Wednesday, February 20, 2013

Fiduciary Responsibilities, denied

BOTH STATEMENTS ARE FROM WIKIPEDIA -fiduciary is a legal or ethical relationship of trust between two or more parties. Typically, a fiduciary prudently takes care of money for another person. One party, for example a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to the other one, who for example has funds entrusted to it for investment. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts.

When a fiduciary duty is imposed, equity requires a different, arguably stricter, standard of behavior than the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without knowledge and consent. A fiduciary ideally would not have a conflict of interest. It has been said that fiduciaries must conduct themselves "at a level higher than that trodden by the crowd"[3] and that "[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty."[4] (Emphasis added in RED)

The California Public Employee Retirement voted to divest itself of Sturm, Ruger and Smith and Wesson, both manufacturers of politically troubled, but legal products (Firearms).   The chart above presents the investment results for both companies.   Ruger is in Green and Smith and Wesson are in Blue.  Both companies have out performed the S&P over the last five years.  Ruger actually also offers a modest dividend.  I own a Ruger and so am somewhat biased on the product.   But that is not me as an investor.

The firearms companies are not ones that I follow actively.  So there may be very good reasons to sell both stocks.  Ruger is a $500 million company and Smith and Wesson are about twice that size.   Both are in high margin businesses.  But both are also in the political wilderness now.   And their long term financial viability, based on a quick look at their balance sheets suggest they are stable companies.   But this decision smells of politics of the moment.  CALPERS has some long term problems in funding the future needs of state employees.   Getting into politics is not where this major retirement system should go.

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