I love getting comments from readers, especially when they challenge what I write or present another take on an issue. I got a very interesting comment from a reader earlier this week stemming from my Globe and Mail article about investment strategies. In the article, my love of tobacco stocks* is mentioned. Here’s what reader D. Warren had to say:
Without a doubt a thoughtful person such as you would debate in your own mind the issue of investing personal wealth in a big multinational tobacco company . How did you come to your apparent level of comfort? Not moralizing on you, but interested in hearing your take.
Also, do you think tobacco is a sound investment given all of the government-forced settlements that companies are likely going to have to enter into around the world ?
This is a question that I’ve received more than once. When I wrote about my strategies for weathering a bear market back in the Fall, another reader had a similar question. My response has always been this: tobacco companies sell a legal product to willing consumers in a highly regulated environment. In fact, with the possible exceptions of firearms and pharmaceuticals, I can’t think of another industry that faces the same level of state control and consumer protection mechanisms. Even with past and looming lawsuits, tobacco companies offer excellent returns and stability, and the contingency of litigation has largely been priced into the stock. Ever wonder what the single best performing stock on the S&P was in recent history? IBM? GE? Exxon? Coca Cola? Nope- according to JeremySiegel’s research, the best performer from 1925 to 2003 was none other than tobacco giant Philip Morris. It’s also worth noting that this period also saw the largest single civil settlement in American history, a whopping $206B paid by Big Tobacco to 46 American states. As you can probably gather, I have no objections to investing in tobacco and am not worried about continued profitability.
But here’s what surprises some people- I’m actually a big supporter of ethical investing, or “socially responsible investing”, as it is also known. When selecting companies in which to invest I not only look at financial data and earnings projections, but also at the products they offer and their overall social impact. I have a particular fondness for green investments (especially alternative fuels), and a distaste for tar sands oil projects. I also contemplated divesting my position in in Ford a few years back after it purportedly caved to anti-gay protests related to its advertising in gay friendly publications. While some investors dismiss ethical investing and focus solely on maximizing profits, I encourage people to research the companies they’re investing in and make decisions based on factors beyond the bottom line. So why the tobacco holdings? Put simply, I don’t see them as being unethical.
This highlights one of the problems with any meaningful discussion of ethical investing- ethics are highly individual and subject to much debate. Personally, I have no qualms about investing in cigarette companies and I have no moral objections to the sale of cigarettes. Others will certainly disagree. As a result, discussions of ethical investing are invariably complicated, and attempts at using blanket definitions are bound to failure. For example, the Jantzi Social Index (JSI ) is a Canadian index of companies deemed to be “socially responsible” according to a number of supposedly objective and empirical factors. Their website describes the process as follows:
For most issue areas, including aboriginal relations; community involvement; corporate governance; employee relations; environment; and human rights, the framework calls for a complete examination of each company’s performance record in that area, as well as an evaluation of each company’s record in these areas overall.
The JSI also incorporates several exclusionary indicators, which eliminate firms from contention regardless of what their record of performance may be in other areas. The JSI does not include companies that have significant involvement in:
- the production of nuclear power;
- the manufacture of tobacco products;
- weapons-related contracting.
Despite JSI’s attempt at objectivity, the ethics of those three disqualifiers are endlessly debatable. As I’ve already mentioned, the ethics of tobacco are far from clear cut, and nuclear power is not only deemed “acceptable” by many people, but has often been promoted as an excellent source of clean energy. Many would also question whether a blanket ban on “weapons contracting” serves any real moral purpose- there’s a world of difference between a company that manufactures land mines and one which makes hunting rifles, and a blanket exclusion accomplishes very little.
You’re probably thinking that I’m just delving into moral relativism. I’m not. I will gladly judge your decisions based on my moral convictions, and fully expect you to judge me based on yours. I just don’t think we’ll ever agree on what makes one investment ethical and another objectionable. Until someone can convince me otherwise, I’ll continue to invest in tobacco and enjoy the proceeds, and I encourage those who find this disgusting to pump their money into whatever they find appealing, like kittens and gumdrops and rainbows. 
Do you based investing decisions on ethical principles, or is profit your sole motivator? Do you think I’m a monster for investing in smokes? Leave a comment below to tell me what you think!
* I’d like to point out for the record that my favourite investment, Altria Group Inc. (MO) isn’t just a cigarette company- in addition to being the parent company of Philip Morris, they also own a huge stake inSABMiller, the beer company. Until 2007, it also owned Kraft Foods and Nabisco.
Photo by Carolina Hornig.
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{ 19 comments… read them below or add one }
No, I’m solely after the profit (or lack of it in some cases). If I were to justify it, I’m taking money from the bad guys and putting it into good things. Like gifts for my mum, donations to the WWF and purchases of bad guinness. However, I’m also married to a smoker who’s put countless thousands into the tobacky companies over the past twenty years so I should probably be buying a lot of smoking-related shares to get some of that cash back.
I thought your article was very well thought out until the last sentence in the italicizations and agreed with you. Too bad you felt it necessary to put that comment in it really took away from your position.
@guiness416 - That’s an interesting way to look at it!
@ Patricia - You’re right, and I thank you for calling me out on it! That last line was probably in poor taste, and I’ve gone back and removed it. I can admit when I’m wrong.
I can’t see how you can possibly consider cigarettes an ethical investment. Any product that kills people when used as directed is about as unethical as you can get in my books.
Like they say, hate the game, not the player. Cigarettes come down to choice. My mom is a smoker and I hate it. I’m def. not buying into the shameless antics of tobacco companies by buying the product. That being said, I do know that in other countries, people use tobacco with reckless abandon. Cigarettes made elsewhere are cheaper, less regulated and probably more harmful to the consumer. (Again, that’s their choice.) In those environments, there’s greater sales with less government taxation and inevitably less liability. (Smokers in other parts of the world are not going to sue the tobacco companies.) To me, its a good investment. I do own Phillip Morris stock and will probably hold on to it. Like guiness416 said, Im happy to divert my profits to a healthier lifestyle or for the benefit of the countless 401(C)3’s out there.
While I don’t necessarily agree with manyof your points, I do appreciate you mentioning that the parent company also owned Kraft Foods and Nabisco. There are many large, multinational corporations which own diversified shareholdings that include more unsavoury corporations. The problem with most of is that we don’t care enough to look behind the products that we buy too greatly, lest we be dissappointed/disillusioned.
I have no moral objection to buying non-IPO equities of tobacco companies. However, I would consider any other kind of involvement in tobacco to be morally despicable (including consuming the crap).
An individual choosing not to invest in tobacco because of ethics does little to solve the problem. The only reasonable solutions involve consumers making smarter purchasing decisions and the government gradually imposing more and more regulations and taxes. Yes, regulations and taxes sure do suck most of the time, but this is a case where I would welcome them.
There is a pretty good article related to this subject matter here: .
Of course a “money grubbing lawyer” wouldn’t see any ethical dilemma in investing in tobacco companies! You make some very well composed arguments (as a well trained lawyer would), but I’m not convinced that you believe in them yourself. Yes, it is a choice to start smoking, but the fact that it is highly addictive takes away (or at least greatly hinders) the choice to stop. The fact that it is legal and regulated does little or nothing to reduce the harmful effect that it has on the people who use the product, or their children who breathe in the second hand smoke. While I won’t go as far to say that you are killing babies, I will say that you are contributing to the overall problem. Oh, and the fact that Philip Morris owns a huge stake in a beer company is supposed to make me feel better? If someone in your family was an alcoholic or was killed by a drunk driver you’d probably feel differently. Ditto with Kraft Foods and Nabisco – Kraft Dinner and cookies really contribute to society! Don’t get me started on obesity and its effect on healthcare ? I admit that it would be difficult to find a perfect investment in this imperfect world, but I would steer clear of tobacco. Let’s not let our love of money cloud our otherwise good judgment.
Good points George, but just one question- what do YOU invest in?
Touché Albertan
I admit that my portfolio is lacking - that’s part of the reason I’m reading MGL (that and his wit). My limited amount of money is either sitting in an account or going towards my mortgage (not to mention paying down my wife’s student loan). I realise that it is hard to invest in something that benefits society, but I think that we can refrain from investing in those things that are a physical, economical, and emotional strain on millions of human beings. To profit from something that undeniably hurts someone else is the very definition of unethical investing. The highly addictive nature of tobacco products, along with the fact that it affects more that just the user is what makes investing in it so morally repugnant.
And just to add some fuel to the fire,
To all of you who think that you are Robin Hood – taking money from the rich bad guys and doing great things with it – this is not what is happening. You are supporting the “bad guys” and profiting from it. There’s a big difference. As Martin Luther King Jr. said, “Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity.” Also, “Never forget that everything Hitler did in Germany was legal.” Albeit, invoking MLK in this debate may be a stretch due in the context of his struggle and achievements.
Even if you give 100% of your profits to a worthy organization such as the WWF, which supports endangered animals, you are contributing to increase rates of cancer, COPD, emphysema, strokes, etc. of millions of people. If you limit your ethical investing to things such as “green technologies” you may be doing a nice thing for future generations, but neglecting the health and well being of the present.
George, it was tongue in cheek. Clearly drinking bad guinness is not beating the baddies. Unclench.
ha ha ha… well I thought that gifts for your mum was quite noble
However, I hope that she never finds out that they were purchased out of dirty tobacco money!!!
Did MGL really write: “…the ethics of tobacco are far from clear cut…” ??? Of course a commodity cannot have ethics, but I had to re-read that line because on the first pass I thought he wrote the ethics of tobacco COMPANIES are far from clear cut, i.e. one could defend the conduct of tobacco companies (as opposed to the mere sale of the commodity) on ethical grounds.
Line drawing is by nature a subjective exercise but is this really as fraught with subjectivity as MGL suggests? Can one merely raise an argument , such as the legality of the product, or are the ethics of propagating the associated miseries as demonstrably “far from clear cut” as MGL asserts? Aren’t we talking about nearly unmitigated economic and social harm apart from the economic activity connected with the cultivation, production, distribution and sale of the product itself? Can the decades long efforts of these companies in subverting the emergence of the truth about their product be seriously defended as ethical?
I’ll give MGL credit though… at least he’s open about his interest in the tobacco industry and willing to defend it (although in my opinion he doesn’t really confront the actual downside to this business). Most people don’t care what they’re invested in and are wilfully blind to what’s going on behind the nameplate as long as it generates returns. In my case, I bailed on a fund when I learned it took a position in a tobacco company. I try to keep my portfolio tobacco-free but I honestly don’t know how “pure” it is quarter to quarter. On the other hand, I am invested in funds that have significant positions in tar sands development, so I’m not lily-white by any means. But I sure wouldn’t put these businesses in the same ethical category as Big Tobacco.
Of course MGL states his own position in his unfailingly entertaining style. While I think MGL is stuck out on a very thin, withered and brittle limb in this case, he’s out there with his usual flair. Definitely on my list of the 10 people I would invite to dinner.
Wow, this is quite the interesting debate we’ve got going! Thanks to everyone who has posted an opinion. We may not agree on many (most? any?) points, but I appreciate the debate.
To pick on a few people:
@Dwight S. - Great point about digging a little deeper to see what you’re REALLY buying. Corporate structures are often quite confusing (and I suspect intentionally so), but it’s worth doing the research. Fans of 30 Rock will recognize this quote from fictional executive Jack Donaghy: “Oh no, no. GE could never make something so… unique. We’ll have to pass this off to one of our subsidiaries. [Jack rolls down a complex organizational chart] You see, GE owns KitchenAll of Colorado, which in turn owns JMI of Stamford which is a majority shareholder of Pokerfastlane.com which recently acquired the Sheinhardt Wig Company which owns NBC outright. NBC owns Winnipeg Iron Works which owns the AHP Chanagi Party Meats company of Pyongyang, North Korea, and they will make the Meat Machine.”
@Jason - Thanks for the comment, but it looks like the link you were suggesting got cut off. Care to post it again for us?
@George- Thanks for the very insightful comments, but killing babies? Yikes! Don’t blame objects for the actions of people who choose to use them. While I wouldn’t say that you’re being an apologist for and facilitating those who would abuse children and drive drunk, I will say that you’re contributing to the overall problem.
Again, thanks for being part of this discussion. While MLK might be a bit of a stretch here, you raise some interesting points!
@D. Warren- I’m glad that you decided to join in, especially given that it was your comment that inspired this post! Good catch on the tobacco / tobacco companies point; I would like to claim some sort of nuance here, but in reality it was just sloppy editing. Unless you think it was a clever or bright move, in which case I totally intended it.
With respect to my assertion that the ethics are far from clear cut, I agree that simply pointing to the legality (or illegality, as the case may be) isn’t conclusive, nor did I intend it to be. However, to claim that tobacco companies inflict “unmitigated economic and social harm” is a gross exaggeration and doesn’t do much either. Aside from the substantial economic activity associated with tobacco which you have already noted, and the $4 trillion or so contributed to government coffers, the fact remains that tobacco companies fill a strong demand for a product not from mindless automatons, but from people who demand the products being offered. I would not pretend for a second that there aren’t significant public costs associated with this, and I’m not naive enough to suggest that all tactics and methods employed by Big Tobacco over the last 30 years have been ethical or justifiable, but to claim unmitigated economic and social harm is pure hyperbole. What you’re really claiming is that the costs of tobacco activities far outweigh the benefits- an assessment that is necessarily subjective, as few of the aspects of this debate can be accurately quantified and there is little information available that isn’t heavily influenced by one side or the other. Even when a conclusion on this balance is reached, it requires another subjective assessment of where to allocate blame for these costs- do we blame the big, bad multinational company that manufactures and markets the product, or the stores that put them on their selves, or the governments that permit, encourage, and profit from sales, or the individual who chose to smoke despite knowing that it’s a bad idea? Do we blame Big Tobacco for the costs because it’s an easy target, or do we accept that it’s a much more complex issue that involves many layers of culpability and touches on the most fundamental philosophical and ethical questions? I know what decision I’ve reached, and I respect that you’ve reached quite a different one, but I suspect that anyone who can paint ANY ethical debate such as this one as being black and white just hasn’t looked hard enough at the real issues.
And on that note, each of the claims leveled against Big Tobacco can be leveled with equal weight against oil sands companies and a host of other industries as well, but I would again say that these are ethical decisions that aren’t clear cut.
You do raise an excellent point about knowing what you’re invested in. I don’t expect everyone to agree with my conclusions on what I find okay to support, and I encourage the debate. However, it is important to at least make a decision based on your own conscience rather than simply choosing to ignore and avoid the tough questions. I’m comfortable with the impacts my companies have on individuals and society as a whole- are you?
Finally D. Warren, I’ll gladly accept an invitation for any dinner party you may be hosting, provided that I can get a non-smoking table.
Again, I appreciate everyone who joined this discussion. I struggled with whether to post this topic because I knew it would be somewhat controversial, but I’m glad I did. Thanks for keeping the debate civil and well informed.
That was definitely an interesting read. FWIW, I do support ethical investing as well. I actually just volunteered at a fundraising event last week for a non-profit that pushes this as their primary agenda. However, I also like to invest in VICEX. It’s had terrible returns recently, though. It turns out vices have also suffered in the latest downturn.
This sounds like your kind of game - too bad it’s no longer available
“Apple withdraws ‘horrific’ Baby Shaker iPhone application”
http://www.telegraph.co.uk/scienceandtechnology/technology/apple/5207287/Apple-withdraws-horrific-Baby-Shaker-iPhone-application.html
The game was created by Sikilasoft - might be an investment opportunity!
http://www.nytimes.com/2009/06/13/business/13tobacco.html?ref=business