But that sort of system would deprive you of certain investment opportunities.
That's OK. I'm all for missing a business opportunity if it's built on a business model that's predatory or unethical. Call me old-fashioned, but I do think there's something very powerful about a small community where you can have that level of interaction.
And your objection to big banks?
The basic problem I have with the too-big-to-fail banks is that they're not fundamentally value-creating. Their basic mandate is to make money no matter what the market conditions, no matter what it takes to sell a security, or what it takes to do a particular type of trade. Everyone is talking about this JP Morgan London Whale trade. If you think about it, what was that? It was basically something that was 100 percent profit-driven, betting with some highly speculative instrument that added no redeeming value whatsoever to the world. I'm not opposed to profits, but profits should be the byproduct of value-creating activity. The minute you begin to say "I'm going to make a profit at any cost"—exactly the business model of tobacco and gambling—your customer becomes someone you're exploiting.
Some would argue that, greedy as they appear, they're assuming risk in ways that allow other people to create wealth.
And I actually think that part of what they do is OK. For example, helping companies raise money to go public. But when it becomes something like this London Whale trade or pushing loans on those who really can't afford them, securitizing loans and creating instruments that were layering derivative upon derivative, there comes a point where those types of activities are not harmonious with value creation. How is it possible that in 2012, after all the pain of this financial crisis, that people are still doing this sort of thing? It's mind-boggling.
Maybe game theory explains it: There's a dominant strategy that demands pursuing every opportunity to some practical limit, no matter what the risk.
I'm all in favor of taking risks. Risk is the lifeblood of an economy. But there's a big difference between risk-taking for the sake of making money and risk-taking for the sake of some productive activity.
Have you gotten criticism from shareholders for avoiding either sector?
Most people, because they know our convictions, are already sympathetic to our approach, so we tend not to get a lot of pushback on that. Probably the general population would be not with us there. But we were pretty upfront in advertising who we are. People know that if you come to us, you're signing up for this investment philosophy.
How do you answer the argument that if you really want to change corporate behavior, you're better off engaging than walking away?
We want shareholders to communicate their wishes for how a company should be run, but at the same time, one has to be pragmatic and realistic. If I'm going to own Goldman Sachs or one of these too-big-to-fail banks, the likelihood that other shareholders will have similar convictions is very small, and so the likelihood that we will make any sort of impact is almost zero. You might say that sounds negative, but I believe the way you can make an impact instead is, we get more and more shareholders and get bigger, and the share price at the competing [banks] that have values-based models will do better, and it will cause alarm for those who are participating in the too-big-to-fail banks. They'll want to change their business models.