Investing Returns: Virtue vs. Sin

Investing Returns: Virtue vs. Sin

By Ron Robins

I was recently asked to appear on a major business television programme to make the case for the virtuous, ethical investor. And an opponent was to appear to make their case for ‘sin′ investing. Unfortunately, the debate never occurred as the fellow who was to defend sin investing could not be pinned down for a show time.

However, thinking about the show spurred me to examine this subject and as to why I feel so strongly that the future belongs to the ethical, and shall I say, virtuous investor.

Of course the definitions of what actions are virtuous or sinful vary widely. But, for the sake of simplicity, I believe that what clearly enriches and enhances life is virtuous and that which creates death, suffering, and harms society, is sinful.

Tobacco—the classic sin industry
Consider the case of tobacco. In the past, tobacco was often considered a good stress reliever. In fact, that is still how it is sold today in some parts of the world.

Not long ago tobacco supporters reasoned that society benefits financially from its use. Smokers pay a lot more in taxes, and since they die earlier, do not make as big a drain on health care costs as someone living a longer life. Today though, we know the toll of this product on human life and its costs to society are immense. And therefore most countries are making substantial efforts to curb its use.

So even though tobacco companies continue to increase their profits, pay handsome dividends, and have held up well in these difficult markets, their future remains bleak.

Ethical investors consider wider effects of investing
Ethical investors mainly want two things. Firstly, they invest for profit. Secondly, they want their investments to create a holistically beneficial environment for themselves, their family, community and society.

Furthermore, ethical investors understand that when they invest in a company, (or many companies such as in a mutual fund, unit trust, ETF, etc.), they share in the responsibility for the activities of those companies as well as participate in the outcomes of corporate actions. Thus, their personal and spiritual development can be affected by what they invest in.

Investing returns
And concerning investing returns, most long-term ethical and socially responsible investing (SRI) studies generally conclude that there is no significant difference when compared to investing conventionally. Some actually show that you might do even better when applying your personal values to investing.

Now what about comparing returns of investments specifically deemed virtuous or sinful? Well one study published earlier this year by researchers at Germany′s University of Regensburg did just that. They found, “… that the risk-return characteristics of sin stocks are superior in comparison to regular stocks as well as socially responsible stocks.” Now I am not at this time going to critique the study. You can read it yourself and draw your own conclusions.

But what I will say in regard to this study′s findings—and of course ‘holes′ can be found in it as in any study—is that ‘past performance is not an indicator of future returns.′ This is particularly poignant when you consider the following points.

Countries around the world are creating enormous economic stimulus and investment packages that often focus on green energy and infrastructure. US President-elect Obama is promising an extraordinary package in this regard. A recent Reuters article quoted many ethical investment professionals in saying that such investments will be a big boon to ethical investment returns.

Furthermore, with runaway health care costs, societies everywhere will focus on reducing the principle factors contributing to ill health. Two key health concerns revolve around tobacco and excessive alcohol consumption. Therefore, governments are likely to further raise taxes on these products to reduce their use and thereby attempt to lower related health care expenditures.

Above all, I am of the opinion that we are evolving into a society that is caring “… deeply about ecology and saving the planet, about relationships, peace, and social justice, about self-actualization, spirituality, and self-expression.” This quote comes from sociologist Paul Ray. He is describing the ‘Cultural Creatives′ whose values he found in his sociological research. These values are increasingly coming to the fore in societies everywhere. In this environment, virtuous industries are likely to flourish much more than those of the sin variety.

Incidentally, have you seen how those gaming and casino stocks have been doing lately? As of December 12, the year-to-date results of the big US gaming fund, the Ladenburg Thalman Gaming and Casino Fund, was down 70%! Was not gaming supposed to be recession-proof?

The future will indeed be different from the past. And so are likely to be investment returns, which I believe will favour virtue over sin.

December 12, 2008

© Ron Robins 2008

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