Dueling Fools: Socially Responsible Investing Bear

You wake up, clean up, dress up, pack up a vegan lunch, stroll out to your Toyota Prius, and drive on into your job. You have a seat at your desk and get immediately to work -- checking your personal email, the latest in celebrity gossip, and your brokerage account. You look at your 25% allocation to "socially responsible" mutual funds and pat yourself on the back for not supporting soulless corporate fat cats such as Wal-Mart (NYSE: WMT  ) , ExxonMobil (NYSE: XOM  ) , or Microsoft (Nasdaq: MSFT  ) .

Reality check
But the clothes you wore to work were probably stitched together by a 14-year-old in a sweatshop. The vegetables that comprise your lunch were organically grown, but a huge amount of non-renewable energy was used to transport them across the country to your local grocer. The tires on your hybrid aren't exactly biodegradable. The largest holding in your socially responsible investing fund? One of its key suppliers made quite a bit of money selling napalm.

SRI: It's all relative
Americans are quite accustomed to three activities involving major corporations: enjoying the improved standard of living they provide, working for them, and complaining about them. We Americans are world-class hypocrites when it comes to corporations and the benefits they provide us. We think animal testing is wrong but are loath to settle for anything less than the latest generation of pharmaceutical products. We shake our fists at Wal-Mart, with annual revenues that exceed the GDP of Saudi Arabia, while enjoying not only their everyday low prices, but also the process improvements they continue to pioneer that have lowered prices for all consumers and raised our collective standard of living.

Our willful blindness to recognize the influence of major corporations on our daily lives and the ties between those corporations has helped to spawn a new concept: socially responsible investing. SRI seeks to balance the clearly quantifiable -- investment performance -- with "social good," which could hardly be any more subjective or relative. Not only is "social good" incalculable, but no one can even agree on what the "good" part is supposed to include. SRI investors who base their investment decisions on environmental impact probably have a very different idea of "social good" than does the faith-based SRI investor.

Wake up and smell the "fair trade" coffee
Unfortunately, the American public and a growing percentage of investors are coming to believe that corporations have responsibilities beyond their shareholders. They don't. Corporations don't have friends, faith, or feelings: The sole purpose for a company's existence is to make money. Providing employment and an improved standard of living for consumers are merely byproducts of this greater goal.

Perhaps even odder than the growing falsehood that corporations are supposed to do anything other than create value for shareholders is the idea that investors can clear their conscience and stick it to The Man through SRI. In doing so, investors completely neglect how one company, which may be deemed socially irresponsible, can be a frequent business partner of one that is typically warmly regarded as corporate teddy bear.

Don't believe me?

Doublethink in action
Consider Income Investor pick and the aforementioned former producer of napalm and Agent Orange, Dow Chemical (NYSE: DOW  ) . The same SRI funds that skip over Dow oftentimes happily invest in companies that rely heavily on the use of some of Dow's 3,100 different products. How many companies that make the cut as being "socially responsible" rely on Dow's products? Should companies who use Dow as a supplier also be deemed "irresponsible?" Should their suppliers? How far do you extend this "logic"?

Many Americans consider diamond exploration, mining, and trading company De Beers to be a monopolistic exploiter of the Third World poor. Yet few seem to have qualms over owning diamonds or investing in any number of manufacturing firms for whom diamonds are an integral part of their processes. Have you ever pondered the question of whether an industrial or manufacturing firm in your portfolio relies on diamonds?

It's your money, but they want it to be theirs ...
There are a lot of people out there pushing SRI, and many of them have a vested interest in doing so. These are the people making money by managing SRI funds and selling ad space on their SRI-focused websites. Despite their high-minded talk, their motives are far from purely altruistic. Further, since these managers can't point to any sort of long-term historical data to support the idea that cute and cuddly firms outperform so called "sin stocks," they rely on shame as one of their primary marketing tactics.

They can stuff their shame. The firms that everyone loves to hate are the interconnected workhorses of our economy. All firms in our economy, including the saintly ones, either directly or indirectly benefit from the goods and services provided by "socially irresponsible" firms -- as do you.

Don't fear Wal-Mart, Microsoft, Big Oil, or Big Tobacco: Embrace them. SRI fund managers may not thank you, but your portfolio will.

Wal-Mart and Microsoft are bothMotley Fool Inside Value recommendations, while Dow is an Income Investor choice. You can try any of our newsletter services free for 30 days.

Foolish editor Joe Magyer does not own shares in any companies mentioned in this article. The Fool has a disclosure policy - absolute and unyielding, unlike so-called "socially responsible investing."


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