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?

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Comments (45)

Dec 27, 2016

Your investment equation should be a DCF

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Dec 27, 2016

I should specify, if I were investing for work this wouldn't be part of my process. I would just have to get over it in that case.

Dec 27, 2016

The free market is the end all be all. If a company is doing something that could be considered morally unjust then it's a pending regulation hazard.. That gets factored in your DCF

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Dec 27, 2016

I am referring to personal investing where one has an uncompromisable view based off their own philosophies. The examples I stated above weren't people stating that there was a potential hazard, but rather avoided all of the companies in that sector entirely. In a case where all the other prospects are good, but one doesn't invest due to it being immoral in their opinion.

Dec 27, 2016

Then what you are describing is not "investing"

Dec 27, 2016

If you avoid a sector and buy into another you are still investing, your morals just might lead you to a lower return.

Dec 27, 2016
George_Banker:

Then what you are describing is not "investing"

Right.. Don't let your own philosophies get in the way of a good investment

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Dec 27, 2016

haha this is why I love this site & job sector, but I mean at some point where a company or sector does something wrong that effects you personally you wouldn't pass up on being a stock/bond owner? I am not really overly surprised at the reactions, but I have met a lot of people who do take this into consideration for their own portfolios.

Dec 30, 2016

Completely unrelated to this thread, but my first weed dealer we called George the banker. Is it you, George? Is it? Do you still have the bomb chron?

Dec 27, 2016

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.

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Dec 28, 2016

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.

Dec 28, 2016

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.

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Dec 28, 2016

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.

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Dec 29, 2016

Most smokers who finish up to 1 pack of cigarettes = 20 "units" manage to stay alive but I can't imagine what would happen to someone drinking 20 "units" of cola per day

Dec 29, 2016

How is this comparable? 20 units of cigarettes = 20 units of cola?

If a medium - heavy smoker finishes 1 pack a day, the equivalent of a medium - heavy cola drinker would be 1.5 - 2 Liters (which is really unhealthy, but won't kill you right now).

Dec 29, 2016

of course no one can drink 20 cans of cola, it was a reflection on the above comments' 1 unit = 1 unit.

anyhow if you drink 2 liters of cola you probably will be doing your body more damage than if smoking a pack of cigarettes (I smoke ~10 -15 cigs per day) and feel ok but when I drink 2 cans of cola I feel bloated for the rest of the day

Dec 29, 2016

Holy shit you guys are reading too much into this..

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Dec 28, 2016
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.

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Dec 28, 2016

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.

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Dec 28, 2016

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.

Dec 28, 2016

If it's your own portfolio and you aren't comfortable with a sector or company for whatever reason, you don't have to invest in it. It's your money - you get to choose where it goes. Simple as that.

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Dec 28, 2016

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.

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Dec 29, 2016

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.

Dec 29, 2016

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.

Dec 29, 2016

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.

Dec 29, 2016

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.

Dec 29, 2016

I understand your point, but these companies viciously marketed their product because it was the quickest way to a profit. In my opinion they played a much larger role then simply just being the creator of a tool. But I agree this simply effects my own personal views on choosing companies, I am not trying to convince others here to follow through with me.

Dec 29, 2016

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).

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Dec 29, 2016

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.

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Dec 29, 2016

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.

Dec 29, 2016

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.

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Dec 29, 2016

This is the most millennial mindset I've heard in a long while. Shut up and put capital to work or miss out on returns.

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Dec 29, 2016

Haha, nailed it.

I love Google and I'm long, but it really annoys me that they contribute 1% of earnings to charitable causes. Companies should be about maximizing shareholder value, period...imo

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Dec 29, 2016

Every firm should have "Maximize Shareholder Wealth" on a gold plaque somewhere for all employees to see. Too many large companies lose track of the fact that they're public companies and, as such, have got to put investors who have placed capital in their pockets first.

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Dec 29, 2016

" Too many large companies lose track of the fact that they're public companies and, as such, have got to put investors who have placed capital in their pockets first."

Actually, they don't - see AP Smith vs. Barlow and Shlensky vs. Wrigley. Also, if companies donating to charity disgusts your sense of pure capitalist morality so much, there's an easy solution: don't invest in them.

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Dec 29, 2016

I am well aware of my freedom as an investor, but I can still disagree with them wasting shareholders' earnings on bullshit.

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Dec 30, 2016

AP Smith v. Barlow is irrelevant in this discussion since we aren't arguing the legality of charitable donations, just that there are better ways to put that capital to work for the company (and subsequently the shareholders) to profit from.
Shlensky vv. Wrigley is like comparing apples and oranges when used in a comparison to a non-sports related entity. This should be clear but I can explain if necessary.

Just for clarities sake, are you saying that large companies do not have to put investors first?

Dec 29, 2016

Couldn't have said it better. What the OP is describing is a gofundme page...not an investment.

Dec 29, 2016

I hear this more from older generations then the younger ones, specifically when it comes to utilizing short selling for some reason.

Dec 29, 2016

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.

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Jan 1, 2017

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.

Jan 1, 2017

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.

Mar 24, 2017

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Mar 24, 2017