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September 27, 2010

Money matters: Invest in God or Satan?

http://www.jewishjournal.com/blog/item/money_matters_invest_in_god_or_satan_20100926/

It was two years ago that the credit crisis culminated in the collapse of Lehman Bros., the annexation of AIG and the massive bailout of commercial banks. What followed, what Pat Robertson sort of predicted, was the ugliest recession this country has known since the Great Depression, and the pain rippled across the globe. Not the least throughout the Jewish community (read: nonprofits, Bernard Madoff and anti-Semitism).

The recession is officially over, and the American economy is purportedly on the up and up. But the stock market still is nowhere near its 2008 peak (though it’s nice to own some shares in Apple) and unemployment remains at 12.4 percent in California and only a bit better nationally.

With that on my mind, I came across this Moneybox article at Slate. It asks, and attempts to answer, a novel question: “Who’s a better investor, God or Satan?

Morally, that would seem like an easy question. Than again, money has a way of obscuring morality. But Daniel Gross explains that in the quarters preceding 2005, God and Satan were both outstripping the S & P 500. At least if God was represented by the Ave Maria Catholic Values Fund and Satan by the Vice Fund. Gross wrote:

As of June 30, the Vice Fund’s $42.5 million in holdings were divided among gambling, booze, and defense stocks (about 25 percent each), tobacco stocks (15 percent), and a bunch of randoms. It’s easy to see why Playboy Enterprises and Rick’s Cabaret International Inc. are here. But Berkshire Hathaway, run by the abstemious Warren Buffett? And Microsoft? Maybe Warren Buffett and Bill Gates gamble when they play bridge.

How is it that both funds have walloped the S&P 500 and the vast majority of other mutual funds in recent years? Is it that investing in vice, or virtue—as defined by the Catholic Advisory Board—is a better investing discipline than looking at P/E ratios and charts? Perhaps. The folks managing these funds have clearly been good and judicious stockpickers.

But both funds have been well-positioned to outperform the market in recent years. Think about it. Aside from the ever-growing gambling market, vice gets you defense (supported by huge military budgets) and noncyclical consumer goods like beer and tobacco—all three of which were laggards in the go-go tech- and financial-services-dominated 1990s, but which are booming now.

The Catholic Values Fund is benefiting in a different way. Consider which companies and sectors it excludes because of its screening criteria. In 2003, 40 percent of the Fortune 500 offered benefits to domestic partners, according to the Human Rights Campaign. So, for the Values Fund, there is no Microsoft, Citigroup, General Electric, Cisco, or Dell—none of whom have done particularly well since 2000. And the fund’s morality has helped it avoid altogether some sectors that have done poorly in recent years—entertainment, media, newspapers, technology, advertising, and pharmaceuticals. Meanwhile, its screening criteria made it more likely to look at less-progressive companies in thriving sectors such as raw materials and energy. Following either the Vice Fund or the Catholic Values Fund in the 1990s would have been a mistake. And given the trend toward providing benefits for domestic partners, the Catholic Values Fund will find itself with a smaller universe of stocks to pick with each passing year.

The Vice Fund and the Catholic Values Fund have both outperformed the S&P since their inception, though the gap has been closed in recent years. Generally, though, it looks like as long as investors picked a side, they were bound to see a healthy return.

That adds a new dimension to the Apostle John’s message to the church at Laodicea:

These are the words of the Amen, the faithful and true witness, the ruler of God’s creation. I know your deeds, that you are neither cold nor hot. I wish you were either one or the other! So, because you are lukewarm—neither hot nor cold—I am about to spit you out of my mouth.

The image above is from the first season of “South Park,” in which Satan comes to Earth to box Jesus, and then bets on Jesus, takes a dive and wins all the townies’ money. You can watch that clip after the jump. It’s a reminder that my favorite show sure has gotten a lot better:

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