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Invest for Your Pocketbook, Not Your Conscience

NEW YORK ( TheStreet) -- The horrific mass shooting at a public elementary school in Newton, Conn., in December thrust the thorny questions about runaway gun violence in America into the national spotlight. For investors, one of those questions is clear: what responsibility do we hold, if any, for the social ills caused by businesses in which we are stakeholders?

The California State Teachers' Retirement System, known as CalSTRS, signaled its answer after the Newton shooting by voting to sell off its holdings in gun manufacturing companies. That appears to have prompted private equity firm Cerberus Capital Management to sell off its stake in the Freedom Group, a company that manufactures the Bushmaster semiautomatic rifle that authorities say was one of the murder weapons used in Newton.

As the largest teachers' retirement fund in the U.S., CalSTRS is an important client for Cerberus. Its vote after the Newtown killings expressed the view that the manufacture and sale of firearms in the U.S. is one of the reasons why this country is experiencing so much gun violence and its members aren't comfortable profiting -- however indirectly -- from that business. And Cerberus reinforced the message with its sale.

For the record, I hold public schoolteachers in California and every other state in the highest esteem. They are the real heroes in my book, and in light of what occurred in Newton, I don't question the wisdom of CalSTRS' actions here. We must acknowledge, however, that these moves on the part of CalSTRS and Cerberus will probably have a negative effect on their investment returns, and that will ultimately leave the teachers in California with less in their pension fund.

This sacrifice may well be justified in this instance, but I'm generally uneasy with the notion that investors need to weigh the social impacts of the companies represented in their portfolio -- particularly when they're paying professionals to maximize their returns. I don't care for investment products that offer investors a "socially responsible" investment strategy.

After all, social responsibility -- when it comes to Corporate America -- is highly subjective. Are Apple's (AAPL - Get Report) labor practices socially-responsible? What about its tax avoidance schemes?
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