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Investing for Good

What I like about the condition of discussion on the merits of socially responible investing is its movement from the realm of the advocates to the ambit of economists, investment advisors and financial analysts . . . people inside the tent of corporate finance.


Lloyd Kurtz, for example, is senior portfolio manager, Nelson Capital Management and connected to the University of Berkeley's Haas School of Business. He writes clearly and non-dogmatically about socially responsible investing, in his words not a light topic. . . “Social investing isn't an easy subject to study. It involves management science, investment theory, and economic analysis.


Not long ago he reported on his own research into what makes a "responsible" company (in an effort to find a definition of corporate social responsibility). His model group ended up being big companies, usually un-unionized, mostly consumer-facing, with a strong brand as well as historical growth rates, reinvestment rates, and market expectations for future growth (P/E and P/B ratios) above market averages. (Responsibility pays?)


Recently he also posted that Steven Levitt -- he of the blockbuster, and eminently readable, Freakonomics -- has entered the discussion about SRI. To save you going to the full post  here is what Levitt had to say in his typically succinct manner:


"What’s totally obvious to anyone except an economist, probably, is that people aren’t good or bad. It depends on the circumstances that you put them in. And people can be very good if they have the right set of incentives in front of them, and they can be very bad when the wrong incentives are put in front of them. As an organization, you can come up with the right incentives, the right circumstances, to make people do the right thing, or to make them do the wrong thing.” 


Disciples of Milton Friedman . . . watch out.

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