Are Your Investments Hurting Others?
I expect your immediate response is “of course not”. My next question is, how do you know?
I have worked with investor clients for 30 years. From my experience, I’ve gathered that clients usually rely on the recommendations of their advisor and know very little about where their money is invested. Most investment decisions are based on past performance of the investment and management team. I expect do-it-yourself investors to be no different. I think as investors, we assume that because a company is large enough to be public, they operate in an ethical and socially responsible manner and therefore do no harm. Unfortunately, that is not always the case. Here are three companies that may be sitting in your portfolio.
Dirty Digging – Activists have brought to light unscrupulous activity by resource companies in the past. Improvement in protecting the environment has resulted. Although progress has occurred, I spoke recently to a Portfolio Manager who sold a resource stock because of concerns over the safety record and human rights record of the company. They were able to acquire another stock in the same industry that met the manager’s ethical and moral standards and has a better expected risk-adjusted return.
Back Breaking Borrowing – You have likely seen a payday lender in your community- they are online as well. Folks who have financial challenges and/or poor credit often have no other choice for funds. Unfortunately, the system is staked against them. Rates are high and often the borrower is not able to make the payments, so a new consolidation loan is created. Add fees into each loan and the financial pain intensifies. It is not uncommon for the Average Percent Rate to reach 300% when the interest rates and fees are combined over the client’s history. The Portfolio Manager I spoke with about this stock showed the phenomenal return but refused to invest because he believed it was not a moral investment, and the company had a direct negative impact on human flourishing.
Betting on Profit – You can not watch any professional sports event without being inundated with commercials for online betting apps. A recent Advisor Course I took cited a US study looking at the impact of online sports betting in communities. They discovered that household bankruptcies rose 20% in States once it was legalized. The majority of these bankruptcies were in lower income neighbourhoods.
We can avoid hurting and pursue helping while we generate solid returns.
Let’s end on a positive. Our investments can harm others, or they can help others. And helping need not detract from performance. We can avoid hurting and pursue helping while we generate solid returns. The Portfolio Manager I mentioned earlier runs an investment strategy that is aligned with their values. They outperformed 90% of their peers over the last two years. Everyone won.
High Flying – This company transports medical patients from remote aboriginal communities for urgent health care. In addition, they use some of their profits for scholarships for aboriginal students pursuing careers in aviation and they look to employ these students after graduation.
I recently listened to an interview of a lady that was very blessed financially. She used her wealth to contribute to the lives of those less fortunate. As she became aware of the potential of doing harm, she dug into her investments in detail. Her conclusion was that all the good she was doing with her charitable efforts was being negated by the investments she held to fund her needs and philanthropy. She was actually net zero. She made sure that changed.
Here are some questions to ask:
- Does it matter how my investments generate a return?
- Do I have any standards regarding how I will generate a return? If so, what are they and how do I implement them?
- Do I want my investments aligned with my values?
- Does my current approach allow me to know if my investments are hurting others?
Our firm has intentionally sought investment advice and resources that will align with our clients’ values. If you would like to learn more, feel free to schedule a conversation.