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J#29: In Life, as well as Investing, having a Clear Conscience is Key

Clear conscience - cover image

Socially Responsible Investing (‘SRI’) has seen global and large asset managers reduce their exposure to investing in companies that sell alcohol, tobacco, and guns.  We can see the effect of SRI in articles such as those here and here

What is that saying by Sir John Templeton?  “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude.”

I like to buy stocks when others are selling, especially when they give you a healthy and lucrative return in terms of dividends and potential capital appreciation. That’s why I see an opportunity in the SRI movement. But if I invest in tobacco stocks, does that make me socially irresponsible? After all, tobacco is a highly addictive product and causes major health problems to consumers and a heavy cost to society. Balanced against that, arguably, tobacco excise tax and duty are a very efficient way for governments to raise money to pay for things that benefit the whole of society.

Socially Responsible Investing (SRI) is defined by Investopedia as “an investment that is considered socially responsible due to the nature of the business the company conducts.” Accordingly, “Socially responsible investing includes eschewing investments in companies that produce or sell addictive substances (like alcohol, gambling, and tobacco) in favour of seeking out companies that are engaged in social justice, environmental sustainability, and alternative energy/clean technology efforts.”

Everyone has different value sets.  How investors define what is socially responsible will therefore vary from person to person. 

For example, sugar is also addictive. Recent studies have shown that it is as addictive as a “Class A” drug.  Moreover, addiction to sugar can lead to some serious diseases such as obesity and diabetes. By Investopedia’s definition Coca Cola and Hershey Company would not be socially responsible investments!

Marijuana is also addictive, but at the same it’s been proven to have some health benefits.

Depending on your own value sets, you can look at these investments either as a good or bad.

That leads us to the tobacco stocks I am planning to invest in.  Personally, I enjoy the odd tipple of whisky and my Cuban cigars.  If you ask me, I don’t find it harmful to consume these products in moderation.  Just like having a slice or two of chocolate cake now and then, it would therefore be hypocritical for me to exclude tobacco as an investment for the Fund. 

As I set up the Double Digit Dividends Fund, I have decided that it is acceptable to invest in tobacco, alcohol, and industrial mining stocks.  This is based on my value set, and leaves me with a clear conscience.

I am of the view that the jury is out as to whether thermal coal does indeed contribute to global warming compared to the environmental damage of a volcano erupting, the herds of cattle that emit methane, radioactive waste in a nuclear plant and those of electric cars that source their energy off the grid and the raw material mined to make their batteries.

I am therefore fine to investing in the above industries.

On the other hand, companies whose primary business is in military defense and gun/weapon manufacturers do not pass my personal moral standards. Therefore, the Fund will not invest in them.  Again, this is based on my own conscience as to what I am comfortable with and where I make my money.  I do shoot clay targets (and as a boy did hunt foxes and rabbits).  Guns and the potential to injure a human being are not my scene.  Military defence and gun/weapon manufacturers are off-limits in the Fund.

Naturally, and it should go without saying, we will not invest in countries that are run by despots and/or those with atrocious human-rights practices.

The above are my boundaries and what I feel comfortable with. I don’t know what your view is on this, but I hope we share the same values, should you decide to be an investor in the Fund.

Moving forward, I explored and found 41 other tobacco and tobacco substitutes (e.g. e-cigarette) companies that Double Digit Dividends shall be analyzing.  They are listed in the table below.  This list is by no means complete.  There may well be other names we are yet to find, but with 41 names listed in 14 countries, it is a substantial start.  The list excludes the stocks we already analysed in prior journals.

S/NoSTOCKSDividend YieldDebt to equityCountryExchangeStock Code
1IMPERIAL BRANDS11.9%0.43UKLONIMB
2BAT MALAYSIA10.3%1.45MALAYSIAKLSEBAT
3CEYLON TOBACCO COMPANY9.0%0.047SRI LANKACOLOMBOCTC.N0000
4ALTRIA8.6%8.59USNYSEMO
5BRITISH AMERICAN TOBACCO7.6%70.25UKLONBATS
6VECTOR GROUP7.2%-USNYSEVGR
7JAPAN TOBACCO7.2%36.6JAPANTYO2914
8UNIVERSAL CORPORATION6.9%35.84USNYSEUVV
9SCANDINAVIAN TOBACCO GROUP6.4%31.96DENMARKCPHSTG
10PHILLIP MORRIS INTERNATIONAL6.2%-USNYSEPM
11ITC LIMITED5.3%0INDIANSEITC
12KOREA TOBACCO & GINSENG CORP5.1%1.93KOREAKRX33780
13SCHWEITZER-MAUDIT INTERNATIONAL5.0%90.8USNYSESWM
14GUDANG GARAM4.9%-INDONESIAIDXGGRM
15KARELIA TOBACCO COMPANY3.6%0.19GREECEATHENSKARE
16PAKISTAN TOBACCO3.3%1.2542PAKISTANPSEPAKT
17VST INDUSTRIES2.9%-INDIANSEVSTIND
18BAT BANGLADESH2.9%-BANGLADESHDSEBATBC
19REYNOLDS AMERICAN2.8%3.33USNYSERAI
20GODFREY PHILLIPS INDIA2.6%-INDIANSEGODFRYPHLP 
21SWEDISH MATCH1.8%-SWEDENSTOSWMA
22KOTHARI PRODUCTS1.6%94.32INDIANSEKOTHARIPRO
23BAT UGANDA0.9%-UGANDAUSEBATU
24WISMILAK GROUP0.6%-INDONESIAIDXWIIM
25TURNING POINT BRANDS0.5%266.63USNYSETPB
26VAPE HOLDINGS0.0%-USOTCVAPE
27OMNI HEALTH0.0%-USOTCOMHE
28VAPORBRANDS INTERNATIONAL0.0%-USOTCVAPR
29HEALTHIER CHOICES MANAGEMENT0.0%-USOTCHCMC
30GEMINI GROUP GLOBAL0.0%-USOTCGMNI
31GILLA0.0%-USOTCGLLA
32VAPOR GROUP0.0%-USOTCVPOR
33SMOKEFREE INNOTEC INC0.0%-USOTCSFIO
34VAPOR-HUB INTERNATIONAL0.0%-USOTCVHUB
35WHITE FOX VENTURES0.0%-USOTCAWAW
36VPR BRANDS0.0%-USOTCVPBR
37BENTOEL GROUP (BAT INDONESIA)0.0%-INDONESIAIDXRMBA
38WEE-CIG INTERNATIONAL0.0%-USOTCWCIG
39GOLDEN TOBACCO0.0%-INDIANSEGOLDENTOBC
4022ND CENTURY GROUP0.0%-USNYSEXXII
41NTC INDUSTRIES0.0%-INDIABOM526723

Most of the data for the above table is sourced from Reuters.  I have written and provided examples that, 3rd party data providers, such as Reuters, do sometimes publish incorrect data.  The yield and debt leverage numbers in the table above therefore needs to be checked against original source documents such as the company’s announcements to the stock exchange and their published annual reports.  This cross-checking process can uncover inaccurate reporting and potential investment gems for us. 

A MESSAGE FOR MY CHILDREN

Socially Responsible Investing leads me to a broader and important theme that your Dad would like to share with you.  That is the importance of having a clear conscience in whatever you do.  Having a clear conscience is far more wide-ranging that just being applicable to investment decisions.

There are difficult decisions in life you will have to make.  For example, to commence legal proceedings, and to start, continue or end a business or personal relationship. 

In Shakespeare’s Macbeth, Lady Macbeth starts to sleep walk and obsessively washes her hands to alleviate her guilty conscience over her role in the treacherous murder of King Duncan.  She starts to hallucinate that there is blood on her hands and whilst she physically tries to wash them, she says her famous words:

“Out, damn spot! Out I say!”

Such are the dangers of going against your conscience.  In the extreme, if you are unsure that your actions and decisions were sound, there can be implications to your mental well-being!

If you Google “How to Make A Hard Decision”, there is a lot of advice and techniques recommended such as here and here.  Ultimately, I have found your decision-making process on what you will do flows easily simply by having the objective that whatever to decide, you must have a clear conscience as the final outcome.

This process may take some time.  It may be a series of decisions you have to make and evaluate the outcomes.  Not until then, and only then, will you be able to reach a final decision as to whether you did the right thing or not. 

It is not an easy process and one from which you will learn a lot about yourself. 

An integral component, and the first step, is to first evaluate your own actions.  You also have to remember that to other people what you may be doing or have done could be perceived as wrong. But that does not make them right.  It is our responsibility—with the help of our parents, guardians, teachers and mentors–to establish what is right and what is wrong.

Once you have assessed yourself, you need to see where you have gone wrong and whether you are a victim of your own self-deception.  We can again turn to Shakespeare in Hamlet where Polonious, giving advice to his son Laertes, states:

“This above all: to thine own self be true,
And it must follow, as the night the day, Thou canst not then be false to any man.
Farewell, my blessing season this in thee!”

Where you have done wrong, the best course is to apologise and fix it immediately.  You can and do have full control of this process. 

To apologise requires strength in character as it bruises the ego.  You will be surprised at the number of people who simply cannot say “I am sorry” and immediately take steps to rectify the situation.  Rather, an easier route for them is through the art of manipulation, lying and self-deception.  Worse still, this is coupled by the insidious practices of gaslighting and physical intimidation.  How does Elton John’s song go … “Sorry seems to be the hardest word.”

As the world reflects on Donald Trump’s presidency, he has become a poster-boy of an example of having a fragile ego.  Sorry and admitting he was wrong and not being able to admit defeat in the last election are general symptoms of what is likely a personality disorder that gets in the way of his day-to-day decision making and life. 

What causes this?  Who knows; but President Trump’s niece, Dr. Mary L Trump, who is a clinical psychologist provides a great deal of insight in her book “Too Much and Never Enough.”  It is a book about President Trump’s childhood and the actions of his father towards him. 

There is a lot of literature on the importance of the ability to apologise and how to do it.  They are freely available on the internet.  “To thine own self be true” is a very important process for you to gain a clear conscience.