What are your ethical constraints?
Inspired by a recent rant in the PE forum. I got to think for myself about what I would actually tolerate in terms of actual impact from my career. I think IB/PE etc can definitely be disastrous and negative but they can also have extremely positive impact.
For me personally I would absolutely draw the line for any company associated with manufacturing weapons. Even A&D groups are no no for me. Sure they can theoretically serve to defend people or whatever but I absolutely don’t think they’re used for this purpose. Taking a look at the biggest military spenders, they are often rogue and evil (in my opinion). So in my view my ethical constraint is anything related to defence and weapons manufacturing or development.
what about yall?
I will not work on anything related to addictive drugs, addictive tech, or things that could directly impact someone's health in a bad way.
By addictive tech, I mean things like apps targeting children that could have negative impact on their development.
You’re describing every social media
We have a military complex fund. Some dude in Maryland runs the index it tracks. I spent three months trying to figure out how to re-index that thing. S&P, NASDAQ, FTSE and MSCI couldn't figure out a better way to do it. They kept getting Tricare providers while missing Norfolk News shipyards.
I won't do anything illegal first and foremost.
Secondly, I will not work in a profession that causes harm to others (even if legal).
Thirdly, I won't support investing in addictions. I have no interest in investing in Meta for instance, or the likes of Phillip Morris.
So you stay away from index funds....?
Obviously, I'm 100% in GME
But even this must be subject to your personal feelings around a subject.
You've never gone over the speed limit? Kinda rolled through a stop sign instead of waiting at a dead stop for 3 seconds?
Of course it's reliant to my personal feelings on various subjects. It's my preference, I don't really care if others want to invest in META or not
Illegality in the scope of a job was what I was referencing
Healthcare and real estate. Anything where you are trying to juice returns off basic, fundamental human needs is a no go for me personally.
Argue all you want about innovation and the need for investment, but in my experience, consumers tend to suffer under PE ownership with lower quality products and services for higher prices.
Depends heavily on the investors in healthcare.
That being said, I do think a lot of for-profit healthcare is sickening as someone whose been in the industry for ~10 years. Unfortunately, many non-for-profit companies in the space are not much better. But there are exceptions in both scenarios.
I will agree that in general, it is very debateable if value is being added in some healthcare portcos by outside influence of investors (I'm very skeptical especially of the Stanford / Harvard MD types that do only a year or so of medical training after graduating and jump into to a MBB / PE, their business understanding of the healthcare delivery system is barely nonexistent since you tend to learn that stuff at a fast rate when you're independent as an attending).
So you also don't invest in food & beverage?
You say this as a joke, but I unironically agree. The commercialization of the food industry and lobbying by big food companies has done way more harm for US citizens than good. Why do you think Americans are so fucking fat and unhealthy? Because a majority of the food produced here is ultra processed, hyper palatable junk that is loaded with calories. It’s engineered and marketed to be addictive, just like social media and other vice products. I think it’s extremely shitty to try and benefit off a persons lack of willpower or discipline.
And sure, you can argue “we’ll just don’t eat it then”. And that is true, but I think it’s pretty easy to see that most people lack the fortitude to actually put in effort to eat clean. Creating shitty food that is extremely unhealthy yet tastes good is just a way to exploit this in my opinion.
Holy shit this thread is full of reddit users.
You wrote this? LOL fam
I refuse to work in any industry that will not pay me a lot
Will I get caught, and if so, do the repercussions outweigh the monetary gain?
Idk about the other experienced folk, but I don't think I've ever come across a file that would push my ethical boundaries. Maybe one on the natural resources side that that had, in nice terms, a sus environmental study, but firm passed on that mandate anyway.
Anything with vapes / nicotine / smoking. One of my friends runs a successful business in this space and I find it sickening.
It's all about the cost of doing business. If the fine & risk is less than the profits, does it matter in the long-run? Most successful people in this industry whether they want to admit it or not will say no.
I personally draw the line at anything that could potentially involve direct risk of killing people (so lots of healthcare-related stuff) but aside from that, ethics are flexible. Businesses in debt collection, installment/payday lending, funeral homes, night/strip clubs, pawn shops, gaming/casinos, marijuana/cigarettes, and other industries that tend to operate on the cultural fringes can have amazing cash flow profiles and be less competitive precisely because of their reputations - but vices don't just go away and I feel like I'd put the money to better use than a lot of the folks operating in those markets.
I think about this often, and unfortunately I always come to the same conclusion - it is literally impossible to deploy capital to 100% ethical businesses so it's pointless to try. give generously to charity, go to church, be humble, and know the meaning of enough (see the story of chuck feeney).
here's what I mean - companies that are ethical like patagonia, dr bronners, polyface farms, origin, birdwell's, and many small businesses are completely uninvestable. either they're privately held & not looking for outside investment or if they did take the investment they cannot scale in a way that delivers compelling returns for investors. so we're forced to look at the wilshire 5000 and see what's there, and the news isn't good. every industry has skeletons.
healthcare - let me count the ways. insurance companies in the name of diversifying risk artificially inflate the cost of products & services (see the fuckery with PBMs). hospital systems exist to sell widgets, only there's no widgets, there's just billable services or relative value units which determine how each doctor gets paid. pharmaceutical companies are among the worst - they are not transparent with the data they publish (cherry picking studies), have a very incestuous relationship with their regulators (fox running the henhouse), no vaccine liability, capture of medical establishment (journals, schools, standards of care, orgs like AHA & ADA), and are part & parcel of the reason why medicare/medicaid are insolvent, a large chunk of every dollar going to those companies is a future liability to the american taxpayer
energy - I'm a huge fan of energy, but let's not kid ourselves and say this is a completely ethical field. if it were, the sand in houston wouldn't be sticky
consumer products - yeah with 75% of the country overweight or obese I don't give a fuck if pepsi has good corporate governance. while the american consumer should be allowed to poison themselves into oblivion, to say it's ethical to poison our citizens to a greater degree than the same company's products abroad for only marginal financial gain, yeah nah. furthermore, materialism is just a symptom of greed & pride, the worst of the seven deadly sins, so any company that relies on you continuously buying more shit you won't use is guilty of this
finance - you already know. I don't have any issue with the financial industry selling shit to rich people who should know better, I do however take issue when the same fuckery makes its way into endowment funds that affect average joes, because there's no informed consent. the fact that basically every endowment fund backed up the truck into PE, among the most overpriced investment vehicles in the history of money and is eating shit without any of the PE managers seeming to care is so fucked beyond belief it's hard to imagine how deep the rabbithole goes. do what the guy in nevada does, just buy index funds, save your stakeholders money and give more consistent returns with liquid assets, you're not the next david swensen. also, while I am a shareholder in many payment processing companies, there's no reason they have to be as big or as lucrative as they are, they quite literally print money. I don't like much of what I see in the bitcoin/crypto world, but they have a point when they call out the pound of flesh visa & mastercard and every merchant services provider takes
real estate - having seen what goes into some of these deals, lobbying local governments to shove out lower income people, adding to the housing shortage by catering to absentee owners (airbnb, rentals, etc.), and artificially inflating prices instead of having a fair market among actual families, yeah y'all aren't clean either
tech - I feel like the world knows that tech is fucked, shaping the national discourse with censorship which while not done directly by the government essentially having the government direct your citizenship is basically racketeering. if you don't pull the trigger but you instruct someone to do so and they do it because you control them, you're still guilty, and tech did this a lot during covid and continue to do so. but you may be saying, what about microsoft? what about apple? what about NVDA? they're not social media companies. have a seat. microsoft provides cloud services for literally every industry in the world, so if you take money from an unethical place that suddenly makes you ethical? fat chance. apple makes a product that no one has to buy, so they should be clean, right? well, if your business model relies on materialism (phone upgrade cycle) and people being addicted to your product, how can you say that's ethical? NVDA just makes chips, they can't be that bad, right? if the use cases for AI were simply to give me a personal search engine that'd be fine, but it's running data centers to sell you more shit (again, materialism) and their biggest customers are unethical as well, so same issue as MSFT.
I think the issue is in order to achieve massive scale and become a good public or private equity holding, you cannot remain ethical. patagonia literally tells people to not buy new jackets, you will NEVER see VF corp or even TJX say this.
so for those of you who are saying no addictive stuff like PM/MO - what about buying KO/PEP? not them, fine, but what about some of their vendors/suppliers? what about the company that makes the automation that keeps the super addictive HFCS juice flowing to increase the % of obese americans from 75% to 100%? for those of you saying no weapons manufacturers, don't you think they have to buy technological services to do what they do, so are you going to also sell your CSCO, MSFT, and QCOM stocks? it's not just RTX & NOC that are providing the tech for netanyahu to commit genocide or for hamas to take out pretty med girls at a festival, it's EVERYBODY. and if you think the bond world is even cleaner, well if you lend money to the US govt, you're taking interest on debt that will never be repaid, essentially pulling forward a future liability that will likely cause inflation to a generation you'll never meet, so yeah not clean either.
now before you think I'm just some neckbearded redditor, I own both personally and for clients many of the names I've shat on here, because my job is not to proselytize, it's to find good investments accounting for risk, expense, etc., and so that's what I try to do. I take it as a given that publicly traded investments are going to have unethical parts in them, and since it's up to God to judge and not me, I don't think for a second I could comprehensively score every stock based on how ethical or unethical they are, so I don't even try. if I believe a company's ethics challenge its ability to generate free cash flow then of course that impacts my decisions, but on ethics alone? impossible
Nuance is extremely important when it’s not formless. Like you’re highlighting here it’s important to keep a degree of compassion as a basis to compare benefit vs adverse effects. Imo the examples you’re highlighting here have nuance with a form. It boils down to the responsibility of the consumer to consume responsibly, wisely, and beneficially. Whether it’s individuals, governments, organisations. That I can understand and totally agree with. I can’t see this being applied to defence/weapons however. It’s an extreme example of “birds of feather”. An industry of psychos
In support of your point, I'll add that there is financial incentive to thinking like this. When a company impacts society negatively, it gets attention. Look at the regulatory response to Google. That's why I think there's value in the ESG framework; people don't understand its really an assessment of risk that acknowledges how non-financial decisions can become financial. When a dual CEO chairman majority owner starts strong arming their company you realize why the G exists lol
Maximum IRR by any means necessary.
Private / for-profit prisons
Might not be popular on here but oil companies. Like it or not, climate change is by far the biggest risk to mine and my kid’s way of life over the next century. I can’t stand people or companies who just prefer to pretend it’s not happening.
Oil companies are the biggest spenders on energy transition and accomplish 1000x more on decarbonization than the millions of "renewable energy" grifts.
I don't agree. IB/PE can have an impact that isn't negative, but I really don't see many examples of times in which finance had a positive impact. Obviously it can be positive for people involved - bankers, investors, etc. But for the most part you don't see widespread positive impacts, especially not anymore. Maybe you could have argued that 40 years ago financiers were finding real dislocations or inefficiencies in a given market and fixing them. Now it feels like generally IB/PE is trending further and further towards vulture capitalism. Even in cases where private equity shops aren't destroying product quality and user experience in order to juice profits for shareholders, they certainly aren't making anything better for the end user.
Most businesses exist to provide a good or service for a consumer. Success means creating the best possible product. Wall Street's "consumer" is a shareholder, a pretty narrow base of people, so success means creating as much short term value as possible, which almost always seems to be by cutting corners. Can anyone really name more than a handful of scenarios in which a PE shop came in and the experience for the end user of that company's product got noticeably better?
Can say the same thing about some VCs, especially late-stage investors in healthcare. A ton of startup telemedicine companies since the pandemic ended up being unethical pill mills (like Cerebral, Done) to grow their business rapidly.
A good chunk of these patients weren't even properly diagnosed. End consumer (patient) ends up getting screwed over for unnecessary care.
"For me personally I would absolutely draw the line for any company associated with manufacturing weapons."
So you wouldn't work for the Department of Defense, but do you believe in the DoD that it will protect your freedom?
I don’t think they’re protecting anyone’s freedom. I think there are evil and malicious actors behind the defence department in my country that propel it to get into futile and destructive wars. I’ve seen with my own eyes how incredibly murderous our governments are. Aside from a few exceptions, I think military interventions from the US/UK post-WW2 have been evil at worst and just useless at best. If anything, they’re jeopardising my safety and freedom by antagonising half the world by shredding their kids into pieces for no reason.
LoL ok people die for your freedom and you don't even appreciate that? Or what I consider even worse, people are getting their legs and arms blown off so you can relax peacefully in your home and city. I dunno man, I come from a very big military family and it is tradition to serve and sacrifice for others.
When I managed portfolios of for companies, I did not apply any ethical standards. If I worked in IB, I probably would apply an ethical test because I would be closer to the future success of the company. I would not want to take a company public if they were in an industry that does harm to society.
I wouldn't work at a cigarette company, but my friend has a beer company and I would definitely work there.
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