Comments on: Ethics and Investing

By: Peter

Peter — Mon, 29 May 2006 16:10:19 +0000

A couple people have hit on my reason for investing ethically, but I’ll put it the way I think of it: if I buy stock in a company, then I own (part of) that company. Do I really want a company I own to do things that I think are awful?

No.

And that’s why I won’t buy companies I disagree with.

By: Zen Personal Finance

Zen Personal Finance — Wed, 24 May 2006 20:28:52 +0000

Other Voices: Links for 5/21/06…

Personal finance tips, tricks and stories from around the Web……

By: Mighty Bargain Hunter » The Carnival of Investing

Mighty Bargain Hunter » The Carnival of Investing — Mon, 22 May 2006 13:21:03 +0000

[...] Is investing in a company actually supporting the company? Doubting to Shuo discusses topics dealing with ethics and investing. [...]

By: Scott

Scott — Fri, 14 Apr 2006 04:45:13 +0000

I agree with your assessment that socially responsible investing (SRI), either buying socially conscious companies or selling the less than savory ones, is unlikely to have a long-term effect on the stock price. However, I don’t think this is the main point of socially conscious investing. When you buy a stock you are buying a share of the company in return for a share of their growth potential and earnings stream - you are hoping to profit from their successes. People who engage in SRI just have a preference how these profits are made. It’s not about “supporting” a company but ensuring your ownwership complies with your ethical values.

Of course, a large scale wave of buying or selling, for whatever reason, that affects a company’s share price can impact the business itself since a company only goes public in the first place in order to access the capital markets - if they need to return to the market again, attaining capital will require more dilution. In some cases, this could even impact a company’s access to the credit markets as well.

By: Bruce

Bruce — Sat, 25 Mar 2006 03:47:59 +0000

Sorry about the typos above (long day, long week and exposed to high levels of co). I meant to say the company is not “saving” money but merely “transfering” the cost to others.

By: Bruce

Bruce — Sat, 25 Mar 2006 03:32:17 +0000

I aggree you might not be punishing the offending company by not purchasing thier stock, but in terms of “ethical investing”, the question might be are you okay with making a profit off of an activity that hurts your neighbor?. For example, companies that use a known harmful additive (without clear disclosure) to maximize shelf life , companies that sell a known dangerous herbal supplement/medication(again, without clear disclosure), companies that dump toxic waste in an area that is populated by “a lower class” because it is cheaper than properly disposing of the waste or companies that expose thier employees to health hazards because it is cheaper that providing the necessary saftey precautions increase the profit to the shareholders, but people are being harmed by the product/activity.

By: Mark

Mark — Fri, 24 Mar 2006 18:56:42 +0000

I should add, though, that I’m no professional. I could be wrong about any of this stuff, so take it with a grain of salt. Better yet, find an example of when “boycotting” a stock actually did do serious financial damage to a company, or even just depress the value of its stock for several years, and tell me about it! I don’t mind being wrong. I just want to learn something from it if I am.

By: Mark

Mark — Fri, 24 Mar 2006 16:53:06 +0000

I did not say that companies don’t care about their stock prices at all, nor did I argue that a CEO should “relish artificially low stock prices”. Obviously, anybody can take advantage of artificially low stock prices, not just companies doing buybacks.

I said it is impossible for sellers to “permanently depress the stock price” of a company, regardless how many sellers are working together towards that goal. Furthermore, even if it were possible, those sellers would just be giving their money to anyone willing to take advantage of the artificially low price, including the very company they are trying to hurt.

By: Battlepanda

Battlepanda — Fri, 24 Mar 2006 13:48:36 +0000

Again, I completely agree with you in principle, but I don’t think stock prices in this country are always in lines with what’s dictated by profit/earning ratios and other measures like that. Prices are driven by speculation and demand for stocks that are deemed hot in a way that is very often decoupled from earnings.

Now, you argue that the company does not care about its stock price, and that a CEO should relish artificially low stock prices because it gives the opportunity to do buybacks and let insiders get huge profits. But is that what’s really happening? No. Corporations are anxious about their stock prices and sometimes do dumb things like mergers that hurt the long-term prospects of the company simply for a quick goose in the stocks.

So what am I saying here? That stock-shunning only works (partially at that) as a social corrective when markets are irrational and CEOs are short-sighted? Maybe. Either way, I think we agree that other means that hurt the business’ bottom line are more effective agents for change.

By: Mark

Mark — Fri, 24 Mar 2006 10:11:31 +0000

Even with many many investors (or in my example, a wealthy “pentavirate”), it isn’t possible to permanently depress the value of a stock. There is an equilibrium range for the price of any company, and if you drive the price of the company below that range by selling or even short selling, then investors such as my self just buy it back up. Stocks aren’t lotteries. For long term investors, buying stock isn’t just a bet that the price will go up. It’s a purchase of part of a company.

For example, let’s say evil company X earns $10 million per year, has one million shares priced at $100 each (for a valuation of $100 million) and has 30% insider ownership. Let’s say that somehow, you and millions of other ethical investors manage to drive the price all the way down to $10 per share. The company is now worth only $10 million. The company then decides to spend $5 million of its $10 million in yearly earnings on buying back their own shares. Now the number of outstanding shares is cut in half and the insiders own 60% of the company. Now instead of owning $3 million of the $10 million earned each year, they own $6 million of the $10 million their company generate each year. Even if you somehow convinced every investor on the planet not to invest in company X and the price stayed at $1/share forever, the insiders controlling it would make twice as much money from all future company profits as they would have if they hadn’t been able to buy back their own shares at such a bargain.

The above example was simplified. In the real world, nothing anywhere near that extreme would happen. The idea does apply, though.