Socially Responsible Investing

The following excerpt is from the article Socially Responsible Investing: It’s a Sin:

“Contrary to that statement by the Nobel Prize-winning economist, companies are increasingly being judged not on their fundamentals, but on the morality of their business practices. In fact, investing based on the ethical merits of a company is arguably one of the fastest growing trends in the investment industry. So-called socially responsible investors put their hard-earned money to work only in a select group of companies that they deem morally worthy of their investment. So it’s clear that by limiting the universe of possible investments to only those that meet certain ethical guidelines, investors are constraining their performance. In portfolio theory jargon, this limitation results in a lower efficient frontier for social-based investors. In other words, the $2 trillion attempting to do well by doing good is, in reality, paying an ethical premium for average performance. In a world where money and returns matter, that seems criminal.”

Trend followers, like all great traders, take the opportunities that come along. If you refuse to trade a market for subjective moral reasons, someone else will trade and will make money.

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