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SoJust Skillshare: Socially Responsible Investing

August 5, 2013 the Nonprofit Center, Boston, MA

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Joby Gelbspan

Backgrounds in:• corporate accountability activism• financial analysis & investment management.

NOT an investment advisor, just here to share my skills and observations on this subject.

Reachable via Linked In or www.sojust.org

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Corporations are not Citizens*

• Although they have been granted “personhood” and a broad range of civil rights, corporations are not human

• Amoral, profit-seeking by law

• What is reasonable to expect?

* In common sense reality, not legal obfuscation

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How can an investor be “socially responsible?”

• Making choices that promote our values

• Financial privilege, obligates us to take ownership of the effects our decisions have on the broader society, present and future.

• Progressive investing means literally owning your privilege - taking control of your financial choices, and responsibility for their effects.

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Conscious ChoicesIndustry Exclusions– Pharmaceuticals– Prisons– Military Contractors

Corporate Behavior– Environmental responsibility– Policies on gender or racial discrimination– Best in class

Proactive Support– Community lenders, infrastructure– Clean energy– Social ventures, microfinance

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Terminology: Types of InstrumentsBonds Stocks

Corporate (or government) debt. A share of ownership of the company.

Lower risk, lower return. Unlimited upside, unlimited downside.

Returns interest and gain or loss on sale. Returns gain or loss on sale, and sometimes dividends.

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Drivers/RisksFixed Income

Yield determined by interest rates and the creditworthiness of the company.

Inverse to interest rate movements.

EquityCorporate performance

Industry and market trends

More volatility, larger potential growth

Yield determined by the profitability of the company.

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Terminology: Types of Investments

Individual securities (stocks or bonds) are sold by shares or dollar amounts.

Mutual Funds are companies that buy portfolios of investments and sell units which represent shares of the entire portfolio.

XYZ Fund My Share of XYZ Fund

Apple - $4M Apple - $400

Johnson & Johnson - $2M Johnson & Johnson - $200

Nestle - $4M Nestle - $400

General Electric - $10M General Electric - $1,000

Total Fund: $20M I have $2,000 in XYZ Fund

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Mutual Funds

• Types of Mutual Funds:– Equity: holds stock– Fixed Income: holds bonds or other types of debt– Balanced: holds some blend of the two.

• Funds require less ongoing monitoring, but won’t perform as well as good individual picks.

• ETFs are exchange-traded funds, usually following an index.

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Terminology: Market Capitalization• # Shares Outstanding X Price

• Small Cap: $300M - $2B

• Mid Cap: $2B - $10B

• Large Cap: $10B +

• “Mega Cap” newer, imprecise, > 100B

E.g. Wal-Mart (WMT) market cap > $258B

$469B revenue > the GDP of most countries

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Choosing a mutual fund

• Investment objective – e.g. international stock or exposure to a particular country or industry

• Fees vary widely between funds and make a big difference for your long-term returns

• Actively or passively managed (index funds)

• Tool to diversify your portfolio

• Look for the prospectus and holdings

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Public CompaniesPublic Companies are listed on stock exchanges, and are therefore subject to certain regulations and requirements.

Well-known example: the Dow Jones Industrial Average30 major corporations, including:

3MAmerican ExpressAT&TBank of AmericaBoeingCaterpillarChevronCoca-ColaDupontGeneral Electric

Johnson & JohnsonKraft FoodsMcDonald’sMicrosoftPfizerVerizonWalt DisneyWalmart

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Identifying Public Companies:Start with what you know

• Amazon• Google• Best Buy• Whole Foods• Green Mountain Coffee• UPS

Think creatively… and talk it through.

You should never invest in a company unless you understand the key factors driving the business.

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Investing for Value

• Long-term investing, buy and hold

• Seek investments where we understand the long-term value and are ready to commit to owning a share for appreciation over years.

• DIVERSIFICATION spreads your exposure to each investment’s individual risks.

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TIME & RISK

Time

Risk Return

• Two ways to make money in the market: time and risk.

• Higher risk = higher return. The price of the investment is more volatile over time.

• As long-term investors, time is on our side. We can afford short-term declines if we can wait for the right time to sell.

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Quick Sense of the Room

Raise your hand for the statement which best describes your investment goals:

• Saving for the long-term (> 5 years)

• Informing myself for when I have long-term savings

• Shorter-term goals: may need access to cash in the coming 5 years

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Asset Allocation: Rule of Thumb• Allocation between stocks, bonds and funds

depends on our two key factors: time & risk

• Standard rule of thumb: keep the same % as your age in fixed income. E.g. a 30 year-old would have 70% stocks and 30% bonds.

• Start conservatively, and spread your risks.

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But these are unusual times…

Today’s interest rates don’t yield enough to make investment attractive.

Stocks may still decline but many are underpriced right now.

Don’t buy and sell trends, make specific investments.

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THE FACTOR OF TIME

Long-term “buy and hold” investments

Over time, you’ll get used to the ups and downs and will get clearer about your goals

For now, make a couple of good choices, and try to forget about them

The most you should check your investments is about monthly

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Questions at this point?

Do we all feel comfortable with these basics first?

Next up: making politically-informed choices

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Conscious ChoicesIndustry Exclusions– Pharmaceuticals– Prisons– Military Contractors

Corporate Behavior– Environmental responsibility– Policies on gender or racial discrimination– Best in class

Proactive Support– Community lenders, infrastructure– Clean energy– Social ventures, microfinance

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Socially Responsible Investment Companies (SRI’s)

The SRI Industry has grown dramatically over the past 20 years, offering a broad range of products to suit different investment goals.

Examples of well-known SRI’s:• Domini• Calvert• Green Century• Pax• Parnassus• Walden

No longer a fringe movement: Today, approximately $3 trillion of the estimated $25 trillion US investment market complies with some SRI criteria.

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“Socially Responsible Investing”Pro’s

Investment Criteria, screensProxy votingShareholder “engagement”Strengthens progressive agents in the capital markets

Con’s

Underwhelming performanceFeesNo Fund will fulfill your definition of “responsible.”

Use these tools when they serve your plan, you still have to do your own homework.

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Shareholder Resolutions

• GMOs• Fracking• Board Diversity• Packaging • Climate change• Marketing practices• E-Waste• Stop political contributions

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Shareholder/Stakeholder Activism

Spring, 2013 actions at Starbucks and Goldman Sachs

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Researching Corporate Behavior

• Corporate Website and SEC Filings

• Organizations like ICCR and UFE: http://www.iccr.org/shareholder/trucost/index.phphttp://faireconomy.org/shareholder_activism

• In the digital age, you’re limited only by your search terms!

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Researching Corporate Performance

• Read the Financial Statements and Annual Report

• Investor section of the website• Yahoo! Finance or other investor coverage

(including historical price info)• Consider the industry and the long-term value

proposition• Assess the risks

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Whole Foods on Yahoo! Finance

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For More Info• Terminology / Glossaries:

– www.investopedia.com– www.investorwords.com– www.wikipedia.com

• Researching investments or markets– www.yahoo.com/finance– Bloomberg, other news agencies– Commentators and blogse.g. Motley Fool: http://www.fool.com/

• SRI’s– www.ussif.org– http://www.socialfunds.com/

• Refuse to be intimidated!

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…and as you continue researching and learning, please cast your vote for the 2013 Corporate Hall of Shame at

www.stopcorporateabuse.org