Ethical Investing in Uncertain Markets

Wayne Quint |

Modern investing is a complex web of considerations. Properly growing and monitoring investment accounts requires an in depth knowledge of markets, economic cycles and the discipline to achieve desired goals. Knee-jerk emotions should ideally be removed from decision making or at least minimized. Though emotions do not guide investors well, be it the fear of loss or the jubilance of speculation, ethics of investing do serve investors. Investing ethics are not strictly limited to traditional definitions like the avoidance of insider information or theft. Modern investing ethics have gone a level deeper compared to previous generations and there is a growing desire for socially conscious investing or SCI. Simply put, SCI requires that an investor to divest from owning the stocks of companies which he may find unconscionable or even deplorable. Vegetarians may want to avoid purchasing McDonald’s stock and gun control advocates would never own Smith and Wesson. Though SCI seems like an effective way to empower consumers and send a message to Big Business it does present a quandary. In today’s investing world, where interest rates have been sustained at historic lows, market volatility is at an all time high and the uncertainty of unwelcomed government interaction in the economy is rampant does SCI really makes sense?

This question has plagued me even in my own investments, though they are small accounts by any definition my concerns are whoppers. How can I sleep at night knowing that I am providing capital to like McDonald’s, Coca-Cola and Altria Group while they essentially poison people with their products? HIV and cancer have both taken back seats to obesity as far as health epidemics are concerned. People in the United Sates are more obese than any other point in history and that trend does not seem to be slowing; McDonald’s and Coca-Cola certainly aren’t helping the America’s waste-line shrink by any means. Altria group is the world leader in tobacco production, both cigarettes and smokeless tobacco. With my money I am creating a future of obese, diabetic smokers. I am selling out society for low volatility growth and high-dividends. Now, it is true that I am not shoving cigarettes, Big Macs or soda into anyone’s mouth. I am passively reaping economic rewards for other peoples’ poor life decisions however. Personal accountability should be my first battle-cry but it does not suffice.

I could just ignore the problem and move on with my life, enjoying fatter retirement accounts but my conscience would have no such thing. I could also dump all of my stocks and find alternative investments. Though this seems simplest it provides a greater challenge than anticipated and my wallet would have no such thing. I seemed to be doomed; either I take care of myself and leave the lambs to slaughter or I become another voice in an unpopular, impossible fight against global corporate machines and end up broke. Fortunately, further consideration has yielded some sort of alternative however. Perhaps I would be better off picking and choosing my battles and I can also use my profits to help further my voice. Though the latter seems rather hypocritical it may present itself to be the best option.

            Certainly determining what I find most deplorable should be first. If I would like to eliminate diabetes and obesity perhaps I can still invest in Coca-Cola but certainly not invest in fast food chains. After all, Coca-Cola does sell Aquafina water and heavily donate money to many worthy causes including numerous college scholarship funds. Fast-food chains advertise their value to the American public but really provide processed, nutritionally abysmal foodstuffs. They also underpay and over-work their employees, trapping them at minim wage levels with little to no room for advancement. If the food supply was not my concern but environmental advocacy and strict gun control were top problems in my mind, I would only have to avoid oil companies and weapons manufacturers. In this scenario I would still be able to get solid returns and keep my ethics intact. Although I may not be able to tackle every issue which concerns me I am certainly able to address those most important.

            More controversially, I could invest in the companies which I do not wholly support based on the notion that their stock is particularly attractive. After taking profits and taking care of my own needs I can use the remaining proceeds to help fund any organizations which will fight for my social ideals. I could even donate my own time to these causes if my personal wealth is larger enough to stop working and maintain a suitable lifestyle. Though this does seem rather counter-intuitive it may perhaps work. After all, if a stock increases in value the company must be growing. If a company is growing then the hopes to further your causes may diminish and your ethical dilemma worsens. However, many times investors, especially day-traders, are more likely to buy a stock than a company. This means that the stock price of a company may grow regardless of the overall growth or value of the company itself. The ideal instance would be to successfully short a stock of an undesirable corporation; the company loses value in the marketplace, the shorting investor makes money and then donates profits to charity. It is in these scenarios that profits can still be made personally and corporate evils can be balanced; the classic win-win situation. Unfortunately, this solution is complex and may have limited success.

            I feel that the simplest solution is usually the best in any situation. Out of my two possible solutions I feel that the most effective would be to simply pick my battles and stick to my proverbial guns. Since we as people have a limited amount of time in life it is better to further one or two causes by abstaining from their corporate growth and reducing their access to capital. Spending an inordinate amount of time donating profits to groups and hoping your donation outweighs the evil empire’s revenues seems exhausting and may cost more money than it makes. If consumers continue to refuse to invest in corporations which do harm or make questionable goods and pour capital into ethical corporations, Big Business will respond or ultimately fail.