Social Investing and the Modern Market- Guest Post

A guest post from Ann Logue, author of Socially Responsible Investing for Dummies.

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Social Investing and the Modern Market

By Ann Logue

Social investing is a fine idea: investors get to flex their capitalist muscles to help fund companies that are changing the world while pressing companies that are a little less than perfect to improve their policies. As I write this, though, it’s early 2009 and capitalism is a mess. Businesses with great ideas are having a hard time attracting shareholders and lenders because everyone is so darn scared!

Of course, the name of the game is buying low and selling high, so a beat-up stock market can be a great opportunity to buy into companies that meet your social objectives and that also are likely to do fine once the economy settles back into its groove. How do you find these? Start by knowing what your social goals are: is your interest the environment? Human rights? Religion strictures? That will affect the universe of companies that you will want to look at.

Then, you want to go to the financial statements and news reports to see how the company is responding. Is it cutting back its work on green technologies in order to save money? Or is it expanding its efforts because it has some cash, sees where the markets are going, and knows that its competitors are a bit weak?

As a general rule, the companies that will get through this recession best are those that have little debt and a lot of cash and equivalents on their balance sheets, as those companies will be able to do the best. Likewise, families that have little debt and good savings will also fare better than their profligate neighbors!

If you aren’t up to doing the research on specific companies, the many socially responsible mutual funds and exchange traded funds are available at bargain prices because the securities in them have been beaten up. (There are exceptions, mainly funds that target Muslim investors and thus have no exposure to bank stocks. Alas, social investment is no protection against market forces.)

Finally, the low prices on so many stocks are going to force changes in transparency. The federal government, which has become a de facto shareholder in many banks, is raising questions about executive compensation. (Hint to CEOs: if your company needed a federal bailout, you did not do a good job.) Those hedge funds, private equity, and investment firms with money to invest may look at troubled companies and press for changes that lead to a more sustainable business for decades to come.

If you don’t have money to invest right now, at least pay attention: this bargain-basement market will create interesting events for socially minded investors who want to watch and learn.

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