Own No Evil

The ongoing BP disaster in the Gulf of Mexico highlights another argument for understanding what’s in your mutual funds. I don’t hold, or flaunt, many strong political views, but environmental causes are dear to my heart, and as the oil spill has continued to grow I’ve been reminded that if you don’t know what you own, then you don’t know what your companies are doing with your dollars.  I don’t trade actively enough to have instant recall of my holdings, particularly within my 401(k), so as news first broke of the Deepwater Horizon explosion, I went immediately to check my accounts.

Since nearly all of my individual investments remain in individual equities, my first move was to look into my 401(k)’s plan holdings.   My firm offered relatively few options, so I am split primarily in a handful of mutual funds.  As we’ve discussed, a quick way to check the top 10 holdings and industry stratification of any fund is through Yahoo! Finance (for example, here’s Fidelity OTC Class K ).  Taking a bit of time to research and and look up each of my funds, I was relieved to learn that none of my investments are concentrated in BP or other offshore drilling ventures, and further, that my industry exposure made even trace holdings unlikely.

Of course, with BP off about 35% since the explosion, there’s an economic element to my satisfaction.  I’d generally like to think any decisions I make about my investments assess business and financial risk rather than purely ethical concerns.   While there’s no room in a sound investing strategy to act emotionally, I sleep better at night knowing that achieving my investing goals doesn’t conflict with my convictions.

Photo by http://www.flickr.com/photos/ibrrc/ / CC BY-SA 2.0

John Prendergast John Prendergast is the co-founder and CEO of Blueleaf. He serves on the board of WiredTiger, a developer cloud optimized databases. He is also the founder and organizer of the Lean Startup Circle Boston. In addition to his decade and a half as an entrepreneur, John spent nearly a decade as an investment banker and financial advisor.
  • John Seiffer, Business Advisor

    I disagree. Unless you buy at an IPO the money you (or your mutual fund) pay for shares does not go to the company – it goes to some shareholder who is selling. It really doesn't affect the company's direction.

    In the aggregate the share price does because management's options and bonus and wealth are tied to the share price. But even if LOTS of people dump a stock for reasons that are political or other than financial, someone else with different views will buy them and you're likely just making that person richer.

  • John,

    I think you make a good point. The decision about whether to own or not own equities with moral implications that are out of line with your own is primarily a moral not economic one.

    That said, the impact of lots of people selling, particularly if they are institutional as in BP's case, can drive the share price down materially which in turn can make in more expensive to finance the business when a business relies on financing.

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