Monday, May 12, 2008

Complete Idiots Guide To Socially Responsible Investing-- Ken Little Review

The Complete Idiot's Guide to Socially Responsible Investing Put Your Money Where Your Values Are, Penguin USA, c2008 is a very basic guide to socially responsible investing. Each chapter is a separate overview of a different subject in socially responsible investing.

The basic idea is that a person includes personal, ethical, religious, or moral values in their investment decisions. There are no standards set by SEC on this, nor is there certification required by brokers to determine whether or not a broker or mutual fund is truly socially responsible. It is up to the individual or the individuals advisers to determine if a stock, bond, or fund is telling the truth.

Socially responsible investing contrasts with the mainstream view that the only responsibility a corporation has to its shareholders is to make money for the shareholders. This is quickly changing with problems with globalization and environmental climate change. Business as usual is no longer the same. Detractors claim that socially responsible investing limit investors choices.

However, ethical choices are always limited. The main financial advantage which socially responsible investing gives is that it limits legal liability by investing in companies that have a good environmental record, positive labor relations, and positive community outreach. Often there is also a greater measure of "good will" towards companies with ethical business practices.

Another difference between the shareholder mentality and the socially responsible investor mentality is that the socially responsible investor is more likely to view themselves as a stakeholder in a company. This means they are more likely to use their proxy votes, examine corporate governance, CEO salary, and attempt to pressure corporate change.

Ecology is the main reason that I am interested in socially responsible investing. I look for companies that practice both sustainability and eco-efficiency. Eco-efficiency is the practice of reducing waste, increasing energy efficiency, and reducing material using. Short term, it costs additional money, but long term it reduces packaging costs, energy costs, and waste costs.

There are two types of screening for socially responsible investments, negative screening, and positive screening. Negative screening involves eliminating the option to invest in companies in four areas usually, social responsibility, tobacco and alcohol, the environment, and defense industries. Some people look for positive companies that impact these four areas as well.

The book unfortunately does not name specific companies with positive or negative screens. It is attempting to be neutral and not offend any specific company. On P.152 it gives an example of a recycling shareholder resolution for Apple computers.

There is a focus on mutual funds because a fund can screen many more stocks than an individual can. They also have the resources to look up and down the complete line of a company. This takes a lot of research. Because of this many Sociallly Responsible Investment funds have heavy loads.

This book covers all the different types of socially responsible investments. There are sections on community investment, venture capital investments, bonds, mutual funds, stocks, and other vehicles. A few interesting items mentioned were The Domini 400 Socially Responsible Index, and the ETF (exchange traded fund) Powershares, Wilderhill Clean Energy Portfolio.

The book does not list any individual stocks which is a disappointment. Nor does it make specific recommendations on mutual funds. There is a limited amount of places listed for finding information. A few of the websites listed are,, and . There is no bibliography for the book. However, there is a short list of resources, a few pages of glossary, and an index.

This book is a very basic guide to the subject. I learned enough to get a nice overview of what socially responsible investing was. However, I did not get many resources to help me with the process. I don't think this book will be very helpful to someone who already has a decent amount of experience with the subject. I also wish the author had not tried to be neutral. It would have been better if he was gung-ho and made many more positive recommendations.


Da Old Man said...

I like the idea for the book, but won't get it because, as you stated, I need specifics, not theory.

Good review, and I really like the blog. Very well written.

Book Calendar said...

That was my exact problem with the book. I am going to look at a few of the links from the book. Maybe they will get what I want where the book failed.