its biggest effect may be reflected in decisions not-to-buy.

Bill
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At the scale of the average individual investor, I don't think there is any influence one way or the other on stock price or company operations by buying or not buying--and whatever effect there might be would only be temporary, as was pointed out.

However, the story doesn't end there. While the actions of the investor may not have any influence on the company, they do have an influence on the investor him/herself, and that's where the real story is. Do you want your wishes aligned with higher tobacco profits? Higher oil company profits? Or not? Or do you care (i.e. "If it's legal, it must be OK, I'll invest in it, and let the US Congress choose my morals and values for me")

All of our actions go into making up who we are, and who we are influences those around us as well. It may not be directly observable or quantifiable, but it's real nevertheless. Who do you want to be? Your actions can help take you there...or not.
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In fact boycotts are so successful and so powerful that it's hard to imagine why this tool is not utilized more often by advocacy groups.

Huh? My observation is that of all the boycotts that have been started, very few have accomplished much. SRI hasn't done much either, but only because so few people have tried it.


Surely you can't be serious. You've never heard of the Montgomery Bus Boycott, which ultimately led to sweeping civil rights reforms in this country? Or the boycott of the Nestle Corporation, which led to sweeping changes in how infant formula is marketed to third world countries? The table grape boycott, which led to sweeping changes in farm worker's rights and conditions? The tuna boycott, which led to sweeping reforms in fishing practices and the Dolphin Safe label? Ever hear of Mahatma Gandhi? South Africa and apartheid?

Sure, you could point out that the majority of boycotts called for by this organization or that organization have not succeeded. But only because their cause didn't strike a chord with people, or it wasn't publicized very well. And in these situations, certainly SRI would be even more impotent.

Imagine you had a fantastically, phenomenally successful boycott of Mobil/Exxon. Say, for the purpose of discussion, you got fully 50% of all stockholders in that company to sell their stocks over the span of a year or two. Two things could happen. Most likely, these sales would likely have very little impact on the share price. However if they did, that would only lower the P/E ratio of the stock, making it all the more attractive to other investors who didn't want to punish this particular company for whatever its evildoings may be. So then the stock price gets bid right back up, and all of those directors and top management people you mentioned aren't the slightest bit impacted by the most successful SRI boycott imaginable.
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While the actions of the investor may not have any influence on the company, they do have an influence on the investor him/herself, and that's where the real story is. Do you want your wishes aligned with higher tobacco profits? Higher oil company profits? Or not? Or do you care (i.e. "If it's legal, it must be OK, I'll invest in it, and let the US Congress choose my morals and values for me")

That is an excellent point, and probably the strongest argument in favor of SRI that I've ever read. When I buy a company's stock (unless I'm buying it short, of course), I automatically start identifying with and hoping for that company's success and growth. And you're right, I don't want Philip Morris to be successful. That's a very good point. I just wish it were presented that way, so that people understood the limitations of what they were doing, and don't start thinking that the concept of SRI is a substitute for direct action. I wonder how many people wouldn't touch oil company or Haliburton stock, but still drive their SUVs to work every day.
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Your points are interesting about individual investors avoiding companies whose actions clash with that person's values. But even if I kept ironclad rules about avoiding stock purchases of, say, tobacco companies, chemical companies, or any company I feel is damaging the environment or hogging resources, I most likely STILL would not be able to avoid them if I am in any way connected with large mutual funds.

If I am indexed in a mutual fund, or if I participate in any type of retirement plan, I am most likely holding those types of companies, like it or not. If you check the top holdings of any of the biggest equity funds, you'll find many of the same companies represented; Exxon-Mobil and Altria (formerly Phillip Morris) are on countless Top 10 Holdings lists.

If institutional investors like state pension funds or huge mutual funds like American Funds have holdings that approximate the Gross National Products of small nations, what can you or I expect to accomplish with our few dozen or few hundred shares? Not much. In fact, we are more than likely even benefitting from the actions of these companies - enjoying the fruits of capitalism if you will - if our IRA's are growing as time goes by.

I think if you disapprove of what any company is doing you are better off participating in media campaigns or with a group of people that feel the same way as you do. You are much more likely to have an influence that way. If you feel that strongly, go pass the bar exam and do some pro bono work. Or be the next Mr./Ms.Smith who goes to Washington.

Companies do feel the sting of criticism - Wal-Mart, Nike and McDonald's come to mind. Some companies seem to get away with murder (Union Carbide, Dow Chemical and Blackwater). And some, like Enron, through sheer greed and rapaciousness just self-destruct.

One thing is for certain: We could use more representation at all levels of our political process for working/middle-class Joes who so often seem to have been elbowed out of it all.

Cheers.
Jim
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Jim wrote: One thing is for certain: We could use more representation at all levels of our political process for working/middle-class Joes who so often seem to have been elbowed out of it all.

When those who called themselves capitalists, but were corporatists (protected from capitalistic pressures and many government pressures) brought the world the Great Depression, the people spoke up and unions gained power, social security protected the little old guy and lady.

Since the days of Ike, there has been a consistent thrust to undo new deal protections set up by democracy and the little guy. Milton Freidman and his Chicago Revolution tore up Chili, and is responsible for the lax rebuild, you can say RAPE of New Orleans.

These neo-liberal, now known as neo-conservatives have been at it for way too long. America works best and is great BECAUSE the little guy stood up to the fief lords. A blend of capitalism and protections for those who cannot care for themselves, ie social security is what works best.

Damn, I need to get off this thing, I get so mad.

michael
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"Or the boycott of the Nestle Corporation, which led to sweeping changes in how infant formula is marketed to third world countries"

This really has nothing to do with owning company stock...it has to do with activism and popular attention to company products. This may or may not have any effect, depending on the company. Nestle and Gerber are quite sensitive to this...whereas Exxon and MO likely couldn't care less.

But the OP'er is very observant and unlike most liberal minds, is actually thinking this through.

Owning or not owning a company's stock has NOTHING to do with their ability to make a profit...and it is the company's profit that determines whether they will continue to operate to provide their product or service. Buying or not buying their product has EVERYTHING to do with it

On a personal note, I hope there's a special place in hell for the managers of MO who added small amounts of ammonia to tobacco to increase addiction. But my feelings belong on the side of social activism, not portfolio management.

SRI belongs in the category of faith-based investing: it has nothing to do with investment return.....it has to do with what 'feels' right and what one's conscience will accept.

BruceM
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