A RECENT ARTICLE on HumbleDollar, which detailed the economic and moral shortcomings of commodity producers, reminded me of a conversation I had in 2004. I was in my study reading Security Analysis or watching The Sopranos—it was a little while ago—when I heard a knock at the front door. I opened it to find an earnest but scruffy sandal-wearing young man trying to raise funds for the Sierra Club.
He quickly segued into blaming oil companies for the devastation to Mother Earth. When he paused to take a breath, I mentioned that I just happened to work for Exxon Mobil.
“Sorry to hear that, as you’ll be out of a job soon, when Exxon Mobil goes out of business,” he said, and then quickly walked away.
While I appreciated his youthful enthusiasm and impetuousness, I didn’t appreciate his lack of manners or his salesmanship. Why couldn’t he focus on all the good that the Sierra Club was doing—saving the bald eagle, arranging hikes in Shenandoah National Park and all its other kumbaya activities—instead of dumping on the way I supported my family?
I also didn’t appreciate his forecasting ability. It’s now almost 20 years later, and Exxon Mobil is doing okay. There have been tough times, but the company is still a going concern.
That brings me to the recent HumbleDollar article written by John Goodell. John laid out economic reasons to avoid commodity producers. Now, avoiding a company based on economic analysis is a mainstay of investing, though I’ve never known anyone who could do it reliably. Making the right call on an entire sector seems even more difficult to pull off, especially one as diverse as the natural resources sector. How can you lump companies in such diverse industries as oil, gypsum, lead and diamonds into one homogeneous rock?
The article also mentioned morality as a reason for not investing in the mining sector. My response: The buying and selling of mining company shares on the secondary market has zero effect on the underlying business. If everyone who owned shares in Hindustan Zinc or China Molybdenum sold their shares today, the mining conducted in Rajasthan or Xinjiang would continue tomorrow just the same. I can understand not buying newly issued stock or bonds from Bougainville Copper. But once they start trading on the Australian Securities Exchange, that ore train has left the station.
Also, if you’re upset by the mining conditions in South Africa, West Virginia or Bougainville, then you must be outraged by companies that peddle cancer, cirrhosis, alcoholism, handguns and obesity to teens, the mentally ill and the rest of us. So out goes tobacco, liquor, beer, firearms, and food and beverage. And don’t even get me started on investment banking or cable business news. When it’s all over, what’s left? Beyond Meat?
All that said, the conclusions reached by John and me are the same: Invest in broadly diversified index funds. I recommend John invest in the Schwab Total Stock Market Index Fund (symbol: SWTSX), which has 6.8% of its assets invested in the energy and materials sectors—and then donate 6.8% of his gains to the Sierra Club.