I was 12 when my father first tried to interest me in the stock market. He quickly grew frustrated with me, because the only question I ever had for him was the following: "What does the company make?"
When real investors pay attention to this question, as they have in the wake of the Newtown massacre of innocents at Sandy Hook Elementary, things can get pretty interesting. Friday, the stock began to fall for the two public companies in the gun business -- Sturm, Ruger & Co. and Smith & Wesson Holding Corp. The pace of the selloff picked up on Monday. Then Andrew Ross Sorkin, in classic "follow the money" journalism, put the lens on the holdings of private equity firms like Cerberus Capital.
Among other investments, Cerberus owns "The Freedom Group" a holding company for Bushmaster, the manufacturer of the rifle used in the school mass killings, plus other manufacturers of armaments. This does not sit well with pensions that represent teachers, like the California Teachers Retirement System, which has a major stake in Cerberus. On Tuesday, Cerberus Capital pledged to offload Bushmaster and maybe other companies that make firearms.
When is it appropriate for morality and social concerns to intervene in the cold calculus of ROI? Or was this decision just financial realism working its magic?
Disinvestment, and its cousin -- using stock holdings to influence company policy by proxy --c came of age in the '60s and '70s in the civil rights era and then became a tool of those campaigning to undermine apartheid. It has been used since then to weigh in on a complex array of issues, from worker rights to climate. The work can take decades to be effective and often seems diffused. Many members of the Rockefeller family, heirs to the company that eventually became Exxon, made headlines in 2008 with a proxy battle over carbon disclosure, but failed to win necessary votes to force the issue. Yet, last month, a spokesman for Exxon, in the wake of Hurricane Sandy, stated that it is time to put limits on carbon. Public morality, or financial logic?
For decades, church pensions and mission-driven indices like the Domini Index have shunned guns and armaments along with tobacco and alcohol, which together are labeled the "sin stocks." Given the rapid change in the public mood about gun control, Cerberus Capital may view the decision to disinvest in Bushmaster as a financial decision more than a moral one.
I remember clearly when George Soros addressed a group of socially minded investors and entrepreneurs at a meeting of the Social Venture Network in the mid-90s. His belief then was that keeping his politics separate from his investing made sense. He had no screens on his investments, preferring to be an anonymous force in the market. Some investors like Jeremy Grantham, co-founder and Chief Investment Strategist of Grantham Mayo Van Otterloo, a Boston-based asset management firm with about $97 billion under management, are outspoken on the need for environmental regulation and contribute to candidates for public office who agree, but don't use their investment power to influence behavior. Grantham doesn't believe in disinvestment for a social goal. If he gets out, then someone else picks up the stock cheap. And so it goes.
Until the music stops, as it did this week.
With all due respect for Mr. Grantham, what choice do we have? "Follow the money," today, especially as regards the need for regulation of guns and assault weapons, also means understanding from where the National Rifle Association derives its financial heft. Were the NRA a transparent organization, I suspect we would find more gun manufacturers and others motivated by profit than real hunters paying the big bills on K Street. In the wake of this mind-numbingly sad week for our Country, we have a rare opportunity to drive change. We need to use every muscle we have.
The act of linking values and investing is available to all of us. We may never know if it really creates a tipping point, just as we don't know for sure if divestment in South Africa was the right strategy or made a real difference. But it's part of weaving the fabric of opinion that influences the behavior of some, and builds the convictions of others. In a world in which we wish there were something we could do to help the victims, taking the time to understand if any of your mutual fund investments are actually underwriting the NRA, then urging them to divest if the answer is yes, is a very good place to start.