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There is a basic problem with socially conscious investing. Let us take the Kantian/golden rule perspective and imagine that every "good" person invested with a

There is a basic problem with socially conscious investing. Let us take the Kantian/golden rule perspective and imagine that every "good" person invested with a social conscious and avoided evil companies. The stock prices of "good" companies would go up, and the dividend yield/return on investment would go down. Then bad people could invest in the evil companies and earn a much higher rate of return, because they would be under-bought, under-valued assets. In other words, socially conscious investing is a way for good people to allow bad people to earn more money. If you want to be socially aware with your money you can either a) own a normal stock index, but donate a share of the profits from bad companies to charity and/or b) boycott the evil companies as a consumer. Boycotting is the only way to actually hurt the evil company and prevent people from profiting from evil.

nickff 12y ago
You seem to assume that the companies are completely unaffected by their investors and share price. Companies issue securities for their own reasons, not as a way to distribute their earnings to a wide group of people.
VLM 12y ago
That seems to assume the market only exists to squirt out quarterly dividends for existing blue chips and never issue any new stock. The market as a whole is mostly driven by speculation (greater fool theory) and also hopes of capital appreciation and potential buyout. Who in our centrally controlled economy will be declared "to big to fail" and bailed out by .gov next, and how to profit off it. Also the higher priced stock will obviously raise more money if they issue new shares, and obviously an intense demand for ... car batteries made out of organic tofu plates and acai berry juice instead of conventional car battery sulfuric acid and lead plates ... will obviously IPO and raise funds if the stock prices of other "alternative battery companies" goes up. One of the competitors is Motif, which has an advertising message of speculating on one month return. Not annual, not the next quarter, speculation on ONE month. So discussing dividend yields is irrelevant to that class of speculator.
josephschmoe 12y ago
Few investors would give up diversification for potentially good profits on stocks that have been dropping like a stone. Also look at this from the company's perspective: companies, wanting high evaluations so they can sell off their own stock at a profit, might try to actively push themselves up the "moral index"/"popularity index" - that's a win for the common folk.
- alphagenerator 12y ago
  You're incorrect with regard to diversification. You can go short the good company and long equivalent bad company (or a basket of securities containing a bad company) and be more or less hedged until the premium for being a "good" company dissipates (and it very likely would.) You don't really lose diversification in this scenario, since you'd be able to construct a long/short basket that can have you market neutral with respect to systemic inputs to the valuations of both companies.
maerF0x0 12y ago
Assuming stock based comp means anything to executives, then a shift in market sentiment away from their stock (ie price decline) should help modify behaviour.
notahacker 12y ago
The bigger problem with trying to be socially responsible with investments in large public companies is that being large and diverse public companies they'll tend to all participate in activity with negative side effects if you look hard enough. For better or for worse, this seems to follow the PR spin: The sample portfolios give you Johnson & Johnson if you're against animal testing, even though despite PETA's best efforts they still do more animal testing than most companies. They give you Ford if you're against the bailouts their CEO lobbied for, though despite the publicity blitz associated with Ford not actually needing them they still took $6bn in government loans in 2009. And if you're against weapons and drone warfare they give you GE, which might have stopped loaning money to a few handgun shops in a public CSR gesture but couldn't really be much more critical to military supply chains, including specialised drone components

nickff 12y ago

You seem to assume that the companies are completely unaffected by their investors and share price. Companies issue securities for their own reasons, not as a way to distribute their earnings to a wide group of people.

VLM 12y ago

That seems to assume the market only exists to squirt out quarterly dividends for existing blue chips and never issue any new stock. The market as a whole is mostly driven by speculation (greater fool theory) and also hopes of capital appreciation and potential buyout. Who in our centrally controlled economy will be declared "to big to fail" and bailed out by .gov next, and how to profit off it. Also the higher priced stock will obviously raise more money if they issue new shares, and obviously an intense demand for ... car batteries made out of organic tofu plates and acai berry juice instead of conventional car battery sulfuric acid and lead plates ... will obviously IPO and raise funds if the stock prices of other "alternative battery companies" goes up. One of the competitors is Motif, which has an advertising message of speculating on one month return. Not annual, not the next quarter, speculation on ONE month. So discussing dividend yields is irrelevant to that class of speculator.

josephschmoe 12y ago

Few investors would give up diversification for potentially good profits on stocks that have been dropping like a stone. Also look at this from the company's perspective: companies, wanting high evaluations so they can sell off their own stock at a profit, might try to actively push themselves up the "moral index"/"popularity index" - that's a win for the common folk.

alphagenerator 12y ago
You're incorrect with regard to diversification. You can go short the good company and long equivalent bad company (or a basket of securities containing a bad company) and be more or less hedged until the premium for being a "good" company dissipates (and it very likely would.) You don't really lose diversification in this scenario, since you'd be able to construct a long/short basket that can have you market neutral with respect to systemic inputs to the valuations of both companies.

maerF0x0 12y ago

Assuming stock based comp means anything to executives, then a shift in market sentiment away from their stock (ie price decline) should help modify behaviour.

notahacker 12y ago

The bigger problem with trying to be socially responsible with investments in large public companies is that being large and diverse public companies they'll tend to all participate in activity with negative side effects if you look hard enough. For better or for worse, this seems to follow the PR spin: The sample portfolios give you Johnson & Johnson if you're against animal testing, even though despite PETA's best efforts they still do more animal testing than most companies. They give you Ford if you're against the bailouts their CEO lobbied for, though despite the publicity blitz associated with Ford not actually needing them they still took $6bn in government loans in 2009. And if you're against weapons and drone warfare they give you GE, which might have stopped loaning money to a few handgun shops in a public CSR gesture but couldn't really be much more critical to military supply chains, including specialised drone components