Ethical Investing

Our reader Howard P asks our thoughts on ethical investing. In particular in the student admission scandal now playing out.

As some of you know the founder and CEO of Hercules Capital (NASDAQ:HTCG) has been charged in the university admission scandal. He has now stepped down as CEO and Chair. The business development company has a couple of baby bond issues outstanding.

As everyone knows we don’t do politics on this site–for obvious reasons. Additionally I don’t think that generally doing much about ethics is really what this site is about. But I will give my opinion–and others can chime in with comments if they desire.

We invest to try to make our 7% annually and we do not take into consideration any individual “bad actors” within a company. I distrust everyone equally. I have commented before that with business development companies, for instance, their assets are mostly “trust me” assets–level 3–can’t observe the values directly and you have to “trust” management to do their job, but I am under no illusion that all their numbers are correct.

We have seen bad actors in many companies. Recently CHS had a bad actor which caused a $190 million write down–I bought one of the preferred issues after this was known.

We have seen plenty of bad actors in Wells Fargo. I have a bigger concern with Wells Fargo as there seems to be a “culture” that permeates the company as a whole.

I suppose someone could brand tobacco and liquor companies as a whole as bad actors. We don’t invest in them, but only because they have nothing available to help meet our needs.

The one area I don’t invest in and wouldn’t invest in is the marijuana business. I would be a hypocrite if I invested here because of my own position on this topic in Minnesota (Minnesota just shot down any chance of legalization of marijuana for this year). I am torn on this subject–I can’t reconcile the anti-smoking campaign over the last 50 years with legalizing the next “smoking”. On the other hand filling jails with folks because of marijuana possession is kind of silly.



19 thoughts on “Ethical Investing”

  1. Here is an informative read from EIX (Southern Ca. Edison) CEO about current state of Uteville in CA.
    https://www.latimes.com/business/la-fi-southern-california-edison-sce-wildfires-climate-change-20190313-story.html
    SCE was just found having its poles being reason for the 2017 Thomas Fire this afternoon. SCE must have been preparing for it because they just a couple weeks ago took an almost $2 billion charge to earnings this past quarter. Assuming that was just first of more charges to come.
    I am all out of SCE preferreds now. I just recently sold the D and C series after barely getting 20 cents a share on trade and they largely were down most to the time I went in on this fourth round. I think I squeezed as much out as I can. I am still holding a smaller amount of the L series recently bought again right before exD. Not presently looking to join General Custer here for this battle.

    1. Aplatowski, Look just below the header. “xxx thoughts on “READER INITIATED ALERTS”” click on “Newer comments”

  2. Mr. Lucky tipped me off on MBFIO. This security is being delisted as 5th Third St is acquiring them. Sell off appears to be from being delisted. 5th Third St is a stronger rated financial entity so this should help. MBFIO has been dropping since announcement came out earlier in week. Who knows when selling will be subside, I went ahead and got in today. Remember the company is not going private. It is under 5th Third St now….Something to ponder if so inclined.

      1. So if they are delisted and no longer trade – how would one easily dispose of them in the future should you want to jettison them from your portfolio? Seems like the buyers would have to be the type that watch for this type of limited trading activity.

        For 6.00% QDI, my personal preference would be to stay in something much more liquid. 7% or higher would change my feelings a bit on this scenario.

        1. A4I, they go to the pink sheets..Ala, AILLL, CNLPL, etc…They dont become untradeable.

    1. Grid, as and when the issue is delisted, would they then trade only on the OTC ? Or they will be re-listed with a name change, like the Wachovia issues when WFC took them over?

      I also went ahead and bought a small position. First Call is in 2022, so we should have time to receive dividends while this is being played out. QOL has no “change of control” clause, so don’t know if the merger could result in an early call.

      1. Inspbudget, the statement implies they will stay outstanding. History has shown companies to change the name and also leave to unchanged. So I dont know what they will do in that regard.

        1. At $24.27, MBFIO is priced attractively. Any early redemption ( due to Change of Control ) would be a 3% capital gain, and if not called, a 6.18% yield until such call happens – earliest in 2022.

          For a small position, I’m willing to accept the risk.

    2. Originally, FITB was going to reissue MBFIO under its own name. Sounds like that plan went out the window at some stage.

      1. Even if the name does not change, the obligation remains with FITB. So no concerns either way. Today is 3rd day of well above average trading volume, so the selling frenzy may be approaching its conclusion.

        If MBFIO continues to decline and goes below $24, I’m in for another couple hundred shares.

        1. Same here, Inspudget. It is not a steal of the century trade, but in its modest dosage serve a place for me.

        2. Inspbudget, I wasnt clear…I dont know if the actual name will change, but the ticker most likely will change. The delisting will negate ticker symbol. Then OTC I strongly suspect will reassign a new ticker. Just like what recently happened with the Amtrust preferreds. Remember though Amtrust went private. MB Financial is not going private. It is just being merged into a 5th third subsidiary and that companies financials will be public.

  3. Sometimes we get information that’s wrong from an unethical person and sometimes the wrong information comes from someone how actually believes it.

    Speaking of trust, does anyone have an opinion on Medley LCC. Their bonds MDLQ and MDLX are now paying over 11% with the purchase price dropping heavily since the beginning of the year.

    1. I own some OAK-A and it has some interesting ‘change of control’ provisions.

  4. More of the unvarnished common sense that has permeated Tim’s site in all its various incarnations. Thanks for keeping politics away from this site, to include the various politically correct trends in investment writing.

    1. @Mike D.
      Unfortunately, politics has a major impact in some instances; as an example, new pipelines or energy operations. How do you invest if you pay no attention to the political ‘winds’? A specific example is Global Partners ( GLP ) where community action in Albany, NY ended up with political action and caused the LP to change their Port of Albany, NY refining operations. That is the nature of certain sectors.

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