Imagine that there was a nice little murder-for-hire company listed on the stock exchange. Profitable with good growth, and trading at an attractive price. Would you buy shares? Most people would be repelled by the idea. Others feel the same way about investing in tobacco companies, arms manufacturers and casinos. Some have strong feelings about fossil fuels, pipelines and coal mining. Stocks are not just ticker symbols. They represent ownership in real companies that sell real products and services, and when we buy shares, we become, at least in some small part, responsible for the business. Once this thought is absorbed, decisions have to be made.
Those who cannot stomach the thought of investing in tobacco cannot simply buy a passive S&P 500 Index exchange traded fund. If they do, they will find that 2% of their money is invested in three large tobacco companies. Similarly, the major indexes in both Canada and the U.S. include other enterprises to which some object, including major manufacturers of weapons, operators of oil sands companies, alcohol merchants and casino operators. So what to do?
Baskin Wealth Management has a two-fold approach to this problem. For a start, we tell clients that we like to visualize the name of our firm above the front door of every company in which we invest our clients’ funds. If the picture makes us queasy, we don’t do it. For this reason, since the inception of the firm, we have never invested in tobacco, small arms, gambling or pornography. We just don’t want to be associated with those industries.
The second step is up to the client. We tell each new client (and we repeat this each year at our annual portfolio review) that because their funds are held separately, they can prohibit us from investing in any company, sector or industry which they don’t wish to be a part of. Over the years we have had many clients restrict us from investing in oil companies and pipelines. A few have shied away from the pharmaceutical industry. The point is that the client gets to choose where her or his money goes, and this is as it should be.
The idea of limiting investments based on ethical concerns goes under the label of Socially Responsible Investing. This is a growing area, particularly with our younger clients. In our view, it is another way in which active investment management can add value. If you have concerns about what is in your portfolio, give us a call. You shouldn’t own any companies that give you ethical qualms, and you don’t have to.