Morals and Investing

When I first started investing I was pretty much emotionless when it came to choosing companies that could potentially be viewed as immoral. About a year or two ago, however, the Opioid epidemic ended up affecting some people who were close to me. Not getting into to much detail, after this happened whenever someone would suggest a pharmaceutical company to me I found that part of the investing equation now included whether I thought the companies were pushing problematic products. On another note, recently when discussing Financial companies someone made the statement that they wouldn't invest in big banks due to moral reasons. When I was discussing Fracking companies late last year someone also refused to buy any companies due to his views on the environment.

Does anyone else shy away from a sector/company due to certain moral reasoning or do you view the market as simply just a means to an end?

 

Solid discussion post.

There are always risks with any given investment, and you won't always know about these risks until they occur. The positive side of that coin is that you only invest with what you know (e.g., you know that Acme Arms is the US' largest arms manufacturer, but you didn't know the they were dealing arms to Al Qaeda), so while it's easy to feel guilt after the fact for something like that, it's nothing you were aware about. That's on company management, not you. The opposite of this is investing with what you know to be immoral - think Martin Shkreli or however you spell his name. If I know I am making 100x the cost on a pill and it's not fucking affordable to dying people, that's an issue. And if you think that's okay to do, then yes, you are a cunt and a half.

Side tangent:

Warren Buffett is arguably the greatest investor in the last 100 years, and some say of all time. He won't invest in tobacco, due to the moral reasons. I went to the last shareholder meeting; during the Q&A session, someone prodded him that Coca-Cola has been one of his favorite investments, yet sodas and fast food, etc., contribute to an even bigger problem than smoking - the American obesity epidemic (they rattled off some stats that made it sound worse than smoking). Of course they asked him how he could contribute to that issue but not the smoking issue. Warren danced around the question and didn't answer it effectively whatsoever.

That guy was my idol in college, when I finally figured I wanted to be in finance. But the more you learn about him, you just learn he's a hypocrite. I don't know if it's just that he's near the end now and wants to take that "now that I'm old, I want to go out in positive light" path that most wealthy in history have taken, but he's sure quick to demoralize hedge funds today, though his first ventures were effectively hedge funds. He's quick to slam taxes on the wealthy when he most likely hasn't paid a fair share throughout his life. Then you get the above issue of investments. He owns and has owned oil and other "eco-unfriendly" companies. He owns Wells Fargo. I'm sure there are others. Not bashing Warren. I do like the guy, I just wish he wasn't such a goody two-shoes and would tell things the way they are.

 

Great post! I wasn't aware that Buffet does not invest in tobacco. It would probably be easier for him to outright state that while he tries to be an ethical investor, it is not always possible to shy away from multiple sectors. I never viewed Kevin O'Leary as a bad person when I saw him say on shark tank something along the lines of "I love funeral companies because you are able to upcharge families who are pressured by limited time and the unexpectedness of the event." There is something about being upfront about ones views that I think makes it seem more understandable. But at the same time I mean its Warren Buffet, he doesn't have to explain anything to anyone at this point.

 

I understand what you're getting at wrt to coke vs. tobacco but frankly there are basically no sizeable companies that don't have any negative externalities - it just becomes a question of where you draw the line to say that "this company has too many negative effects on society" and that's going to differ from person to person. I actually don't particularly like (or dislike) Buffett but I don't think he's a hypocrite for investing in coke but screening out tobacco - for one thing, I would argue that coke is significantly less correlated with obesity than smoking is with lung cancer.

 

Oh, no doubt. It is definitely a personal judgment call on drawing that line. I also agree on your second statement...I would definitely guess that on a per unit basis (one coke vs one cigarette), the tobacco is more harmful. I'm also not saying that Coke is solely responsible for obesity - those with obesity probably enjoy a Big Gulp of Coke for breakfast, but they also down four cinnamon rolls on a bed of bacon. The Coke is just a contributor, whereas lung cancer - and I'm not a doctor or anything - is probably a direct result of prolonged tobacco use.

 
Best Response
RobberBaron123:
Side tangent:Warren Buffett is arguably the greatest investor in the last 100 years, and some say of all time. He won't invest in tobacco, due to the moral reasons. I went to the last shareholder meeting; during the Q&A session, someone prodded him that Coca-Cola has been one of his favorite investments, yet sodas and fast food, etc., contribute to an even bigger problem than smoking - the American obesity epidemic (they rattled off some stats that made it sound worse than smoking). Of course they asked him how he could contribute to that issue but not the smoking issue. Warren danced around the question and didn't answer it effectively whatsoever.

I absolutely cannot stand this ridiculous limousine liberal. His holier than thou bullshit makes me sick. The guy owns all this packaged/processed garbage food and soda, not to mention Wells Fargo lol, and he wants to preach about how his moral compass doesn't let him invest in tobacco. This old senile codger needs to realize it's time to walk away gracefully. He gets under my skin more than anyone these days.

The way I view things: Invest in whatever you believe will give you the best ROI and then take your profits and if you're so inclined, use them to promote the moral causes/charities you personally believe in. If Buffet believed tobacco was the best way to allocate capital and it provided a healthy return, he could then make larger donations to cancer research. Instead, he sits around in Omaha crushing cherry cokes by the case and pontificates on the dangers of smoking.

 

you can take this wayyyy too far dude, and while companies like mine try to make it seem like it's becoming more and more en vogue, I seldom see it outside of institutions. you can say any company is reprehensible. aapl for virtually being a monopoly and having phones assembled in countries with shitty labor laws, whole foods for not making healthy organic foods accessible to those who need nutrition the most, Amazon for not paying their fair share in taxes, tesla for focusing on innovation over safety, netflix for keeping us glued to our screens moreso than engaging with other humans.

another thing, do you want to not invest in a company because its products might be harmful? what about the people these drugs help? for every person who gets addicted to opiods, how many are advantaged by them? for every person killed in war by something produced by RTN, how many are saved? you can go any number of ways with this thought process, but I find you'll always be a hypocrite. if porn companies had good economics and were megacap, I'd consider them. I'm looking for profitability, not a moral high ground.

I volunteer and give to charity, that's how I change lives. if I like a stock, I buy it, I don't try to pretend that my practice is unicef. if you really can't sleep at night because of this one thing, then sure, screen it out. but I think it's silly.

 

That is definitely fair, morality could really be used as an excuse over a large number of industries. That being said, I think at certain times some sort of event unfolds in ones personal life that may affect how they think about investing. I never had any thoughts dedicated to this matter, but when I saw first hand what Opioids were doing it caused me to have a sort of unconscious negative reaction when I would consider pharmaceutical companies. For me personally the trade off of how many people Opioids have helped and how many lives were destroyed is pretty clear. I am not trying to draw into argument over the morality of opioids but rather asking whether there is a point in which you view ownership in a company as immoral.

Honestly I am very detached and lenient in this topic, but I have frequently seen people who are not and am more trying to see if there are people on here, like Buffet, who don't invest in certain areas.

 

This is common. A lot of religious institutions and schools have socially responsible funds. If you don't support something, don't invest in it. Simple.

Personally, I own tobacco and gun stocks. I'd own solynt green corporation if it was public and kicked off a solid dividend. To each their own.

 

Last year there was a private equity float of a retail store based here in Aus. Any who, long story short the float was laden with debt and was a ticking time-bomb. It really hit home when the company reported bankruptcy after it couldn't pay down its debt and it failed terribly short of its forecasted profitability. My uncle lost his job and some PE schmucks made a cool $300mm~.

To me, all the ESG crap about not investing in cigarette/alcohol/gambling companies is bullshit. I'm more than happy to 10x my money taking advantage of human stupidity. Of course, there's a real difference between "immoral" investing and straight up fraud.

 

The major pharmaceutical companies have a diverse line of products and all of them are meant to provide value by helping patients. If those tools are prescribed incorrectly is that their fault? If a drunk driver gets into an accident is that GMs fault or Jack Daniels?

I wouldn't be so quick to write off entire companies or industries because of ill feelings. Johnson and Johnson has been one of the best performing equities over the past 30 years.

 

Sorry but opioids were aggressively marketed by these companies as non-addictive and safe. They also leveraged lobbyist groups to remove protective regulations. When use sky rocketed and they were racking in profits many of them didn't even bat an eye. They may as well have marketed heroin as a prescription for headaches.

That being said I have not written off this sector and don't think all companies are at fault. For instance I would not invest in Purdue Pharma the maker of OxyContin but would likely invest in most other companies. It simply is just something that comes to mind when someone recommends a pharmaceutical company to me.

 

What if they did market heroin for headaches? I think any tool can be misused and I'd put more emphasis on the people using the tool, doctors in this case, than the manufacturer. What business do they have prescribing heroin for a headache and I'm sure they wrote a 60 day prescription for it too. Having said so, my point was that there is no line on any moral stand like that because the same arguments can be made in any industry.

If there's a particular bad feeling for you to invest in those companies...don't do it. There are many options for getting a return.

 

Think of the big picture. Having a moral high ground is a good feeling, but don't forget that individuals are receiving a net happiness benefit from their purchasing decisions that is greater than their expected net benefit from the next best available alternative. My moral sentiments are not more correct than the next American's, and I am glad that they have the freedom to act in accordance with their wont. Companies that create value for people make money. Companies that don't create value do not. It doesn't matter if it aligns with what would constitute value for me - I am merely one tiny piece of the aggregate of actors. Regulation covers the majority of externalities although obviously they will exist on the margin as there is an efficient level of regulation/enforcement, and regulation levels reach an equilibrium value based on the bargaining power of the entities and the bargaining power of the regulators (as it should be).

 

Another thing that has gone unmentioned is when you discuss public markets, everything is priced in. If people avoided 'sin stocks', 'immoral' hedge funds would simply invest and make 'feel-bad-arbitrage'

ESG investing only really makes sense in very illiquid markets. Yeah some institutions do it in public markets but it's honestly all PR.

Divestment has never been successful, outside of South Africa during apartheid (kudos to international cooperation on that one)

Buy whatever you want in your P.A., just recognize you don't actually affect the price of the stock if you act in a predictable, non-contrarian way.

 

I think "hypocrite" is overused here, but it'd be really hard to be consistent along any value system. It's fine to pick and choose, or to do what others have done and not choose at all (i.e. donate some of your gainz to charity, etc.)

I don't invest on tobacco or defense, that just happens to be where I draw the line. I've seen enough death from both. And I concede that none of the companies I invest in are doing "God's Work" other than GS.

 

I'd say that the line for me is when a company is doing something that's indisputably negative. Tobacco and oil companies fit this bill for me (there's no redeeming factors to cigarettes, and burning gasoline is universally bad for the environment). Most other companies do something that is at least somewhat redeeming.

"There's nothing you can do if you're too scared to try." - Nickel Creek
 

Anyone who has moral qualms about what they invest in will have a short lifespan in finance. Also, people like that are just douchebags who justify their lower returns on some bs reasons.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 

Love the overblown responses. Original question was "Does anyone else shy away...." it's like everyone read the question as "Here's why you fcking heathens should not invest in the following sinful sectors.."

OP, to answer- I don't shy away from any particular industries for the reasons that thebrofessor states: it's hard to identify the true Utilitarian bottom line of a firm. For instance, fracking - while very obviously bad for the environment - puts a shit ton of people where I'm from (economically depressed) back to work. I see first hand how hard working and good people who may not have a solid education can now afford to buy more food for their families. However, again, I can see your point. Whatever blows your hair back.

 

While this topic is still active I know there are a lot of tree huggers here but I work in the coal industry. There's still money to be made. I would recommend FELP as one pick. The premise is that although there is a finite market there is still going to be some major changes in the future as the lowest cost producers steal more and more market share. FELP is one of the lowest cost miners in the best neighborhood in the coal industry, the Illinois Basin. Anyway, buy at your own risk of course.

 

Hi there, thanks for sharing this post. I am planning to invest in a good company which will provide a good service. While discussing with my friend, he suggested me about forager funds management. If you have any more suggestions please tell me.

 

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