Why I don’t believe in ethical investing

Considering how I feel about many major corporations, it might be shocking to hear that I have zero compunction about profiting from their stock. None. Monsanto, Wal-Mart, AT&T, Toyota, whoever–I don’t care about their sins in this context.

Why? Because my reason for investing is to make money.

I believe that investing to bring about social change is just fine, if you think it through; however, then acknowledge to yourself that this abandons moneymaking as the primary purpose, and don’t complain when you take a bath because your eco-friendly investment rolled over and threw up again. Personally, I think you could do more to bring about social change by sending charitable contributions to well-investigated causes, but hey, it’s your money.

Mine will be invested for profit, and for no other purpose. That is the game as defined by the market, and the laudable goal as defined by our broad social consensus.  I did not design this game. Were it up to me, a whole lot of corporations would be running very scared, but it isn’t.

The individual investor in the marketplace, which is heavily rigged by the big guys, is like the new and friendless inmate in a major maximum security prison. He did not design the prison, with its gangs, variably-ethical guards, drugs and hazards, but it’s where he is. He can either spend a lot of time trying to effect ‘change’ against a tide like they get in the Bay of Fundy–and get nowhere–or he can figure out how to find some comfort, learn to do time. He may have to do things he’d never have considered on the outside, associate with the worst scum in society. He may have no choice. As with combat veterans, it’s not sensible to lecture him on morals if one hasn’t been there, felt what he felt, seen what he saw.

But how can you stand to own stock in Unislime (NASDAQ:UNSL), which treats its workers like Michael Vick treated dogs, pays them almost enough to buy one Taco Bell meal a day if they don’t pay rent, and last year gave the CEO a $4 trillion bonus while laying off the entire populations of five impoverished Appalachian cities? I won’t say that I feel moral joy owning UNSL shares, though it makes me economically joyous if it’s up 14% this year and coughed up a 3.5% dividend. (Once I sell it, it’s welcome to jump off a bridge, so I can buy it again real cheap.) Remember: there is no such thing as shares which are sold but not bought. I could dump UNSL, and someone else would own it. My selling would have the infinitesimal impact of driving the current share price down a tiny notch for a brief half-second, it is true, but the share price overall is based on market perceptions, the greatest percentage of which come from mutual and hedge fund managers. If a $12B mutual fund owns 5% of UNSL, and decides the stock has reached its target price, it will start selling and the stock will go down. Whether I own fifty shares of UNSL, or someone else does, will have no measurable effect on anything.

Haven’t you ever heard of shareholder activism? I have not only heard of it, I have engaged in it with some malicious glee. It works like this: every year, corporations hold shareholder meetings. Inevitably, some shareholder proposals make it onto the ballot for voting. Management invariably recommends a vote against all shareholder proposals and in favor of all its nominees, policy changes and so on. You can bet that if I get my UNSL shareholder ballot, and I see that a coalition of nuns has proposed something deeply idealistic and completely loopy, they have my vote just because that’s fun for me. I myself do not take shareholder activism seriously, because the only reason I own the stock is because I think it will make me money. Others feel differently, and consider it a powerful weapon. Good for them, but that is investing for social change. I’m investing for profit, and profit alone. Any satisfaction I get from doing something management won’t like is a minor bonus.

But you’re supporting Unislime by owning its stock! Your money is blood money! Eeeeeeeeeeeek! Icky! In order: not true, just sounds like it should be; yes, as is most of the money made in the market; stop screaming; no money is icky.

As mentioned before, someone’s going to own UNSL. Might be Unislime itself, using its cash reserves for a big stock buyback. My ownership or non-ownership is not itself support; that assertion is mindless and disintegrates under scrutiny. My ownership just means I own some phantom pieces of paper representing a little chunk of UNSL. Voting for Unislime’s paid Congresspeople–that is support. Did you stop to check on that before you marked your November ballot? Also, do you own a 401K? Does it own mutual fund shares? Do you check rigorously to see if any of your funds own UNSL? Do you even know how to find that out? If you have an employer-sponsored retirement account, you probably own UNSL shares indirectly, or stocks of even more odious corporations. Most of the large ones are so unscrupulous that ‘ethical investing’ would be problematic anyway, especially considering how much we do not know. Most of them would be out of bounds. CEOs are paid to increase shareholder value, not be ethical.

It’s much easier for a corporation to be ethical when it’s not publicly traded. A very good friend of mine works for such a firm in Portland. He tells me, and I believe him, that his company has very high ethics toward the communities in which it does business. Fantastic! I’d want to work for an outfit like that, and I’d love to own stock if it would make me money. But I can’t buy their stock, and unless I need teeth for my earthmoving equipment, I’m not in a position to steer them any business. I respect them and their business practices, and I hope they prosper handily, but they are not germane to my own investing.

So, it’s pretty hard to do any investing at all without profiting from the profit of a company who earned it by working to someone’s disadvantage. It is to the company’s advantage to sell goods and services at the highest possible profit, which usually means paying employees less, offering fewer benefits, and gouging consumers to the highest possible degree. Publicly traded companies answer to shareholders, and shareholders demand value. That’s just how the game works. And as before, if you buy mutual funds, unless you do a pretty thorough walkthrough of their portfolios, odds are you are building your Sun City sunset years nest egg on ‘icky’ blood money. You can face that with eyes open, or pretend it’s not so, or choose to invest for social change rather than financial gain. We all have to be comfortable with our financial plans. Mine are to make money, and devil take the hindmost.

This all sounds like a big rationalization to liberate you from ethical considerations. For starters, I don’t believe I’m obligated to ethical considerations in what is essentially a free-for-all where the biggest players just laugh at the concept of ‘ethical considerations.’ I’ve never seen evidence that my owning or not owning a stock affected the business outcome. My stance is that the vast majority of people invest for the same reasons I do, deep down, but that some are not self-honest about it. If you do not believe in owning certain types of shares, and you fail to review the portfolios of all the mutual funds you profit from, you aren’t self-honest about it. I prefer to apply my ethical considerations in areas where I feel I make a true difference: recycling, shopping local, supporting deserving causes. I have never had a charity interrogate me to ask whether my contribution was ‘blood money.’

I’m a Muslim. I invest only in funds that are consistent with Islamic principles. Some years, that’s turned out very well for you financially. I’m not a Muslim, and I considered buying a couple of the Amana funds myself–because I don’t care what the fund stands for, just whether or not it makes me money. There are plenty of funds whose charters are based around ethical notions, be they Islamic, Christian, environmental, fair trade, no sin stocks, no defense/guns, what have you. Sometimes you’ll do pretty well. But tell yourself the truth: You are investing with a social (religious) agenda that trumps the profit motive. If that’s how you must invest in order to feel okay about your money, as before, best of luck. I don’t think less of you for it, unless you get self-righteous with me without being self-honest.

This sounds so Randroid. Haven’t I heard you say more than once that you find her ridiculous? And you’ll hear it again. Here’s a logic trap I believe in avoiding: eschewing an idea because some jackass also happens to share or advocate it. I can’t say whether Ayn Rand would approve of my investing notions, but I’m not investing to annoy or please a dead priestess of avarice. I’m investing to make money. No matter what your idea or view is, on any topic, you can find a complete scoundrel who advocates the same. Stalin had a draft; if you support conscription, does that associate you with Stalin? Jefferson owned slaves; if you admire his Constitutional concepts, does that mean you advocate slavery? It’s silliness to think so.

This whole greedy attitude is what’s wrong with America. Be the change you want to see. Nobly motivated, but you’re spending too much time addressing the wrong person. I didn’t design this prison; the gangs and the hacks have all the power here, and I have to live in reality. How about instead asking your legislators to be said change, since they’re the prison guards turning a blind eye to real wrongdoing? As demonstrated before, what I do with my investment capital will effect no social change, because what shares I do not own, someone else will. I can make my way within reality, or let it crush me without even noticing or caring. If I do, of course, I have less ability to effect other change. Take a look at Bill Gates, who made most of his money providing uncreative bloatware while assimilating or destroying most of what was better (and nearly everything else was). Now he’s giving most of the icky money away. You can argue that all of his money is filthy, if you believe there is such a thing. You cannot successfully argue that he is misusing his gains. He’s using them so honorably that Warren Buffett is just going to send all his money (a great buttload) to Bill.

Furthermore, this greedy attitude is America. Has been since the first Europeans showed up. The modern nation’s vast wealth was created through grants and exploitation of free real estate by pushing aside, confining or killing its original owners, whose descendants still aren’t getting a fair shake. Much of the initial labor was provided by slaves or indentured servants, many of whom shared in none of the rewards during their lifetimes, and whose descendants likewise still aren’t getting a fair shake. You may like this truth or loathe it, but it is reality. Unless you own nothing in the United States, or are prepared to surrender all that you own here because its economic base was gained through injustice, you’re a participant at some remove. Greed, and taking from others, made it all possible. Either none of the money is icky, or it’s all been icked out for centuries.

I don’t believe in small feelgood gestures that do no good. If you want to do some good, get out there and do some. You don’t need money to do that, but if you invest purely for profit–even in UNSL and its ilk–you may obtain greater means to do that.

Plus, look on the bright side. How good will it feel to make a bunch of money off UNSL, then dump it, and wait and watch smugly as it tanks later on? Even the ethical investing crowd has to like that.


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