How Ethical Can An Investor Be?

trapEthics as it relates to investing isn’t something I’ve addressed before. And this is really due to the fact that what qualifies as an ethical investment to me may be far different than what’s ethical to someone else.

Nonetheless, I thought it’d be useful and interesting to address the subject once and for all and give my take on it. Keep in mind that what you read is just my opinion. Ultimately, you have to invest as you feel fit. No amount of money is worth being uncomfortable, in my opinion. If you can’t sleep at night, you’re doing it wrong. Likeย I often say, personal finance is personal for a reason. As such, make sure you’re doing what makes sense for you.

The Giant Gray Area

Ethical investing exists in a huge gray area. There really isn’t anything black and white here. Not only is a company’s ethical position subjective, but it’s just not possible for any individual investor to know every iota about a company and what it’s doing behind closed doors.

Furthermore, I believe it’s possible for anyone to find something unethical about every company in existence if they were to dig deep enough.

Now, I admit there’s a spectrum there – where you have moreย ethical on one side and lessย ethical on the other. But to think that any company exists completely on one side or the other, where it’s absolutely and completely unethical or ethical, is just plain silly, in my view. And that’s why all companies operate in a gray area, to varying degrees.

Now, one couldย make the case that, say, Philip Morris International Inc. (PM) is a less ethical choice than, say, General Electric Company (GE). Philip Morris may fall on the other side of the spectrum in comparison to GE. But how much more so? We all know that tobacco productsย are harmful, but what about GE’s poor historical record with pollution and their role in subprime lending during the financial crisis? And those who claim that PM has no redeeming qualities whatsoever must forget that they employ 82,000 people around the world and contributed more than $39 million to various charities in 2013.

Again, what one person finds ethical is really subjective and individualistic. However, it’s important to remember that your opinion isn’t any more important than anyone else’s. As such, your personal ethics aren’t necessarily any more “right” than anyone else’s.

Is It Possible To Ethically Invest?

The big problem with introducing a hefty dose of ethics when it comes to investing is that it’s almost impossible to succeed.

The first problem is that it’s impossible, in my view, to pickย any company out there that’s 100% ethical 100% of the time. Like I mentioned, there’s a spectrum that exists in a large gray area, but I find it unfeasibleย to find any company that exists in a black-and-white manner and all the way on one side of the spectrum.

You could certainly come up with a list of stocks you feel comfortable with and invest only in that particular subset of stocks, but how much are you limiting yourself? Is investing not capitalistic? Is the point not to benefit oneself financially? How much should ethics cost you? Furthermore, if you own any type of index or mutual fund at all – highly likely if you contribute to a defined contributionย plan through your place of employment – the odds are quite high that you own companies that you might not feel totally comfortable with anyway. It may prove difficult if not impossible to avoid companies that you may not completely agree with in all manners as it relates to ethics.

What About The Rest Of Your Life?

I often find it strange that ethics come up when certain stocks (defense, oil, and tobacco stocks seem to be particularly popular) are discussed, as if it’s this temporary period where people feel obliged to jump on a self-righteous soapbox to spew ethics.

But where are these people and their ethics the other 99% of the time? I often hear aboutย how unethical it is to invest in Big Oil because of the environmental damage, but are these same people driving around in cars powered by bubble gum and rainbows? What about the clothing we’re all wearing? Who made the clothing and what were the working conditions? We’ve all heard about the “smartphone sweatshops”, yet I don’t see any people any less glued to their devices. It seems easy to lambaste a company or an investor for their supposed lack of ethical behavior, yet quite difficult to actually live one’s life in a manner that avoids products, services, and people of questionable ethics.

Be careful not to be blind to the world around you. If you really want to invoke ethics, at least be consistent. Unfortunately, however, I think you’ll find that if you decide to adopt such a consistent policy of not buying, investing, or supporting anything or anyone that isn’t completely ethical 100% of the time (or at least arguably substantially ethical most of the time), you’ll end up looking for a new planet to inhabit.

Conclusion

Personal finance is personal. As such, you should only invest where you feel comfortable.

However, I implore you to really be mindful and consistent when it comes toย ethics. If you trulyย want to be a successful investor,ย be careful not to paint yourself into a corner with only a small handful of available companies to invest in that may not even be as ethical as you think.

In addition, be careful about insisting that other people adopt your ethics, because while you have every right to your opinion on a matter, so does everyone else. And ethical behavior really is subjective, as I think anyone could make a case as to why any company is ethical or unethical, depending on their stance and belief system. Doesn’t make anyone right or wrong. I’ve never come across any company that was 100% evil; likewise, I’ve never run across any company that was 100% altruistic. At least, not from where I’m standing.

As one last point, make sure you do your due diligence into a company’s behavior if ethical investing is important to you. I think you’ll find a lot more than just assumptions based on headlines, and you may or may not like what you find.

Full Disclosure: Long PM and GE.

What do you think? Is ethical investing possible?ย 

Thanks for reading.

Photo Credit: bplanet/FreeDigitalPhotos.net

Similar Posts

115 Comments

  1. Nice article, DM. Like you pointed out, its almost impossible to pick a completely “ethical” investment. Almost every company out there is probably stepping on people’s toes and companies (and the people in them) have to. If you are just going to be nice and giving money away, you are better off being a non-profit organization and investors have nothing to look forward to there.
    Good point raised on the clothes, smartphone sweatshops. Same goes for the food industry and almost every other industry out there. I for one, do not delve on this question when it comes to taking investing decisions.

    Best
    R2R

  2. Great Post Jason! In Germany most of people think that investing in general is less ethical. Generating passive income is not income by hard work. It’s much different to US or other countries. In my point of view, I don’t like smokers, but there a people who love to smoke – why not participate on their life? I have no doubt in investing as long as I don’t consume it. What’s about drugs? It’s an upcoming business while it becomes more and more legal. A lot of investors are seeing a new business to invest. If I become shareholder it doesn’t mean that I like to use drugs or have no doubt in using drugs. Rgds, Patrick

  3. The most important for me is to live as ethical as I can do. I know, not everything is ethic like you mentioned with the clothes. Nowadays it doesnยดt matter if you shop them cheap or expensive, they are mostly produced in nearly the same shitty factories in far east or Bangladesh. When I search white ethic companies for investing, Iยดm not able to buy even 5 companies which are 100% ethic. On the other hand the world is far away to be ethic. Our livestyle in Europe or US isnยดt ethic. But everyone in the world want to live like the people in the rich states. Rich states are provoking wars, they are often starting wars because they have interests in poor countries like oil, strategic positions or minerals. This is surely not ethic as we can see today in Iraq, Lybia or Ukraine. But poor people arenยดt ethic as well like IS in Syria or Nigeria. Is Nike for example really ethic? They produce sports shoes very cheap in fabrics in poor countries and they let children work for them – they know it but they donยดt want to know. Surely the same for Adidas and all these companies are writing on their homepages, how ethic they are and donยดt doing it. Thats really nuts.

    On the other hand I hope the world will get foreward and the misbehaviour will hopefully be reduced in the future. One part could be that the people will look more carefully as they will get more information. A company canยดt be to grey or even black at present because customers donยดt like this and refuse buying the products. We had this several times in Germany in the past years. So Iยดm investing in nearly every company when it is interesting and when they donยดt have problems with serious bad reputation. I like beer so I have no problems to buy brewery shares. I know. there are a lot of people like smoking outside and there are big companies selling cigarettes to them. This is no problem for me as I know they want to buy them. This is a part of self-responsibility and I donยดt want a state which tells me what I have to do. So ethic questions are only important for me, when it is a really really awful company I donยดt like. I have one in Germany: Rheinmetall. They are only producing military goods and nothing else. I donยดt need that in my portfolio.But thatยดs only one Iยดm thinking at the moment. Surely there are a lot more selling only military goods. But I donยดt have one on my watchlist or own some of them.

  4. At the end of the day, everyone invests to make themselves more money. Whether they choose to invest in sin stocks (cigs/alcohol) or staples such as food/beverage/automobiles, is up to them. Personally I hate when people spew ethics all over the place because like you said, if you dig deep enough, most likely every company has been unethical at one point or another.

    As long as each investor can sleep well at night then that’s all that matters. If they don’t like one particular company, then don’t invest in them but leave the the ethics out of it. I’ve read so many comments on articles relating to ethics its become nauseating. There is thousands of companies out there and if you can’t pick one of them then there is always under the mattress!

    ADD

  5. You note in your tagline you “value time and purpose over money”

    You just wrote a piece that basically tried to justify your choice to invest in “unethical” companies to make money because:

    “It may prove difficult if not impossible to avoid companies that you may not completely agree with in all manners as it relates to ethics.”

    That’s like saying, “well, everyone else has slaves or know someone who has slaves, so I guess it’s ok”. You write:

    “We all know that tobacco products are harmful, but what about GEโ€™s poor historical record with pollution and their role in subprime lending during the financial crisis?”

    Pretty thin. GE Capital made some lending mistakes, sure, but GE Healthcare, another division, makes lifesaving devices that help identify problems like lung cancer. Those are both subsidiaries of the same company. One made poor lending decisions driven by a very lax regulatory environment. The other division tries to make money by saving lives. Equating MO to GE as both unethical to justify investment decisions is disingenuine at best, and libelous at worst.

    Maybe you need to reevaluate the “purpose” you speak of in your byline or at least say “valuing money over purpose”.

  6. DM,

    I think this is an topic (or issue) that is often overlooked when it comes to investing. I agree with Patrick above that many people view investing, in and of itself, as an unethical practice as we are making money while workers are exploited, the environment deteriorated, governments corrupted, etc. However, although I do believe that these realities exist, no one is going to watch out for me if I don’t do it for myself. I would not want to grow up to have no financial security because I chose to let the evils of the world prohibit my will to invest and build a nest egg.

    One way to look at it could be that you, the investor, are better at spending your profits in ways that will benefit others (or hurt others less) than the companies you invest in. Kind of like a robinhood that takes their dividends and uses them for the better.

    I’m glad you wrote a post on this as it is something I think about often, although I don’t let it affect my investment decisions too much. I leave that up to value screening!

    Great article as always!

    Regards,
    Dividend Odyssey

  7. R2R,

    Absolutely. To try and pick out only companies that have never stepped on anyone else’s toes would probably be an impossible task. In the end, one really just has to make sure they’re comfortable with what they’re investing in. I leave ethics at home when it comes to investing because, otherwise, it’s unlikely I’d have any companies at all to invest in.

    Thanks for dropping by!

    Cheers.

  8. Patrick,

    Yeah, that’s a shame. I guess those people that view investing itself as unethical won’t mind asking for handouts when they’re too old to work and earn money anymore? Is relying on the good grace of society ethical?

    I generally leave ethics out of the mix when picking and choosing which companies I’m going to invest in because, like I mentioned, I’d have nothing to invest in if I want to take it to the nth degree.

    Thanks for dropping by!

    Best regards.

  9. olli,

    Right. It’s funny how people like to pick and choose where they invoke ethics. They don’t mind investing in a clothing company that may employ questionable tactics in terms of cheap labor, but then lambaste tobacco companies. I find it amusing, to say the least. Energy companies are bad, yet people don’t seem to mind using the electricity in their homes that’s most likely powered by – you guessed it – natural gas or coal.

    I think in the end it’s best just to do what you’re comfortable with. If a company doesn’t really fit for you, then it’s probably best just to avoid it. However, I think most people who pick and choose based on ethics would be sad to discover that even the companies they find ethical might not be so ethical in the end. And I don’t know if a retail investor can really discover all that a company does anyway. So it’s really just a personal call there.

    Cheers!

  10. ADD,

    I agree. The comments relating to ethics (like the one below yours) are indeed nauseating, to say the least. It’s as if people live in some kind of bubble where everything they do and touch is ethical. It’s really amusing. In the end, investing is about turning a sum of money/income into a larger sum of money/income. That’s pretty much it. And I think many of us look at that money/income in terms of the time it can buy. At least, that’s how I look at it. Nothing ethical or unethical about it at all. Just a means to an end.

    But you’re right in that, if you dig deep enough, there’s something about every company that someone, somewhere might not like.

    Thanks for adding that!

    Best wishes.

  11. Etraitor,

    Ahh, I love the smell of self-righteousness. ๐Ÿ™‚

    As I mentioned in the article, I would agree there’s a spectrum there. I wasn’t saying that GE and PM are equal, but some might argue they are. Really depends on your viewpoint. I would argue, however, that PM and GE might be closer than some think. Depends on how fanatical you are about pollution. But to say that one company exists completely on one side or another of the spectrum would be “disingenuous at best, and libelous at worst.” You mention GE’s redeeming qualities, yet passed right over the fact that PM employs nearly 100,000 people around the world and gives millions to charities.

    I guess the 80,000+ people PM employs around the world should just be jobless? And those charities should find other benefactors? Are the charities that accept money from PM unethical? Maybe we should stop supporting all of them as well?

    I’m guessing you don’t use a smartphone that may have been produced in a sweatshop? What about your clothing? I notice that people love to pull up a soapbox (yours seems particularly elevated) when it comes to certain investments, yet they also decide to step off of it when it comes to enjoying the creature comforts of first world life. I’m guessing you’re enjoying first world creature comforts since you’re using a computer hooked up to the internet that’s powered by electricity. You know, things that are all just magically created out of thin air with no harm to others or the environment.

    And since I’m such an unethical person, it would probably be unethical of you to stop by the site and support what I’m doing and discussing. Hint, hint.

    Take care!

  12. DM,

    Excellent write up on ethics. No company, person, or group is ever 100% in the right or wrong. Gray area exists in almost every facet of life and business. Like you said, dig deep enough and everyone is a bad guy.

    The important thing with my purchases, is that I have confidence in their performance and ability to not flush themselves down the drain doing something stupid (ex. Enron – they were an ethical blunder for sure). Second most important thing, is that my wife does not give me crap about what I buy. For that last reason I have no PM; at least not yet, still never say never.

    Long GE as well,
    Gremlin

  13. At the end of the day, people invest to earn themselves more money. I think it would be very difficult to stick to every moral you believe in when investing, as it is such a personal choice. There are more ethically sourced stocks, but not all of them would be.

    Thought provoking article, thanks!

  14. I love the discussion of this issue. It’s one of my main critiques of our index investing approach: I end up buying a lot of companies I wouldn’t actually buy products from, and many whom I think are pretty unethical.

  15. DO,

    “No one is going to watch out for me if I don’t do it myself.”

    Exactly. Those that may think your investment activities or decisions are unethical surely aren’t going to be writing you a check when you’re 70 and no longer working. I can just about guarantee you that! ๐Ÿ™‚

    Thanks for the support. Glad you enjoyed the article.

    Best regards.

  16. Gremlin,

    Haha. I didn’t factor in the significant other there. That’s a good point. Happy wife, happy life. ๐Ÿ™‚

    And I’m with you. I care far more about ethical behavior when it comes to responsible management of the company than I do what other people might think of a particular company’s products and/or services. I generally draw the line at illegal behavior, but even then you’re getting into a gray area (like WMT’s bribery scandal). You’re right: dig deep enough and everyone is a bad guy.

    Cheers!

  17. Nicola,

    Indeed. Investing is about turning $1 into $2 or turning $1 into a steady stream of nickles, dimes, and quarters. And, for me, it’s then turning that money/income into time. ๐Ÿ™‚

    But you’re right. It’s really a personal choice. As long as you can sleep at night with the stocks in your portfolio, then you’re set. Ignore the noise.

    Best regards!

  18. DB40,

    Right. Great point. That is a potential drawback of index investing. I actually look at it not from the ethics standpoint, but rather quality standpoint. There are a lot of companies I’d rather avoid in terms of quality/fundamentals/qualitative aspects (which is just one reason I don’t buy index funds), but ethics can be just as important to some people. It’s just one of those things. Either you’re okay with it or you’re not. If you’re not, however, I’m afraid your investment options will be extremely limited.

    Thanks for stopping by!

    Best wishes.

  19. Being 100% ethic surely is impossible. I think it is possible to invest in regards with our values though, meaning we choose companies that do “more good” or “less harm”. Like you mention though, it’s more a matter of being comfortable with our holdings.

  20. Nice post DM. Like you mentioned, it is difficult (almost impossible) to find any company that is 100% ethical all the time. Even great companies that have existed for several decades have issues that can be picked upon. MCD for example has fast food that is generally considered unhealthy. KO and PEP have sodas that are high in sugar and causes obesity. Even stocks like GIS have breakfast foods that are unhealthy. WMT has poor wages and so on and so on. So no company is immune. if someone wants to be ethical in investing, I guess they just have to settle on “less evil is better than more evil”.
    As an investor, I don’t look at these factors when trying to invest.

  21. Mike,

    Agreed. I think there’s definitely a spectrum there. Although, I have a hard time really deciding when and where to invoke ethics. Some like to point to McDonald’s as a purveyor of obesity/diabetes, yet Panera’s steak panini has twice the calories of a Big Mac. In the end, I think some people just tend to jump on bandwagons and follow headlines rather than doing any kind of independent critical thinking. I personally have a hard tie figuring out where to draw the line in the sand because I’ll end up with probably no companies in which to invest in.

    But you’re absolutely right in that you have to be personally comfortable with your holdings. As long as that’s what happens, that’s all that really matters. ๐Ÿ™‚

    Cheers!

  22. DGJ,

    Agreed. Pretty much any/every company out there can be picked on for something.

    It’s funny you mention MCD. I just mentioned in the prior comment to yours how people like to throw MCD out there as a company that sells food that’s “generally considered unhealthy”. Yet, Panera (a company that’s considered pretty healthy) sells paninis that have twice the calories of a Big Mac. So it’s really all in perception. People tend to hear or read a headline and run with it. I once attended a class/workshop that discussed how perception is almost always more important than reality. Seems that’s true in almost all aspects of life.

    Thanks for dropping by!

    Best regards.

  23. That is correct. Perception is everything sometimes. Even CMG (of which I am a shareholder) portrays healthy food – they are health compared to others, but some of their items run up to hundreds of calories too.

  24. I’m not going to get into which businesses I find more ethical than others here.

    But unless you are buying the first stocks of a company, your money is not going to the company but to other investors. Some of those investors are employees of the company getting paid in stocks or stock options, but most are not. Therefore I don’t find it useful to avoid investing in companies that I find to be inethical.

    In fact, if you do invest, this gives you a bit of a say in how the company is run because you are a partial owner. When you write letters to the company, including the information that you are a stockholder can help your case. When the company says they are forced to do something you find inethical because they must appease their stockholders, you can provide a counterexample.

    Another interesting side-effect of owning stocks in companies you find inethical is that it puts you in a win-win position. If the company shares its profits with stockholders, you win because you get some of that money. And if the company goes down the tubes, you also win because the world is a better place without the company in your opinion.

    I don’t think only rich people should be able to profit from these companies. As you’ve said elsewhere, investing in the stock market is still the best way to make real money in a halfway safe way. And now that it’s possible for not-rich people to participate (discount brokers! index funds!), I am participating. (At least until all the extra ill-gotten profits go to CEO pay instead of dividends.)

    So I think it’s more important to focus on ethics when making buying decisions and when you’re making decisions about charitable monetary and time contributions. Although here, as you said, it’s difficult to support only companies that are ethical, especially once you’ve gotten used to certain things (like using motorized transportation). In these cases I just try to make more ethical decisions than I would if I weren’t trying. This is easier as a consumer than as an investor in dividend stocks because you have many, many more choices.

    If someone does think that some companies are more ethical than others and that they don’t want to invest in the less ethical companies, they could at least use ethics as a tie-breaker when they can’t decide between companies.

  25. I’m guessing that people who are opposed to passive income feel that in their old age they should live on savings and rely on family (especially family member who have a history of taking handouts from them, such as when they were children). (If they have more ideas, I would like to hear them!)

  26. DGJ,

    Yep. I actually just loaded up the “nutrition calculator” that Chipotle makes available on their website. A chicken burrito with some fixings and a side of chips & salsa has 1,900 calories. That’s a belt buster!

    Cheers.

  27. Debbie M,

    Good point there. I originally had a section of the article dedicated to addressing how common stock works and how a company doesn’t really care if you buy stock on the secondary market or not, but I felt it was getting away from the core point. So I decided to address ethics from an investor’s point of view, rather than a company’s.

    And certainly one can be as ethical or as unethical (within legal bounds, unless you want to go to prison) as they want in their life. Some might decide to take the dividends from an oil, defense, or tobacco company and donate that to charity. Or they might become financially independent from dividend income and use their time to benefit the local or broader community. I think there’s a huge gray area there, not just as it relates to the companies one might choose, but also in terms of one’s actions as it relates to living an ethical life. One can be a crappy person and invest in a manner that they think is extremely ethically; likewise, a person can be a fantastic human being but invest in companies that others might think are unethical. In the end, it really comes down to you being personally responsible for yourself and being happy with your investment decisions. No stock is worth losing sleep over. There are thousands of stocks available to the investor, so it makes no sense to invest where you’re not completely comfortable. I personally sleep like a baby.

    Cheers!

  28. It’s amazing the stereotypical views on ethics that seem to dominate, when as you point out, there may be unethical aspects of so many businesses in ways that we just don’t usually consider. And of course vice-versa, with some good things tobacco companies do for example. Everyone will have their own personal filter when it comes to these things, based on what they’ve experienced in their own lives, and to try and classify some investments as universally ethical or unethical is just impossible.

    Fantastic article Jason, and a really great topic to discuss.

    Cheers,

    Jason

  29. Hi DM,

    Love the blog. First time poster but have been reading for a year or so. Started my own freedom fund about 2 years ago and it’s progressing nicely. Thanks for all the hard work you put into this.

    I totally agree with you on the “Personal” side of ethics here. Everyone is different and each is as valid as the next. That said, a little while back after you suggested Philip Morris International, in your opinion, would have a great year in 2015, the first thing that hit me was “huh…tobacco. I thought we were buying less of that these days”. So I looked a little through their financials and generally agreed with your write-up. They look sound and sell a product people enjoy.I personally do not care what individuals choose to do with their life as long as it does not effect me. It is their personal choice to smoke if they like.

    About a week later I came across this video which I was a little stunned by (http://www.youtube.com/watch?v=6UsHHOCH4q8). I recommend having a watch of all of it.

    My thought before of cashing in on a great dividend growth stock was dashed. My ethics kicked in I guess. I thought – If companies can act exploit others on a global scale- like PM does – how sustainable can this system be? It is surely only a matter of time before people band together and revolt against the system. It is disturbing how much power PM has over some countries.

    I am a little like you in that I do not own any physical property-all my money is in stocks/bonds and that is the way I like it. I enjoy looking through financials and finding a great company to give me returns so I can retire comfortably one day. I also am scared for the future of Capitalism if it continues down this route (not to mention my own freedom fund). After all capitalism is in a way, a religion everyone lives by. It has its own rituals that if you embrace, you will be rewarded for. It is an idea. It is not something physical that has to govern us. People can choose capitalism or the next best thing. It seems to me that if this is not nipped in the bud (shady practices like that of PM exerting their influence and power on the vulnerable), they will destroy the system which they have manipulated so well.

    It makes me a little sad that this happens and also anxious for the future as I know that this way cannot be sustainable. Is it a matter of time before people say- “Screw it. Capitalism does not work for most of us. We could do things better”. Which would invalidate my freedom fund.

    I don’t think that up and coming countries will embrace capitalism as we have when they are being exploited heavily for gains.

    I know this post is a little kooky and tin foil hatted but I had been thinking about this a lot and happened to see this post so thought I would add to it.

    Do you think the future of capitalism stands to do as well as it has done in the past few hundred years or do you think that the interconnection we all share with each other will soon shake away the chains of capitalism into something else?

  30. Great article. So glad to be on the same page as you here. I was talking to my father about this subject recently and many of these points came up. He was specifically against tobacco stocks at first but came around. It won’t affect the business one way or the other whether or not you’re invested and receiving the growing cash payouts. In fact, you could even use PM’s dividend payout to donate to anti-smoking programs or KO’s dividend for diabetes research. My biggest point was the one you mentioned though that every single company that exists could be made to seem awfully immoral. Thanks for sharing and happy investing!

  31. Jason,

    Absolutely. Everyone has to use their own personal filter when it comes to ethics, investing, and really everything else. I personally don’t mind when people don’t invest in certain companies because of personal ethical issues. I do however mind when people like to jump up on a soapbox and condemn others because their ethics don’t match. I say live and let live. Invest where you’re comfortable and let others be. I honestly don’t know why that’s so complicated. In fact, I’d argue it’s unethical to bully others into believing in your ethics. ๐Ÿ™‚

    Thanks for dropping by!

    Cheers.

  32. Ollie,

    PM might not fit your portfolio. Nothing wrong with that. However, keep in mind that John Oliver runs a satirical news program. The first Marlboro Man, William Thourlby, just died recently at the age of…drumroll please…89.

    As far as your question there at the end, I’m not concerned about that. When it’s all said and done, people strive for a certain quality of life. And the countries where capitalism is just starting to ramp up you can already see people responding to that and qualities of life improving. As long as the world consumes products and/or services there will be a large group of companies there to provide those products and/or services. And there will thus be investors there profiting off of that. I think your comment appears to imply that these companies aren’t providing some value to society. As long as there is value there, profits will follow. Just my take on it! ๐Ÿ™‚

    Best wishes.

  33. Ryan,

    Hey, good timing there. Glad you guys had a conversation about this recently. ๐Ÿ™‚

    I think this is just something that people have to decide for themselves. I present information as I see it. Doesn’t make it any more right or wrong than anyone else. But I do think that if one were motivated enough and had access to enough information, they could find “dirt” on any company out there. Though I think there’s a spectrum there, a lot of companies probably aren’t all that far apart when you really sit down and think about it. Really just depends on your individual values.

    Thanks for the support!

    Best regards.

  34. As far as whether ethical investing is possible: absolutely, as long as you are not purporting to solve every evil out there in the world. Obviously I invest, but have never been comfortable with the ethos that shareholders come first over a company’s other responsibilities.

    Though I agree that close to 100% of the companies are unethical by some standard, I don’t think that’s a reason to avoid ethical considerations. It does make it impossible to trust a third-party “ethical index.” Similarly I don’t believe that to be anti-oil, someone needs to live in a wool yurt in a field and avoid all plastics. Trying to take on the ills of the entire world is useless and to make it an all-or-nothing proposition is to stymie any attempt at change, because “nothing” is a lot easier to do than “everything.” Using the coal example, dropping off the grid and giving up electricity may not be nearly as effective towards anti-coal goals as staying on and leveraging grid-customer status to lobby for its reconfiguration to solar. I think small and piecemeal action is better than no action, and that it’s a good thing for someone to pick one or two problems they care about and do what they can to address them, whether that’s changing their personal habits or investing habits or both. I’d feel like a hypocrite if I was an activist against something locally but supporting companies who did the same thing nationally. Personally I love the ethical activist investor model, worming in to change things from the inside. Can’t do it as an investor but I have done it as an employee.

    There are definitely companies I want nothing to do with, especially in my own industry (chemicals). E.g. companies who drag their feet on instituting basic safety standards and jeopardize their workers’ lives to save money. They do it for shareholders and it disgusts me to be the beneficiary of that behavior. Part of that comes from once being one of those workers. I also avoid places in the sector that I know treat their people like crap (without actively endangering them). If they treat their workers badly, they’re a bad company. They’re not going to consistently be coming up with better production methods and new polymers if their brightest chemists leave within two years and the employees who stay are spending their shifts mentally writing cover letters. They might have good numbers, but it’s from cuts and accounting sleight-of-hand and buybacks, not anything sustainable.

  35. Jana,

    Right. I did mention in the post that I think there’s a spectrum there. I wasn’t implying that all companies are one and the same. Rather, it’s a subjective nature and what one person might find ethical another might not. Depends on your individual values.

    I think we’ll have to agree to disagree on one’s stance on certain matters. To constantly harpoon an industry and then benefit from the very products/services they provide is purely hypocritical to me. Again, you obviously disagree there. Nothing wrong with that. ๐Ÿ™‚

    Furthermore, some of the things you’re discussing (lobbying, activism) is really outside the scope of investing. And they’re not mutually exclusive either. However, how comfortable one might be investing in a particular industry or company while simultaneously supporting causes against the nature of those investments is really an individual call. I personally don’t mind Big Oil or tobacco companies. Big Oil has allowed civilization to prosper unimaginably and people have been using tobacco products for centuries now. In addition, I’ve always found it funny that people mention the dangers of smoking, but then don’t mind investing in alcoholic beverage companies knowing that a lot of people die from drunk driving. It’s really all personal choices, though. As long as you feel comfortable and can sleep at night, then that’s really the most important thing.

    Cheers!

  36. Definitely good, valid points. Maybe I am too cynical. Thanks for replying so fast also. I guess you have a little more time to do that now!

    I guess I will try and post here a little more now. It’s nice to talk with someone who is on the same wavelength as you rather then trying to talk about these kinds of things with people that don’t know/care about personal finances.

    Looking forward to the next time.

    Thanks

  37. Goodness. It is all quite depressing. Mankind is flawed.

    I don’t have the answers either.

    We are index investors. Mostly because we do not find joy in the doing, when it comes to stock picking. I also doubt that we could out perform index investing.

    Too, I don’t feel any company is going to put themselves in a bad light in their own literature. Sure you may know that they sell alcohol, tobacco, or, oil. Those to me aren’t a problem. I smoked for eight years. I quit. My choice too. If someone had taken the cigarettes from me; because they were looking out for my best interest, I certainly would have felt my rights had been violated.

    What I fear is “real” crime. I would hate to know my dollars helped in murder, slave trade or, sex trafficking. But, like I said I don’t think you read about such in a companies “mission statement.”

    On top of that, I don’t feel one can trust public journalism to tell the truth. They too are trying to turn the heads of the masses and, will mislead the public for their benefit.

    Our dollars go to support the charities of our choice. As,many support their charities of choice. All of us hoping to benefit society. Yet, how often do we read that this, that, or, the other “charity leader” has committed unthinkable acts of victim abuse?

    Great faith leaders seem to be in the headlines every few years; Not to mention public officials. Many of us have supported these types believing we were doing a great thing. And we were! We can not be held responsible for every wayward individual that does the unthinkable.

    I do think about Monsanto. I don’t like what I here regarding GMO produce. Their seeds that are now patented.
    It is quite unsettling to think about the future of food in our country. But, if you hear someone in favor of Monsanto speak, they can make it sound like it is a great tool in wiping out world hunger.

    The same can be said for almost any argument. There are always more sides than one.

  38. Are my GE (healthcare looking for a lungcancer cure) dividends really more ethical then my PM(causing lung cancer). Without the smokers I make no money, should I be an ostRich or just Rich

  39. Jason,

    Very interesting post taking out some fundamental question about ethics, in your and most of comments, it mentioned about the ethic of the companies we invest in, but what about us investor, don’t you think we are part that system?

    A company need investment for that she is selling shares an in return she gave us a bit of the cake. During difficult time how do you think these companies can afford continuing paying dividends by having lower ethic behavior.

    So just don’t throw the stone to them before having reflecting that we are part of it.

    Cheers, RA50

  40. Very interesting points. What to invest is a personal decision. If you invest in something and can sleep well at night that’s all good for you.

  41. I’ve never understood the ethical argument in regards to investing. I doubt theres any company that someone could be behind 100% of the tine, let alone getting multile people to agree on it. You bring up some great points about the complaints against big oil yet people are driving around in their SUVs. Or mining for precuous metals or working conditions for making smartphones, but everyone is glued to them every day.

    Also where would an ethical investor draw the line? If youre against alcohol does that mean restaurants cant be invested in? Or the skyrocketing costs of healthcare means no investing in big pharma? Or what if you have an issue with 3M, does that mean you cant invest in any company that uses Post-It notes? If youre against big oil then that means you shouldnt use any plastic products.

    To me I’ve always taken a “to each his own” attitude. I don’t invest along any ethical grounds because theres way too much gray if not all gray. But if someone wants to do so then more power to them.

    One point that I think a lot of people miss is that just because you own shares in a company that doesnt mean you support the company. The company doesn’t receive any funds from you because you own shares. The company only receives money from you if you invest directly through IPOs, secondary offerings, or directly through debt offerings. If you buy shares through the open market then the company sees none of that capital.

  42. Great post Jason. Touching on this topic is long overdue. I agree with the PERSONAL statement that you make. It drives me crazy when I have an article on Seeking Alpha and most of the comments question why I would invest in tobacco. In a free market I am free to vote with my money by investing in any legal entity.

    I cannot think of any company that is not potentially harming people, animals or our environment.

  43. One thing I’m surprised you didn’t differentiate between is the secondary versus primary market. If one wants to make the assumption that ethics in investing matters and that Phillip Morris is an unethical company, then how would buying shares in the secondary market be an unethical action? You actions in no way affect PM, they don’t get any money and as a minority shareholder you are causing them to do anything differently.

    This passive investing where no money is exchanged with the company (only with a former shareholder) cannot be considered unethical and on the flip side how would investing in a very ethical company in the secondary market make your actions so grand? You aren’t providing them any assistance in the pursuit of this ethical dream world.

    On the other hand, if one wanted to say ethical investing mattered and you were participating In primary stock or bond offering then maybe you could say you are helping the companies interests.

  44. Joy,

    I think you nailed it at the end. There is always more than one side. You can really argue any company any way you want. But I think the bigger point is that there’s really no need to argue at all. All that really matters in the end is that you’re doing right by your values and the stocks in your portfolio aren’t keeping you up at night. As long as you’re staying true to yourself and you’re not compromising your values, then I’d say you’re probably in pretty good shape. That said, I also wouldn’t feel comfortable investing in any company that was involved in murder or sex trafficking. I definitely draw the line at illegal and anything that’s unquestionably immoral, which I view both of those things as. Selling a legal product like, say, cigarettes, however just doesn’t bother me. But that’s apples and oranges.

    Thanks for dropping by!

    Take care.

  45. Kevin,

    Yeah, good point. I think, like Joy mentioned, an argument could be made for anything. Once could argue that investing in a company like Novo Nordisk is profiting off of other people’s diabetes and thus investors must secretly hope that diabetes rises, which would increase demand for their products. Every time investors cheer increasing earnings for a company like that it could be argued that they’re also cheering an increase in the prevalence of serious health issues. Like I said in the article, there’s a big gray area there. It’s definitely not black and white. ๐Ÿ™‚

    Cheers!

  46. RA50,

    Right. It depends on how you look at it and which company you’re talking about. A company like Philip Morris isn’t actively issuing shares; rather, they’re buying them back. So buying shares on the secondary market doesn’t really matter to PM. You’re not really directly financially supporting the company. So it’s kind of a moot point really. But other companies that actively issue shares are another story.

    However, it’s not just investors that “are part of it”, but consumers/society as well. If you put gas in your car or use electricity, you’re probably supporting Big Oil. If you pay taxes, you’re indirectly supporting, and paying for, weaponry. Again, it’s a big gray area. Definitely not black and white. ๐Ÿ™‚

    Best regards!

  47. JC,

    Right. You and I are on the same page. I also adopt an attitude of “to each their own”. If someone wants to attempt to invest ethically, more power to them. If not, more power to them as well. I just don’t appreciate people that try to dictate where others should invest. What does John Doe’s ethics have to do with my investments? Absolutely nothing. ๐Ÿ™‚

    That’s a good point there at the end. Like I mentioned in another comment, I deleted a section I wrote on that because I felt it was getting away from the core message of the article. That’s really looking at it from the company’s perspective, rather than the investor’s.

    Thanks for dropping by.

    Best wishes!

  48. DD,

    Right. It’s a personal choice. And I think everyone has a right to invest as they see fit, but it does bother me, like it bothers you, when others try to forcefully spew their ethics while standing on a soapbox. Let’s talk about fundamentals and qualitative aspects, but let’s leave the ethics out of the conversation. There’s no way everyone will agree on it anyway, so it’s really pointless. ๐Ÿ™‚

    Best wishes!

  49. Great post DM,
    I definitely agree with your point about being able to pick any company thatโ€™s 100% ethical 100% of the time. It’s extremely hard to not harm the environment, people and animals day in, day out.
    CG

  50. Jordan,

    Yeah, I originally had a whole section discussing the secondary market, but, like I mentioned in a few other comments, I deleted it because I felt it was getting away from the core message of the article by focusing on the issue from the company’s perspective rather than the investor’s. Besides, if you really have an issue with smoking/tobacco/cigarette companies and you feel it’s completely unethical to invest/support them in any way, it’s unlikely it’ll matter whether you bought those shares directly from the company or not. Another reader mentioned murder and sex trafficking. Obviously, if I ran into a company that is somehow involved in something like that I’d absolutely avoid it, secondary shares or not.

    Thanks for adding that!

    Best regards.

  51. CG,

    Right. It’s hard to draw a line in the sand when the entire stock market is made up of sand. ๐Ÿ™‚

    I personally don’t have a problem with any of the companies I’m invested in. If I had a problem, I wouldn’t invest. Simple as that. And that’s how it should really work for everyone. If you feel comfortable, then you’re in good shape. If you’re uncomfortable, well, there are a lot of other stocks out there.

    Cheers!

  52. DM,
    I think Debbie’s point is an important one and I make it all the time.

    Investing in a stock doesn’t help that company. On the contrary it gives you a tiny amount of control that you can theoretically exert via proxy voting to improve the ethics of the company if you want.

    By owning a stock, and thus reducing the remaining supply of shares and slightly increasing the price, you are helping other current shareholders, which typically includes board members and management, but you aren’t helping the corporation directly. In fact, if the company buys back stock, if you make that stock more expensive, that hurts the enterprise.

    If you want to “vote against” a company you don’t like by not investing in it, and “vote for” a company you do like by investing in that one, you can do this if you invest in corporate bonds. When you own bonds, you reduce the supply of that company’s debt and thus slightly reduce the interest rate they have to pay. This has a direct beneficial effect on their balance sheet.

    But of course common shares are not bonds.

  53. exactly right! If you simply don’t like a company, don’t invest in it. Plenty of other stocks available ๐Ÿ™‚ Have a good one!

  54. Grant,

    Agreed. Like I mentioned, I was originally going to discuss that in the article, but left it out because I thought it was getting away from the message. I’ve seen others make that point in other articles/discussion, but I’ve also noticed that people who are pretty firm on their stance really don’t care. Like I said in another comment, if there was a company out there that was doing things that I found abhorrent, I wouldn’t buy their stock period. Wouldn’t matter to me if the shares are secondary or not.

    I hadn’t thought about the bond angle. That’s pretty interesting! ๐Ÿ™‚

    Edit to add: I think one could argue around the secondary market point as well. You could argue that buying stock in a company is increasing demand and making the stock more expensive (as you pointed out). However, any management that relies on stock options will surely benefit. Thus, you would be supporting the company in a way via management’s compensation. Just another way to look at it. Again, I think if I were to completely disagree with a company’s practices, I wouldn’t want to own the stock at all.

    Cheers.

  55. Mantra,

    Great article through and through. I agree and think it’s impossible and you end up limiting yourself, as you’ve stated. One could argue that they invest into a company earlier on to see them succeed and change the world in some way shape or fashion – but 99% of the time, that likely isn’t the case. We invest our money, to provide some sort of return in lieu of not using the money for other items, i.e. living, etc..

    This definitely is going to stay personal and is always going to be a toss up for hypocritical – given your exact reasons above with the clothing, the smartphones, etc..

    I invest for the reason to build an engine that produces dividends to reduce the “need” i place on working for someone else. Ethics doesn’t primarily enter into my realm – because one can see that I own Oil (Shell, Total), Defense (LMT), and Tobacco (PM). They are fundamentally sound companies that employ a great deal amount of people and perform well.

    Nuff said. haha

    -Lanny

  56. DM,

    When I saw the title of the article I immediately thought this is a lightning rod topic and I was watching for falling soap boxes among the comments. I am pleasantly surprised to see that most people have taken a practical view and realize that we all have choices regarding both product use and stock selection.

    MDP

  57. Lanny,

    Nuff said! ๐Ÿ™‚

    I hear you. We’re definitely on the same page, my friend. The stock market, in my view, is one giant gray area. To try and pick out different shades of gray would just be a pointless and fruitless exercise and really limit your opportunities. Just my take on it.

    Thanks for dropping by!

    Best wishes.

  58. MDP,

    Yeah, I wasn’t sure how the conversation would go, but other than one comment it’s been largely civil. I’m a very pragmatic and logical person, so arguments filled with emotions just really do nothing for me. And so I do my best to avoid them. ๐Ÿ™‚

    One great aspect about living in the US in 2015 is that we all have choices. Freedom is an incredible gift, and I think we all have an equal right to that freedom and the choices it provides.

    Thanks for adding that!

    Best regards.

  59. I wouldn’t take it personal that he has a strong opinions and disagrees with you. In fact, even though we totally disagree with him, I hope you would want various opinions, which sometimes provokes discussion, and is the backbone of your site. It enhances your site when there are opposing views. When I am investing in a company, frankly the only green I care about is the color of money. That might piss off someone with strong ethical views, and so be it, but it’s my money, and though I respect their views, they should respect mine as well.

  60. Brian,

    Oh, I don’t mind when people disagree with me at all. I’m a pretty pragmatic and logical person, so it’s tough for me to get real emotional about stuff. However, I do mind when people cross the line into potentially disrespectful behavior/comments. And noting that I was being disingenuous or libelous (really?) is a pretty serious and disrespectful comment. I charge nothing for people to come here, and I only aim to inspire/educate others and learn from others as well. So I definitely don’t appreciate people coming by and using up my bandwidth to disrespect me. And it won’t be tolerated. Respectful disagreements are more than fine. Disrespectful disagreements, however, are not. I just want to be clear about that.

    But I do agree with you in that as long as the money is green and a company isn’t doing or selling anything illegal, it’s unlikely that I’ll have a problem. ๐Ÿ™‚

    Best regards!

  61. I concur with your evaluation that determining what is “ethical investing” is specific to each investor. What anyone decides for themselves has no bearing on what I decide for my self.

    Another route to take for someone concerned with the ethics of any company is to actually purchase the stock, not necessarily with any eye towards their potential financial gain (or loss) but to make use of the proxy voting system to have their voice heard on an issue or even by submitting a shareholder resolution. (Indeed, some former colleagues of mine with a social justice perspective formed an “investing club” for just this purpose.)

    If you feel a company’s ethics are not what you’d like them to be rather than critiquing those who purchase shares in said company, another tactic is to affect change as outlined above.

    Great discussion on a topic related to our goal (investing) but with a different aspect of what it all means – nicely done, DM!

  62. ToughMother,

    Right. It’s really an individual call, and what you decide or anyone else decides should have no bearing on me or anyone else.

    That’s a good point there about taking advantage of the proxy, but I think it’s pretty difficult in real life. Owning 40 shares of Coca-Cola or whatever gives your vote extremely little sway. It’s certainly not a bad way to go about it, though I’d argue that one could do better via some type of activism/charity work if that was really their aim. That said, I do think that being able to vote is one of the primary benefits of owning individual shares, and it shouldn’t be taken lightly. But I don’t look at it through the lens of making grand change, as that’s pretty limited.

    Thanks for the support. Hope you enjoyed the article! ๐Ÿ™‚

    Best wishes.

  63. DM,
    Thanks DM. This is a good article. I agree that this is very personal area. I invest in PM – but I don’t think I am an unethical person. I let people choose whether they want to smoke or not. What about Lockheed Martin? … I am okay with that too.
    Div4Son

  64. Seems like every time this subject comes up the prime target is Philip Morris. I just purchased shares of PM this week and will continue to. I happen to think that people can make their own decisions about their lives, good or bad. Kinda reminds me of my stock picks. ๐Ÿ˜ฎ

    OT: Did you heard about KRFT ?

  65. Div4Son,

    Definitely. As long as you’re happy with your stocks and you can sleep just fine at night, then I’d say you’re just fine. ๐Ÿ™‚

    Cheers!

  66. Captain,

    Indeed. People have a right to choices, and of course they have to deal with the consequences of those choices… either way.

    Yeah, that’s great for KRFT shareholders. 3G is buying up the food companies and paying big premiums. The unfortunate part of that is that it’s limiting our choices somewhat going forward. But I think I can make due with the 600+ CCC stocks that’ll be left. ๐Ÿ™‚

    Best regards.

  67. No person or company is 100% good or 100% evil. I think that many investors do the best they can with the information they currently have on hand today.

  68. Thanks for the word nauseating, thats a new one for me and this discussions are really getting in this way if it is going too far. Sometimes Iยดm thinking about ethical questions as we have in Germany some people thinking they are 100% ethical and all other people who have different opinions are bad. I donยดt think everyone is only bad or good, Even the badest persons have some good characteristics.

    Ethic investment doesnยดt really work in my opinion. We had a very popular example in Germany the last years with wind energy. The company is called Prokon and they advertised everywhere that if you buy the shares (not rellay shares, lets say pieces without any rights called “Genussschein” in German) you will get 8% dividend. And they were advertising that if you invest in them, you are doing a lot for green energy and against coal, oil and nuclear power plants. I know some people that this was the main reason to invest in this and if I asked them, if Prokon gets bankrupt and the money is gone what they will do? They argued that this is for a good cause and they want to support green energy. Very bad decision as Prokon went bankrupt last year and most of the money is gone now. When Prokon went into difficulties in the beginning they informed the people to support them into buying more “Genussscheine” and there were really some people investing more money into it before it went final bankrupt. This is unbelievable for me and if you think logical over it, there is no reason to include feelings into investing. The second I learned on this was that it is not possible to invest really ethical because Prokon for example sold themself ethical but they werenยดt. Ethic is a very personal feeling and everyone has a different opinion to it is a third conclusion of that.

    The Prokon site is: http://www.prokon.net/

    So I donยดt judge anyone who is investing in what company he wants to do. I personally only avoid companies which I really dislike and for this I have only one at the moment. I can live with it without problems because I have more than enough choices. I even have no problem to buy Nike if I find this is a good investment – although I donยดt like the practise how they produce their shoes. But personally I canยดt change it same as I canยดt change the world to be a better one. I can do this only in my personal life, and this is limited enough.

  69. True. Sharing information to make educated decisions is one thing but badgering people over those decisions is another. I never understood the comments you get on posts about PM. Everyone knows how the tobacco industry works, no one’s got new or useful information. It’s up to individuals to decide if they dislike an industry, or have no feelings, or if there’s such a thing as a “better” oil or tobacco company (or regular company, like a B corp) and allocate accordingly. Or not.

    You can say “where’s the line?” but for those people inclined to draw lines I think those lines are clear, even if everyone varies on where they’re putting them.

    >Furthermore, some of the things youโ€™re discussing (lobbying, activism) is really outside the scope of investing.

    For those of us .00000077% stakeholders, but maybe someday ๐Ÿ˜‰

  70. Good points all around, DM–

    I am certainly not an ‘ethical investor’ (in the sense that I have no qualms about buying vice/oil/gun companies), but I do believe that there is something inherently ethical in acquiring and putting capital to work. It’s participating in the system that powers our world. Whether folks want to complain about it or not, we have significant stakes in the companies that provide jobs and stability world-wide.

    And hey, I don’t complain about ethical-investor folks. If they all want to pull back and let oil stocks fall, all the better. XOM or CVX’s dividend would be pretty impressive if it started trading at $50!

    Keep on saving,
    Charles

  71. Any opinion on Kraft deal? I am an owner of Kraft stocks which was giving me $1000 dividend a year. After today’s deal my stock is up like 60% from my purchase. Current Kraft share holder will own 49% of combine company with Heinz and receive $16.5 cash dividend. But I don’t know if new company will issue dividend and how it will impact my dividend situation.

  72. Jason,

    Good article! It touches upon some points discussed by M from Theresvalue, Steve from Kapitalust and myself a couple of months ago.

    In Belgium there are quite a lot of “ethical” investment funds popping up that seem to draw quite a lot of people. While I understand that some people only want to trust companies with a good societal and ethic track record, I often wonder about the positions in those funds. Yes, they’re more ethical than PM, just to take your example, but they also have some questionnable business areas or decisions under their belt.

    To me ethical investing means one thing: don’t put your money into something that you wish didn’t exist or that you don’t feel comfortable with in your own society. As such, you’ll never see me buy individual stocks of tobacco companies, but you will find Big Oil in my portfolio. I guess it’s also a little bit of a pragmatic approach in that our economies rely on oil, so why shun it like a hypocrite?

    Best wishes,
    NMW

  73. Lila,

    Agreed. I can’t think of any company that exists all the way on one side or the other of the spectrum. The best one can do is feel comfortable with their individual holdings. ๐Ÿ™‚

    Thanks for dropping by!

    Best regards.

  74. Ines,

    I don’t manually approve comments, as the blog is way too big for that. So what you see is what people are saying. And I don’t censor anyone… unless they become disrespectful.

    Cheers!

  75. Charles,

    Yeah, great point there. Some others mentioned how some people feel that investing itself is unethical, but I just don’t get that. We are talking about providing jobs and value to society through products and/or services that people want/need, so I see nothing unethical about participating in that at all. I guess I just don’t get it?

    But you’re right about those that are picky in regards to their stocks. I think that’s probably partly why tobacco stocks have been routinely undervalued historically, which has led to a lot of wealth creation for those willing to buy. Gotta be willing to think for yourself. ๐Ÿ™‚

    Take care!

  76. AJ,

    I haven’t really researched this deal very thoroughly because I’m not a KRFT shareholder, nor did I ever own shares of Heinz. If I get some time outside of my busy writing schedule and following my own companies I’ll take a look for you. Otherwise, maybe a KRFT shareholder can chime in. ๐Ÿ™‚

    Cheers!

  77. NMW,

    Right. There are a lot of businesses with questionable ethics. Really just depends on your viewpoint. Are sweatshops worse than cigarettes in terms of their impact on people and society? I don’t really have a good answer for that, but the good news is that there are a lot of stocks out there and nobody has to buy anything they’re not comfortable with. ๐Ÿ™‚

    Thanks for adding that!

    Best wishes.

  78. I think this is a really interesting topic and I appreciate you bringing it up. There’s definitely a really wide gray area, even within large “socially screened” index funds. I’m sure anyone determined enough could poke a hole in each and every one of them and say they’re not “truly ethical.”

    I agree with your personal philosophy that says everyone should invest where they feel comfortable, and I don’t think people should shove their personal opinions down anyone’s throat. I think the goal is to invest (and live!) thoughtfully, trying to balance values-based choices with income-based ones.

    As such, what I don’t mind is if someone respectfully challenges me to be more thoughtful with my decisions. Hope you won’t mind if I do that to you now :).

    I have to admit that I think it’s giving the question a little short shrift to say “well, no company or fund is perfect, plus you’re not really ethical if you use a smartphone anyway.” As you say, it’s not black and white. Nobody can be perfect, and it’s about digging into the gray. As much as people make impulsive faux-ethical decisions based on headlines, I think people also avoid challenging themselves to critically consider potential ethical impact.

    I’m certainly guilty of the latter myself. And there’s no universal “answer.” But whatever your ethics are – maybe you reinvest your oil profits in charitable causes, maybe you avoid oil, maybe you invest in the most ethical oil company out there, maybe you just drive a hybrid or turn the lights off when you leave a room – I think it’s important to wrestle with the question and not throw up your hands.

    Anyway, I feel like I’m ranting and I don’t mean to be! I really enjoy your blog and kind of wish I’d chosen a less argumentative way to make my first post, as a long time lurker. But I’m just fascinated by the question, so thanks again for raising it. Full disclosure, I tend to invest in a straight-up index fund, so I’m no ethical savant here. Feel free to disagree with my two cents (would love to hear your thoughts, in fact).

  79. Las Vegas Sands (LVS) has been in my portfolio for quite sometime as a growing dividend company. The grey area for this one is the industry of Casinos, where gambling is a big earner, but not the only in the Casino Industry. Restaurant food, hotels, alcohol sales, events, etc. is where the money is earned besides gambling on slots, tables, and tournaments. I would think State Lotteries fall into a denser grey area.

  80. Jason,

    I agree 100% that it is impossible – simply impossible – to invest in “ethical” companies 100% of the time. Personally, I’m building my wealth in the stock market to support MY retirement, not to enter into some politically-motivated self-righteous plan to support companies who happen to align themselves with my own personal thoughts or opinions. I’m in it to make money, through and through.

    Besides, like you also said, it is just as impossible to maintain consistency with these things. Although I don’t smoke cigarettes, I’d invest in a cigarette company if I believed it to be a wise investment. Same deal applies with oil companies, defense contractors or any other corporation out there. This is the stock market, baby! If people put their often times ill-conceived personal ideologies before their brains, they PROBABLY won’t fair as well when it comes to capital gains. I put my personal feeeeelings aside and let pure logic govern the way that I invest.

    It works.

  81. This article is spot on. It is one thing to have stringent ethics in your own portfolio. Even contradictory ones. Hey, I won’t touch Walmart because of the way they treat their employees, yet I am a McDonald’s investor. I don’t fault people for that. It’s when they stand on their soapboxes and pass moral judgment that I have a problem. I invest in tobacco and oil because of their great returns. To escape the modern day corporate slavery that we should ALL oppose ethically. And I avoid defense companies because I DO have a problem with them ethically. But my ethics should not trump your ethics outside of my portfolio. My ethics aren’t better, or more correct, or to be pushed on anyone else. I would hope we can all show each other the same respect.

  82. There is always an ethical reason not to buy anything. But is that the solution?
    Doubt it!
    We left the garden of Eden (for reference only) a long time ago. Do we really want to go back there (even if it is impossible).
    Remember, there were only two people there. Where are all the others going to be?

    Lets stop saying that everything is not ethical and find solutions to what needs to be done to improve what we have.
    There will always be murder and drugs and porn and abuse, etc, etc. Saying it is wrong is OK but does not improve on anything. Suggest solutions other than to throw everything that we have achieve away.

    RICARDO

  83. I worked for a big company before and I think it’s pretty much impossible for them to maintain a good moral standard. Big corporations focus on making money for the share owners and they will do bad things to employee, consumers, and various other people.
    As an investor, I just look out for the worse offenders. I don’t care about PM because that’s the consumer’s choice. I’d avoid management that fudge with the book and break financial regulations if I read about that in the news. I’m sure they all do it to some degree, though..

  84. Too many comments to read, in case no one mentioned already, GE makes jet engines and parts that go in fighter jets, missiles etc., so depending on your perspective that could be a problem for you…

  85. GoodPinkSlip,

    Great comment there.

    I wasn’t necessarily saying that anyone – myself included – should just throw up their hands and give up. My ultimate point was that everyone should invest as they feel comfortable and ignore everyone else who might disagree.

    I want to be clear that I’m not investing in, say, Philip Morris because it’s just giving up and I see “all companies as somewhat evil” or something else, but rather because I just don’t have a problem with adults buying a legal product and using it. Just doesn’t bother me. I don’t invest in defense companies because I’m giving up, but rather because I see a need for the country to defend itself, and so there’s profit there. I look at investing from a very pragmatic and logical point of view. Not right or wrong, but definitely different from those who approach it from perhaps a bit more of an emotional point of view where ethics come into question. So I guess, in the end, my gray area is perhaps bigger than others. Not real sure. But I just don’t blame things on companies. It’s kind of like the old “guns don’t kill people, people do” tagline. MCD does well because people like to eat Big Macs. If MCD were to be erased from the planet people would eat something else just as unhealthy (see the previous comments on Chipotle). I see people as fairly self-destructive as an entire species in a way, and I’m just doing my best to go along for the ride and do the best for myself along the way. In addition, I’m doing all I can to inspire people to change their lives in a positive way, so I suppose I’m giving back in that manner. More than one way to skin a cat, that’s for sure.

    Thanks for the discussion! ๐Ÿ™‚

    Best wishes.

  86. FYC,

    Life is one big gray area, right? Those who might have a problem with casinos and/or their investors must then also take up issue with any lottery money that trickles down to their local school system, right? Can’t have it both ways, but a lot of people like to try. ๐Ÿ™‚

    Cheers!

  87. ARB,

    Absolutely. You have every right to pick and choose which companies you invest in. You can avoid WMT and invest in MCD or whatever else as you see fit because it’s your money and your portfolio. And it’s really nobody else’s business, truth be told. ๐Ÿ™‚

    Some people love to jump up on a soapbox, assuming they’re somehow more correct or right than anyone else. I just laugh.

    Cheers!

  88. Ricardo,

    Your comment would seem to insinuate that people are the problem, which I wouldn’t really disagree with. As long as there is people roaming this planet, there will be all of those things (murder, drugs, porn, etc.). Just a fact of life. I just do my best to live the best life I can. ๐Ÿ™‚

    Take care!

  89. DM,
    Thanks for another great article!

    I look at ethics this way — Buying a stock is buying the right to the dividends, If I don’t buy it, someone else will. It may sound a little selfish, but if I were to buy a mutual fund or even an index, that invests in similar companies, I’d be doing exactly the same thing.

    -Howard H.

  90. Joe,

    You make a great point there. I should have written a bit more about companies I would avoid, and you pretty much nailed it there. If management is stealing or outright lying to investors, that would be a problem for me. That’s why I got out of ARCP not too long ago. I do have a problem with that kind of unethical behavior. But adults buying a legal product like beer or cigarettes just doesn’t strike me as unethical in any way, shape, or form.

    Thanks for adding that!

    Best regards.

  91. Paul,

    Definitely. Most major companies are doing something that some people would probably take up issue with. Some would look at investing in GE as somehow supporting death or something, but I look at defense of this country as something that allows us all to enjoy freedom. Neither point of view is inherently right or wrong, just different. ๐Ÿ™‚

    Take care!

  92. Howard,

    Absolutely. If it’s not you, someone will collect that money. We’re on the same page. ๐Ÿ™‚

    Thanks for the support. Glad you enjoyed the article!

    Best wishes.

  93. Off topic but, if you had KRFT what would you do now? Would you leave it or shave some off to reallocate somewhere else. The stock is at a 48.16 P/E…

  94. blahblah903,

    Someone else asked me the same question somewhere else in this comment thread. To be honest, I haven’t had time to really look into the deal all that much. This time of the week is extremely busy for me in terms of how many articles I’m writing, and, of course, I obviously spend any available free time following my own stocks. That said, I thought KRFT was expensive before, which is why I didn’t buy it. This kind of premium is kind of eye-popping.

    Perhaps another KRFT shareholder can chime in. ๐Ÿ™‚

    Best regards!

  95. The only thing that matters, to me as a micro investir, is that the companies “I own” be fair companies, that treat well is workers, pays the taxes, and are environmental friends. Then, the products they maid and sell are not intended to foul the buyers.
    That said, let the market rule and people freely buy my products.

  96. Nuno,

    “That said, let the market rule and people freely buy my products.”

    Couldn’t agree more. And I couldn’t really say it better myself. If a product and/or service is really bad and nobody likes it, it’s unlikely it’ll do well. As far as ethics go, as long as the company is doing right by me and they’re not out to completely rip people off, I’m okay.

    Cheers!

  97. I’m more about ethical consumption than investing. If I have a problem with tobacco companies I will not buy their products, because buying from them is supporting them. I think investing in those kinds of companies doesn’t really help the company, it’s just betting that other people will buy their products. I’m just putting my chips on their side of the table. Just because I don’t drink soda doesn’t mean I don’t think other people will.

  98. Zee,

    I hear you there. We’re basically on the same page. Although, I probably consume somewhat ethically (by most people’s standards) more by accident than anything else. I’m not a smoker, but that’s really not an ethical choice, but rather just something that I’m not interested in. On the other hand, I quite enjoy my soda. ๐Ÿ™‚

    But you’re right in that investing in these companies is simply making a bet that other people will consume differently than you. And, generally speaking, that’s a bet that plays out pretty well.

    Best wishes!

  99. Yes Dividend Manttra, I think ethical investing is possible 100 % of the times.
    As far as I humbly believe to know, we all buy in the secondary market and we buy shares to other people that already bought them from other people. But the money most of the times has been given to the company once and for all when there was the initial public offering. And usually the company owners profit from the ipo to sell their shares I read something about that sometime ago, and once I find it, I,ll send you the link. Good t you !

  100. Aspenhawk,

    Right. Good point. I’m aware of how an IPO works and everything else. Most shares are purchased on the secondary market for sure. There have been a lot of comments discussing that. However, I still think you might benefit a company (or at least, the management) by picking up shares. If there’s stock compensation involved (very likely), you may be bidding up shares and allowing a little extra compensation there. So I think there’s a lot of ways to look at it. Always a gray area. ๐Ÿ™‚

    Of course, it’s important to remember that us retail investors really sway that kind of stuff very little. I could sell everything and buy just stock in, say, Coca-Cola, and it wouldn’t even really phase the daily volume.

    Thanks for dropping by!

    Cheers.

  101. I know what you mean. You’re right, I think some just follow headlines… Actually, when it comes to ethics, no one is right and no one is wrong either!! That’s why I link it more with values than ethics.

    Cheers!

    Mike

  102. Jason,

    “Again, what one person finds ethical is really subjective and individualistic”

    Are you arguing that there is no such thing as Morality (ie certain things are right and wrong)? If yes, then where does the authority come from to declare something morally right or wrong or make any statements at all?

    Is there a difference between “chicken wings are tasty” and “murder is wrong”?

    Here is a good treatise on the subject of relativism: http://www.peterkreeft.com/audio/05_relativism/relativism_transcription.htm

    I would agree that no person or company can be 100% perfect, but would argue that absolute truth does exist for every person and everything is not relative and there are certain degrees of goodness so to speak.

    Thanks for all you do…love the site and read every article

  103. Jonnyb30,

    I stated very clearly that there’s a spectrum there:

    “Now, I admit thereโ€™s a spectrum there โ€“ where you have more ethical on one side and less ethical on the other. But to think that any company exists completely on one side or the other, where itโ€™s absolutely and completely unethical or ethical, is just plain silly, in my view.”

    So unless we have companies that are out there murdering people for fun, we can agree that, while some are more ethical than others, there’s a spectrum there and people have an individual right to choose which ones are more ethical than others.

    Cheers!

  104. A most interesting post thanks and it’s been good to read the discussions in the comments too.

    I agree that it’s mostly a grey area but where people think it’s black or white, it’s a personal choice as to whether they want to invest or not. As a personal investor, you can draw your own line and decide to cross or not.

    For example, people invest in pharmaceuticals (including myself) because of advances in medicine and the good that they do, the good dividends that they pay but someone else may choose not to invest because such companies may have been (or may still be) involved in animal testing or such like.

    Like you say, difficult for companies to be 100% altruistic.

  105. weenie,

    Yeah, that’s a good point. While there is probably no broad black or white, everyone can really create their own black and white by drawing a line that corresponds to what they feel is ethical/unethical and invest accordingly. ๐Ÿ™‚

    Best regards!

  106. Great article Jason! This is a recurring topic between my wife and I. I am doing the investing and often she wishes I was investing in more ethical choices… usually she thinks I should pick more environmentally friendly companies… like solar, wind for example or no big name corporation. Well she got to read your post today and I do think it helped a little bit my case as a dividend investor :). Thanks!

  107. FabSavings,

    Ha! Glad I could help in some small way. ๐Ÿ™‚

    I’d love to invest in solar. Just waiting for a big winner to emerge and start paying/growing a dividend so as to limit my risk. We’ll see!

    Best regards.

  108. I don’t think you need to be a paragon of virtue to be entitled to raise an ethical question. The world is not black and white.

    Is the choice, don’t power your home, or don’t question energy companies? I find that a troubling point of view.

    For my part, I divested my energy positions but that was largely due to the realisation that Climate Change will demand such changes (and possible abandonment) that I don’t view them as a long term investment.

  109. Kaizoku,

    Well, I think that if you blast someone for investing in a particular company but then enjoy the products/services that same company provides is pretty hypocritical. It’d be just like saying how bad it is for someone to invest in, say, Coca-Cola while you’re sipping a can of the red stuff. Just can’t have it both ways, in my opinion.

    As far as climate change goes, I don’t disagree that there are some problems there. How much of it is a natural geological phenomenon and how much of it is caused by humans/pollution is questionable, but I think, over the long term, we’ll absolutely have to get away from hydrocarbons. I’ve said before that I don’t see Big Oil as a 30-year type of investment plan, but I’m still waiting for some winners in alternative energy where you’ve got steady growth, growing dividends, and a clear path for the future. I’ll be glad to hop over at that point. But right now, the world’s infrastructure just isn’t ready for it.

    Cheers!

  110. I agree that ethical investing is all about personal choice and also that there are lots of grey areas.

    Personally I am trying to follow a policy of divesting from fossil fuels. In the case of climate change it isn’t really about the ethics of the companies involved but what kind of future we’re looking at (if any). I would recommend “This Changes Everything” by Naomi Klein to anyone who wants to be informed enough to make that choice.

  111. Cerridwen,

    Right. I agree that there’s climate change occurring. One only needs to look at the melting going on up in Greenland or down in Antarctica. However, how much of that is due to human intervention and how much of that is a natural cycle for Earth is arguable. Without billions of years of climate data, we can only make guesses. That said, I do think that we’ll eventually move away from hydrocarbons/fossil fuels at some point in the next few decades. It’s not just a matter of pollution, but also due to the fact that they’re not renewable. So it just makes sense to eventually move to a different energy source. The infrastructure isn’t there yet, but when the infrastructure allows for it and a couple of winners start to emerge (and start paying growing dividends) I’ll gladly invest in that. ๐Ÿ™‚

    Thanks for dropping by!

    Cheers.

Leave a Reply