The Market Doesn’t Give Bonus Points to Martyrs

Advertisement

The good news is, someone on Wall Street finally managed to prove that not everyone working in, around and for the capital markets industry is a heartless, greedy son-of-a-@#$%.

The bad news is, this person who almost became a beacon of humanity and humility within the world of wealth creation might have undermined his message with a delivery that came across as … shall we conservatively say “over the top”?

Most of you will already know the Wall Streeter in question is Ronnie Moas, the founder and director of research Standpoint Research who raised eyebrows earlier this week with his soapbox moment during a CNBC interview. The topic? A deeper and more passionate explanation of why he downgraded Apple (AAPL), Amazon (AMZN) and Philip Morris (PM) because these organizations and/or the people who run them are morally bankrupt.

Seriously.

Moas stated, “For Apple Computers to pay their (overseas) workers $2 an hour while they have $150 billion in the bank is nothing short of obscene. I heard all of the arguments in their defense and they make no sense to me,” and added that Philip Morris “has the black lungs and blood of 500,000,000 people on their hands.”

You get the idea, but if you have to see it for yourself, here’s a portion of the rant.

To be fair, Moas is right — corporate greed and feelings of entitlement have gotten out of control, to the point where crimes aren’t actually seen as criminal by those committing them. Moas’ stance, however, overlooks a key reality that even the most moral of investors can’t sidestep.

Slim Pickings

Kudos to those who prefer to invest in conscientious corporations that treat their employees fairly. Indeed, it’s a rare investor that actually puts people before profits. And contrary to popular belief, limiting a portfolio’s holdings to faith-centric and socially responsible businesses doesn’t inherently mean sub-par performance.

On the other hand … if you think you’re changing the world by refusing to own stocks that treat people or the environment with little to no respect, you’re not.

See, the odds of finding a single investment that doesn’t have some sort of ugly side are effectively nonexistent.

Take the Parnassus Workplace Fund (PARWX) as an example. The fund’s mission is to only invest in companies that are known as a “good” place to work. Admirable, right?

Problem is, one of the fund’s biggest holdings is Capital One Financial (COF), which caters to — and some would say abusively so  — consumers with weaker credit scores, charging them astronomical interest rates (even by credit card standards). And, let’s not forget that Capital One was forced by the Consumer Financial Protection Bureau in 2012 to refund $150 million to some cardholders because the company was deemed to have used deceptive marketing practices. A great employee environment clearly didn’t mean a lot of respect for customers.

What about a faith-based mutual fund like those offered by GuideStone Funds? The GuideStone Funds family is a group of “Christian-based, socially screened mutual funds for individual and institutional faith-based investors.” Surely this family of funds would be safe for even the most morally conscious investor to wade into, right?

Maybe. Maybe not.

The GuideStone Equity Index Fund (GEQZX) is designed to simply mirror the S&P 500, by owning roughly 490 of those stocks. Its biggest single-stock holding is, incredibly enough, the same Apple that Moas was trashing on Monday. It makes one wonder what GuideStone is actually doing — if anything — to weed out the questionable companies for at last some of its key funds.

There’s Always More to the Story

Does ethical investing get any easier when an investor is willing to ferret out individual stocks that meet a strict set of standards? Not really. There’s a lot of conflicting — and missing — information to contend with.

Take, for instance, the aforementioned Apple. Yes, Moas argued that some of its partners’ employees in China might only make $2 per hour, which translates into $4,000 per year. The host of the interview suggested the figure was closer to $700 per month, as FoxConn pledged to pay its workers pay the end of 2013 as part of a promise to improve overall working conditions. At $700 per month, the average FoxConn worker is earning $8,400 per year.

Both figures still sound amazingly low by U.S. standards, but what Moas didn’t add is that, in China, the average annual income is right around $8,000 per year. In other words, if Apple’s partners are treating employees unfairly, most any company that uses Chinese suppliers and assembler are just as guilty.

Thing is, they’re not. Comparing China’s wages to American wages isn’t an apples-to-apples comparison. Life still is tougher there than it is in most other developed nations, but the cost of living is significantly lower in China relative to life in the United States.

At the other end of the spectrum is Riverbed Technology (RVBD) — the top holding in the Parnassus “Good Place to Work” Fund. And it really is a great place to work.

Problem: The stock lost 7% of its value in 2013, while the broad market gained 30%. Respectable company or not, RVBD was a lousy investment last year.

Bottom Line

The headache for investors with a strict sense of morality is clear … it’s nearly impossible to be fully effective in terms of results while simultaneously limiting yourself to responsible and 100% virtuous investments.

Oh, it’s an admirable goal. It’s just out of reach, largely because there’s always proverbially more to the story.

In other words, this game is hard enough as it is when you’re not forced to make morality judgments. It becomes exceedingly complicated for an ethics-stickler in an arena that primarily exists to produce profits. Both qualities can co-exist, but it’s going to be more than a little messy. Accept it.

And if your big gains in that questionable company are bugging you that much, just donate your profits to charity.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/01/ronnie-moas-sell-ratings-on-morality/.

©2024 InvestorPlace Media, LLC