A few days ago I was surfing the ‘Net when I came across an article about socially responsible investing, or SRI. The guy quoted in the article — director of a funds management company — says that smaller companies focused on a single service — like sustainable living, alternative energy, etc. — are less likely to be involved in “big uglies” like the defense industry and oil.
Therefore these smaller companies are the ones he recommends to his clients.
“Big Uglies”? Getting behind companies you believe in is 100% Rule #1, but avoiding certain industries because of some arbitrary idea of right or wrong isn’t what Rule #1 Investing is about at all.
Truthfully, guys like this give me the creeps.
Investors and fund managers who preach “socially responsible investing” to others assume without the slightest hesitation that their view of the world is the “principled” or “responsible” view — and that anyone who owns a defense, oil or chemical company is, by definition, unprincipled or irresponsible.
But how can my choice be unprincipled or irresponsible if I do my own homework and make my decisions on my own, the way Rule #1 Investors do — after plenty of careful research?
How can someone who doesn’t know me speak for my principles — or Buffett’s, or yours?
One of my book’s editors owns oil companies and does so from her personal, principled point of view. She has a reason for wanting to own an oil company. Likewise, Buffett owns Coke — as a principled investment from his point of view.
When I argue for principled investing I do so based on the expectation that we can at the very least not be hypocrites to our own values.
If we believe as individuals that it is wrong to consume oil and gasoline and then we go drive a car that operates off gasoline, aren’t we being hypocritical?
Chances are, the guy who’s counseling other people not to invest in “big ugly” oil is driving a regular, non-electric car. (Hey: even hybrids still rely on gasoline.) He probably uses household chemicals from chemical companies to clean his tub and do his laundry, and for certain he lives without fear because the military exists to keep his borders safe. But he still insists on identifying big business and defense as “uglies.”
Does that make sense?
My feeling is that this particular view of “socially responsible” is just marketing hype for a specific set of ethics. It may or may not be “socially responsible.” Nobody can say for sure. Saying it’s so, doesn’t make it so. I really dislike this sort of logic.
Rule #1 Investors think for themselves, buy businesses they understand and believe in on a case-by-case basis, and don’t let others lump their choices together under a moralistic label that feeds upon guilt that may not even be appropriate.
The key is to not be a hypocrite.
Make decisions based on what you understand about a business. Not what others tell you is right or wrong.
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Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.