OK, so the CEO of Barilla pasta made some comment about not liking the facts that gays can get married. So you boycott Barilla. How do you know the CEO of Jasmyn’s Organic Crunchy Granola isn’t a closet racist? Or that he hates straight people? Or gays? Is your arbitrary line set at having to know about the person’s prejudice to trigger the socially irresponsible claim?
The Chick-fil-A controversy revealed that for every person who boycotts the company over the CEO’s views on gay marriage, there were others who supported the view, and his right to express it. You ate at Chick-fil-A before, but now you won’t because he engaged in free speech?
What kind of morality encourages people to shut up?
SRI Fallacy Bomb No. 3
You can never verify whether a socially responsible investing mutual fund would or would not perform better than any other mutual fund, simply because of the alleged socially responsible activity of the companies held by the fund.
That’s because you cannot control for the socially responsible elements. Just go back to the arbitrary rules for what constitutes being “socially responsible.” How do you determine how a given company would have done had it not implemented these already arbitrarily chosen guidelines? Or more succinctly, how do you know whether SRI caused a stock to outperform or underperform?
I could throw a bunch of stocks into an index and call it socially responsible. Let’s see — Starbucks (SBUX), Whole Foods Market (WFM), Tim Horton’s (THI), and Bank of Montreal (BMO).Then I’ll stack those up against those evil terrible corporations like Walmart, McDonald’s (MCD), General Electric (GE) and JPMorgan Chase (JPM).
Starbucks and Whole Foods are considered socially responsible investments, but they’re also great companies that sell expensive products. How does each factor into the returns? On the flip side, Walmart isn’t an SRI stock, but its long-term returns blow away every stock I just mentioned.
Business and capitalism are amoral. That is, they are devoid of morals, which is different from immoral, meaning having bad and destructive morals.
If you try to tie your investing cart to morality, you are going to be led astray by emotion and fallacy. Investing is about fundamentals and earnings growth. The sooner you accept this, the better your returns will be.
Lawrence Meyers is a proud owner of SBUX, WFM, GE, and a host of really evil, profit-driven, minimum-wage-paying, overpaid-CEO-run companies.