Can you make money by morally responsible investing?

I just read Good Returns by George Schwartz, President & CEO of Schwartz Investment Counsel, a registered investment advisory firm for endowment funds, foundations, and mutual funds (Ave Maria Funds).  Faith-based investing has been my passion for years so I was really excited to dive in and see George’s perspective.

In Good Returns, George lays out in great detail the methodology to produce excellent investment results without supporting companies that oppose your values.  One of the great distinctions that George makes is the difference between socially and morally responsible investing.  Many faith-based investors confuse these two forms of investing.  Many end up investing in a socially responsible fund when in reality they really wanted a morally responsible fund.

George wonderfully describes these differences:

“Socially Responsible Investment” funds tend to focus on the issues of the politically liberal lobby—screening out companies believed to be environmentally harmful, defense contractors, producers of alcohol, tobacco, and firearms, etc., and screening in companies that provide low-cost housing, promote gender equity and gay rights, etc. These designations are very broad and loosely defined.

“Morally Responsible Investing,” on the other hand, is a very specific approach to religiously based investing—one that is motivated by faith and is guided by a particular set of ethical precepts. It focuses specifically on making investment decisions that embrace key areas of human concern. Just because an investment plan has a religious flavor or touts a church connection, you shouldn’t assume that it is markedly different from the general run of “socially responsible” offerings. For the morally responsible investor, overshadowing every other consideration is the sanctity of life. This means screening out companies that make abortion-related drugs, publicly traded hospitals that perform abortions, companies involved in embryonic stem cell research, and companies that contribute to Planned Parenthood. The next consideration beyond the sanctity of life is the inviolability of marriage. Morally responsible investors screen out companies involved in the production and distribution of pornography. This includes most Hollywood studios and entertainment media and several publishers.”

Money & Morality

The book starts out with a discussion on money and morality with a scriptural foundation on why faith is so important in our finances. God knows what we view as most important in our lives.  His Word says, “For where your treasure is, there your heart will be also.” (Matthew 6:21).  Our money: bank accounts, investments, retirement accounts, etc is where many of us place our treasure.  Yet, only select few, examine where their “treasure” is being invested.  Do we as the Body of Christ want to be profiting from companies involved in abortion, pornography, gambling, tobacco, alcohol, embryonic stem cell research, homosexual activism, and entertainment that mocks Christian values to name a few?

George lays out his background and how he got started in the area of morally responsible investing (MRI).  Once a critic of MRI, he quickly became one of the strongest advocates of this method of investing, after a business meeting with Tom Monaghan, at the headquarters of Ave Maria Funds.  Tom, in case you weren’t aware, is an entrepreneur and conservative Catholic philanthropist and activist who founded Domino’s Pizza in 1960.  After this meeting, George was convinced that as a Catholic, investing in a morally responsible manner was not only what he desired to accomplish, he also felt an obligation to positively impact corporate America.  If he could get companies to stop funding and supporting abortion, how much of an impact could like-minded investors have?

Over the course of the next several chapters George depicts the history and accomplishments of the Ave Maria funds.  This includes background on his life as well as those around him which helped grow the organization to where it is today – with over 25,000 shareholders! There is also much discussion on how he selects investments, using a very similar approach to what we use at Faith-Based Investor.  When you look for companies that are morally and financially sound and trading at a discount to book value, it truly is a winning formula!

Throughout Good Returns, George strikes up a good balance of practical investment advice, scriptural references, political discussions (for example comparing Reagan and Obama), and how to build a solid portfolio.  Overall, I highly recommend this book.  It is a good read and offers a unique and refreshing look at investing.  It also brings in a much needed discussion of how we measure investment success: not only should we care about the amount of profit, we should equally care about the source of the profit! As we have seen with the performance of Schwartz’s track record, you can have BOTH morally sound investments and Good Returns!

I heard it again today!

Someone misquoted the Bible and said, “money is the root of all evil.” This is so far from the truth.  It is the “love” and “lack” of money that often lead to evil!

So much of our time is occupied by earning a living, it is difficult to keep our priorities straight. Someone expressed the dilemma in these terms: You can’t win. If you run after money, you’re materialistic. If you don’t get it, you’re a loser. If you get it and keep it, you’re a miser. If you don’t try to get it, you lack ambition. If you get it and spend it, you’re a spendthrift. If you still have it after a lifetime of work, you’re a fool who never got any fun out of life.

Money itself is morally neutral—it can be used for good or evil. The problem is caused by the love of money, not the amount of money you have (see 1 Timothy 6:10). We can be just as covetous and materialistic over a little as over a lot. People like Abraham, Joseph, and David showed us wealth does not always jeopardize a person’s walk with God. The real issue is attitude, not affluence.

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Jacob’s Dream

This week I was reminded of Jacob’s Dream found in Genesis 28.  “When he reached a certain place, he stopped for the night because the sun had set. Taking one of the stones there, he put it under his head and lay down to sleep.   He had a dream in which he saw a stairway resting on the earth, with its top reaching to heaven, and the angels of God were ascending and descending on it.  There above it stood the Lord, and he said: “I am the Lord, the God of your father Abraham and the God of Isaac. I will give you and your descendants the land on which you are lying.”

As I reflected on this passage I was reminded God is always with us. He always keeps His promises and will remind us.  We have the choice to make a promise to serve and love God in all that we do – finances included.  God is the owner of everything and we can either honor him or not when it comes to where and how we handle the money He entrusts to us.

The Parable of the Talents showed us that God cares about getting a return on His money, but a bigger question is shouldn’t we also care about the source of the profit? Over the past fifteen years, I have helped thousands of Christians align their faith and finances.  I am still amazed at how upset people are when they discover where their hard-earned money is truly going.

You probably don’t believe this, but if you have any money in five of the largest, most widely used mutual funds, your values are probably being violated. I extensively studied and examined 5 of the largest equity mutual funds (based upon the amount of money invested in the funds) and used software to analyze their reported holdings.  I found that on average 58.8% of the companies being bought failed one or more faith-based screens.

Now what is a faith-based screen?  Generally, most Christians will look at the following hot-buttons:

Moral issues:

• Abortion – such as companies engaged in the manufacturing, marketing, and licensing of substances used to voluntarily terminate pregnancy.
• Homosexuality Activities – such as companies that actively recognize and promote homosexuality.
• Pornography – such as companies involved in the distribution or production of adult-oriented publications, motion pictures, or television programs.
• Poor Human Rights – such as companies who have exposure in countries where there are poor working conditions, abusive practices, child labor, and violations of human rights.
• Embryonic Stem Cell Research – such as companies involved in using embryonic or fetal tissue cells in their research.

Social Issues:

• Alcohol – such as companies involved in alcohol manufacturing, branding, and wholesale distribution.
• Anti-family Entertainment – such as companies producing or marketing video, print, or live entertainment that is violent, vulgar, or mocking Judeo-Christian traditions or beliefs.
• Gambling – such as companies involved in the ownership and operation of casinos, gaming parlors, racetracks, online betting, or other wagering services.
• Environmental Record – such as companies ranked high for environmental damage through pollution, toxic emissions, oil or chemical spills, and high levels of waste.
• Tobacco – such as companies involved in tobacco manufacturing, wholesale distribution, and products used for tobacco consumption.

Worse yet, when I examined where the money specifically was going I found that:

• On average 19.7% of the companies in these mutual funds are involved in supporting Planned Parenthood, performing abortions, and/or funding embryonic stem cell research!
• On average 10.5% of the companies in these mutual funds are involved in producing, distributing, and/or promoting explicit sexual materials.
• On average 12.9% of the companies in these mutual funds are involved in producing, distributing, and/or promoting anti-family entertainment.
• On average 58.2% of the companies in these mutual funds are involved in offering same-sex benefits, and/or actively sponsoring, promoting, and endorsing homosexual activities.
• On average 1.4% of the companies in these mutual funds are involved in tobacco and alcohol production and distribution, and/or gambling.

Source: www.evalueator.com data as of 7-21-10

Investing with purpose

Here is a question to ponder: Would you purposely invest money in companies involved in any of the hot-button areas? After taking some time to examine this list of hot buttons, what issues, if any, most resonated with you? Are there any areas in which you wish to avoid investing in your financial life? If any of these issues ignite strong emotional responses, is your passion strong enough that you want to do something about it?

What if I told you that you could have your cake and eat it too?  What if you could own companies that were in line with your faith, values, and beliefs and still earn attractive rates of return?  This is not only feasible, but happening all over the world.

No proof exists showing screening your portfolio will harm or help your performance.   It simply comes down to picking great companies.  Yes, the faith-based screens will eliminate between 20 to 30% of the potential investment pool.  However with over 8,000 publically traded companies, you still have plenty of choices.  Will you find companies you are proud to own or keep doing business as usual?  The choice is up to you! With choices where your 401(k), IRA, or other investments go, wouldn’t you like to have peace of mind knowing your investments reflect your values?

A casual discussion gets heated quickly

Bettie and I were having a conversation when we turned to her most passionate subject – defending and protecting life. Bettie, a long-time crusader champions for unborn children all over the world who do not have a voice. She attends the pro-life rallies, gives generously to causes she is involved in, and actively participates at pro-life conferences, prayer assemblies, and board meetings. Don’t forget Betty’s bumper stickers!  For Betty, this has been her twenty year fight with many successes and failures!

However, little did Betty know she owns investments in the very same companies she spent twenty years fighting. Through her investment accounts which consist of both mutual funds and stocks, she found out she owns companies:

1. Making abortion drugs
2. Actively funding Planned Parenthood
3. Operating hospitals and abortion facilities
4. Electively providing insurance benefits to provide abortions
5. Engaged in embryonic stem cell research

To say, Betty was appauled would be an understatement. Betty didn’t care how small the ownership was in any of these types of companies. Her words, “I want no involvement in any of these life sucking companies. I want to be a part of the solution, not the problem”

How about you? Are there moral or social issues important to you? Do you care as much about the source of the profit as you do about the amount? I’d love to hear your reaction…

I am reminded of two verses:

“For there is nothing hidden, which will not be revealed, nor has anything been kept secret but that it should come to light.” – Mark 4:22

“For everyone practicing evil hates the light and does not come to the
light, lest his deeds should be exposed. But he who does the truth
comes to the light, that his deeds may be clearly seen, that they have been done in God.” John 3:20-21

Thoughts + Attitude = Outcome

Your thoughts and attitude reveal the answer to this question. Many people are willing to take risks when they are fairly confident they will win, but if they lose, then high risk wasn’t what they wanted. Many place too much value in risk tolerance questionnaires. They place too much weight on answering questions about risk then choosing investments based on a questionnaire.

This is a dangerous way to invest. This doesn’t mean considering you shouldn’t consider your risk tolerance. However, too many people rely on their tolerance when choosing their investments and do not know or understand what they are investing in. This is form of investing is gambling.

The key to avoid gambling is to fully understand any investment you make. If you have important financial decisions to make, it is prudent to seek sound financial advice from someone who can provide independent counsel and look at your interests first. Finding such persons is not always easy given the self-interests of many financial institutions.

Gambling in disguise

A lot of people think they are investing when in reality they are gambling. Many hand their money over to an advisor, money manager, or mutual fund company and have no idea where they are investing, yet hope for the best. Then if they lose a large portion of their investment they are surprised or disappointed. If you went to a casino and expect “luck” at the roulette table, you would also have to expect to lose money. When many invest, they turn to mutual funds and stocks hoping that the same type of  “luck” will make them a fortune. Yet they are surprised when they lose. Though I agree the odds are more in your favor in the stock market than at the casino, but this mentality is similar to that of gambling.

Become an investor!

Do you realize when you invest, you are investing in people? Even you think you are investing in a service, a particular stock, or mutual fund, you are actually investing in a company‘s integrity, its ability to create value, and the ability to bring their services/products successfully to the marketplace.

The product or service may be fabulous, but its success relies on its people. How many times have you seen companies lose money even though they have a fabulous product or service? This often happens because of poor management decisions, greed, or other inefficiencies. Though it is easier to make money with a great product or service, do not underestimate the importance behind the people managing as this will ultimately determine how successful your investment will be.  Are they upholding your values?   Do they understand your unique goals as a Christian?

How will you know what types of investments are right for you? Do you have passion, skills, and knowledge in regard to any particular type of investing? When you have knowledge and attitude for certain types of investments, the more you know the less it becomes gambling.

The line between investing and gambling is often blurred, but a surefire away to minimize it is to fully understand what you‘re investing in and why you are investing in it! Many blindly follow the advice of another professional‖ without researching what all of their financial options are. If you are going to invest, it is critical to take enough time to completely understand what you are investing in and why. That is why we started Faith-Based Investor, to take the time to research and find companies you can be “proud to own”!  By knowing our subscribers – devout Christians, we focus on finding companies that line up with their values and have great profit potential.  This, we believe, is a match made in heaven!

The Midas Touch
Have you ever met someone who just breeds success?  They look at an opportunity and instantly make a killing?  Not long ago, I met two brothers from the Midwest who fit this mold.  Tom and his brother Greg had the Midas touch! No matter where they invested, success was soon to follow. Their claim to fame started in the late 80s when they built a  manufacturing company. By manufacturing other company‘s products they found a way to avoid expensive research costs, yet reap huge profits. After a merger in 1991, Tom and Greg took all their sweat equity and walked away with nearly $100 million. I asked Tom about his philosophies and keys to being a successful investor. Here is what he shared with me:

1. Don‘t expect the market or an opportunity to give you a second chance. You have to seize moment and take risks. Not careless risks, but rather calculated ones that have a high chance for a payoff.
2. Take action on your gut or years of learned experience. Your gut will rarely lead you wrong.
3. Understand the upside (best case scenario) and more importantly the downside (worst case scenario) before investing a dime. Plan for the worst and hope for the best.
4. Disregard advice that violates your common sense no matter how eminent the source.
5. Read the annual and semiannual reports. Study before you invest. If anything doesn’t make sense, sell it or don‘t buy it.
6. Admit and correct mistakes—sooner rather than later.
7. Keep your own independent counsel of advisors.
8. Be skeptical, not cynical. Trust your own research.

Now coming from someone who‘s been there, done that, made a fortune without sacrificing his principles, I‘ll listen. Here is one class act who claims Jesus as his Savior and let‘s his walk do the talking. He is one of the most generous guys I know!

KEY INSIGHT
God calls us to a life of commitment to Him. Our finances reveal our commitments in life. Where we spend, invest, and give our money reveals our priorities in life. As we grow in our faith, we should long to have our finances line up with God’s word. This means that we need to make a commitment to Him to make changes in our lives. Over the next year we will look at various ways to combine our faith and finances. Your journey begins today. Make a commitment to God that you will seek to learn His ways.

“Delight yourself in the LORD and he will give you the desires of your heart. Commit your way to the LORD; trust in him and he will do this: He will make your righteousness shine like the dawn, the justice of your cause like the noonday sun.” (Psalm 37:4-6)