Socially Responsible Investing is BS Curreen Capital
Published on Aug 3, 2016
Socially Responsible Investing (SRI) combines investing with doing good – what’s not to like? Well… a few issues crop up when implementing SRI. As they say: many a slip twixt cup and lip.
0:03I’m out and I’m talking to somebody cool
0:05and they inevitably say, oh, you’re an investor.
0:09You must be into socially responsible investing.
0:12And I say, no.
0:16Actually, I don’t like socially responsible investing,
0:20as, you know, capital letter SRI.
0:22I don’t like ESG, the Environmental, Social,
0:25and Governance focus investing.
0:28And, it’s not because these are bad things,
0:30it’s not because I’m out there, you know,
0:32clubbing seals after work, like, that’s not what I’m into.
0:35The reason is, I think that people all too often
0:37wrap themselves in these flags of ethical/moral,
0:41and they use it to charge
0:43excessive fees for mediocre products,
0:47and worse than that, the people who get,
0:50you know, caught in these sort of traps,
0:52these sort of mediocre investments,
0:55are the good people, are the people with good hearts,
0:58good intentions, who want to make the world a better place.
1:01And it makes me mad, it riles me up,
1:04that you’re, you’re trapping the best people.
1:11So, what’s my beef with SRI?
1:13So, first off, what does it mean
1:15to invest socially responsibly?
1:17I know what it means.
1:18You know what it means.
1:20The labor unions know what it means.
1:22The religious groups know what it means.
1:24The environmental groups know what it means.
1:26But, they’re all different.
1:29We all have these different takes on it.
1:32And, if you’re into digital privacy,
1:33you’ve got a completely different take on it,
1:35and you won’t touch any of the stuff
1:36that the socially, the normal SRI funds are into.
1:40So, it’s like yes, there are things that I will not touch,
1:44there are things that I think are wrong
1:47and should be removed from this earth,
1:51but what I think doesn’t line up exactly with what you think
1:55and it becomes very difficult when we try
1:57to make an investment vehicle that follows
1:59the right path when it’s so difficult to know,
2:03what is the right path?
2:05So, that’s the first problem.
2:07Second problem are the fees.
2:09Because you’ve got a Vanguard fund
2:12that tracks a socially responsible index.
2:15You’ve got a BlackRock ETF
2:16that tracks a socially responsible index.
2:18But, my guess is, if you’re pitched
2:20one of these socially responsible funds,
2:22you were not pitched the Vanguard fund or the BlackRock ETF.
2:26You were pitched a fund with fees
2:29maybe one or one and a half percent above those every year.
2:33And, I’m not opposed to high fees,
2:36(I actually have a fund with high fees)
2:39I’m opposed to high fees when you don’t get value in return.
2:44So, high fees should only be accompanied by
2:47returns that exceed those of the index,
2:51otherwise why the heck are you with those things?
2:53And so the Vanguard fund
2:55seems to lag the S&P by a little bit.
2:58The BlackRock ETF actually seems to be pretty darn close,
3:01but they’re not beating the index
3:04by on return basis,
3:07so the value of our investment
3:09into socially responsible has to be made up somewhere else,
3:12so it’s in the fact that we are effecting positive change
3:16or maybe with the Hippocratic Oath,
3:19at least not doing evil.
3:21Like, we’re not making the world a worse place
3:23through our investment.
3:25My issue with these high fee funds
3:27is that, like, okay, I’m getting worse returns
3:31and where does my invested money,
3:34where does my investment
3:35into making the world a better place go?
3:38And I worry that some of it goes into a townhouse
3:42in San Francisco, or to pay for somebody’s boat,
3:46or, you know, private jets to fly around
3:48and give seminars about how good you can be
3:51if you invest in these things.
3:53And that just doesn’t strike me
3:55as the best way to put money towards
3:59making the world a better place.
4:02So, that goes sort of into my third idea
4:05which is that I don’t want to combine investing
4:10with making the word a better place with my money.
4:14I think when you put those two things together
4:16you get this sort of unpleasant compromise
4:19that doesn’t do either job
4:21as effectively as it could.
4:23So, I think if you want to make the world a better place
4:27you go into investing, you do that purely,
4:31you don’t buy stuff that makes you feel, you know, ill.
4:34But, you do a good job investing.
4:36And then you take the profits of that investing
4:40and you make the world a better place
4:42with targeted investments.
4:43So, what do you do with this investment framework
4:45if you want to do good?
4:46A, if it’s you, investing in stocks yourself,
4:49don’t buy stuff that makes you feel sick.
4:52Don’t be a part of something that you think is evil.
4:56B) if you have an investment manager,
4:57not only should they be someone you can trust
5:00to work on your behalf,
5:02and someone who knows what they’re doing,
5:05and actually can beat the market after their fees,
5:07but you also want to know that they have
5:09some sort of moral compass that
5:10you can feel good that, you know,
5:12they’re out there investing your money,
5:15not in stuff that will make you ill
5:18if you find out about it.
5:20C) but, for 95% of us, what should we do?
5:23Well, not me, because I’m in camp number one,
5:24but, so 95% of the people,
5:26what should they do,
5:27if they’re in an index fund?
5:30Like I said, take that money that you save
5:32by being in a low cost index fund
5:34and not, you know, subsidizing somebody’s lifestyle,
5:37even if they’re also progressive,
5:39you don’t have to subsidize their lifestyle,
5:43take that money that you saved
5:45and put it to good use.
5:46Like, calculate, okay, one percent of my money every year
5:51is being saved because I’m in this low cost fund.
5:54I’m going to take one percent of my money
5:56and I’m going to donate it to X charity,
5:58or X number of charities.
6:00Or, I’m going to install stuff that makes my life better
6:03like LED light bulbs everywhere in my house.
6:05Something that makes the world
6:06a little bit of a better place.
6:09That’s pure, that’s clean.
6:10Then you have solid returns
6:12and you’re making a positive influence,
6:15a positive impact in the world.
6:17You’re effecting positive change.
6:18You’re doing well.
6:20You don’t have to do that
6:21by buying this mediocre compromise of investment
6:26plus doing good.
6:29Like, you can vote with your dollars elsewhere directly.
6:34You don’t have to do it as part of your investment scheme.
6:37So, those are my thoughts on SRI investing.
6:41Why it makes me a little bit mad.
6:43Please leave a like
6:45and please leave some comments below.
6:49I read all of them and I do want to know what you think.
6:51Thank you so much.
6:52Also, after all this talk,
6:55I have to go donate some money to charity
6:57because I’m not a hypocrite.