Dueling Fools: Socially Responsible Investing Bear Rebuttal

In my opening salvo in this SRI duel, I primarily focused on how the world's increasingly interwoven economy makes "socially responsible investing," for all intents and purposes, a purely arbitrary exercise. My distinguished opponent, fellow Fool editor Dan Caplinger, was not nearly as aggressive in his piece, instead choosing to highlight some of the best ways for investors to get involved in SRI.

Dan's piece will no doubt be embraced by many dueling voters. As you might imagine, however, I was not exactly moved to tell my grandmother we need to sell off her shares in Altria (NYSE: MO  ) and ExxonMobil (NYSE: XOM  ) and replace them with an all sunshine-and-rainbows portfolio.

Responsibly irresponsible
Not only do I think you should pass on SRI, but I'll also tell you that you can actually enhance your returns by seeking out "socially irresponsible" companies for your portfolio. The act of ignoring cash cows like Altria, Exxon, and Anheuser-Busch (NYSE: BUD  ) is itself deeply irresponsible.

Do you have a vendetta against your nest egg? SRI proponents must against theirs. How else could they deliberately steer clear of sinners like these?

Company

Return on Equity

Net Margin

Free Cash Flow / Revenue

ExxonMobil

35.1%

12.4%

10%

Diageo (NYSE: DEO  )

37.7%

17.4%

17.8%

Anheuser-Busch

51.6%

11.4%

12.1%

Simply put, by limiting the universe of stocks in which you can invest and excluding stud holdings like these, you're hindering your ability to choose long-run winners. If you love your portfolio, consider sin.

Cutting through the bull argument
In his opener, Dan made a point of highlighting a particular SRI fund, TIAA-CREF Social Choice Fund, as one that provides a low-cost entrance into the world of SRI. Dan pointed out a couple of companies in the fund's top holdings that stand out as pillars of social goodness, Johnson & Johnson and Procter & Gamble. Fine companies and investments both, to be sure, but what Dan did not discuss are the companies that are excluded from the fund.

Would you believe that last year, this very fund decided that Coca-Cola (NYSE: KO  ) was too irresponsible for inclusion? Coke doesn't sell booze, operate casinos, manufacture handguns, or develop next-generation superweapons. It sells non-alcoholic beverages. The horror! Can you imagine if some kid got a hold of one of those?

Apparently, just enough folks complained to the folks at TIAA-CREF that Coke should be excluded from the fund on the "basis" that many Coke products are pretty darn unhealthy. Seems too many kids have been drinking too much Coca-Cola. At the end of the day, though, who is responsible for the dietary habits of Coke-drinking children: Coca-Cola or the parents and children themselves?

How is it that Coke has been voted off the island, but Procter & Gamble, the maker of Pringles and Duracell batteries, is allowed to stay on as a key holding? Are there no kids who eat too many Pringles? Can you even begin to fathom the number of Duracell batteries thrown into landfills each year? Where on Earth do you draw the line?

The point is ...

You don't draw a line.
Socially responsible investing is not only done arbitrarily and wholly subjectively, but it can substantially reduce the number of investment opportunities from which to choose. At its core, SRI is not only impractical, but given the interwoven economy in which we live, it doesn't even exist.

Anheuser-Busch and Coca-Cola are bothInside Value recommendations, while Diageo and Johnson & Johnson areIncome Investor picks. Take a free trial to either newsletter to learn more.

Foolish editor Joe Magyer sins with the best of them. He does not own shares in any companies mentioned in this article. The Fool has a disclosure policy.


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