# ethical investment is evil.



## darag (2 Feb 2005)

if 99% of investors only supported ethical companies, then the 1% with no such scruples will find fabulous bargains in the market.  thus ethical investing effectively results in the transfer of wealth from the ethical to the unscrupulous.

along the same lines, because markets are largely efficient, ethical investment is a completely pointless exercise.  the promotion of ethical investment encourages diverting moral energy into an ineffectual action away from political activism which can actually change the world.  therefore if you are in favour of child labour, wrecking the environment, martial industries, etc., it would be in your interest to promote ethical investing.


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## Marie (3 Feb 2005)

Would you expand on this Darag as I don't understand.  Are you saying invest in psychopharmaceutical firms which lie about the safety of their products and dissect 3,000 beagles/kittins/budgies a year to test toxicity and whose policies on treatment of their employees are dubious.

Or a company engaged in sustainable development which treats its employees with dignity and gets 100% of their talent and energy in return.

How does encouragement of or investment in the latter necessarily lead to the non-ethically-engaged enterprise being more profitable?  It will be as profitable as its sales and business acumen allow.  if there are fewer shareholders in the non-ethical business there will be less money invested and less business done, _n'est pas_?

Anyway it would never happen.  People are so shortsighted they will scrabble and elbow to make a pile of dosh for their children without regard to the fact the means by which they do so might mean those selfsame children will live in oxygen-tents in underground bunkers to avoid the radiation!


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## darag (3 Feb 2005)

hi marie.  the mistake is to confuse "encouragement of" with "investment in".  it seems counter-intuitive but because of the general efficiency of markets, the latter does not result in the former.

one possible outcome of your action is that your share investment strategy actually depresses the share price of "non-ethical" firms.  in this case unscrupulous investors will have access to the profits of the firm cheaply (by being able to buy their shares at a depressed price).  thus your actions will reward the unscrupulous/unethical investor.  actions which result in rewarding the unscrupulous are hardly virtuous.

the reality is that this isn't going to happen because of the mechanics of the market.  your actions will have zero effect as others will jump in to buy the shares if there is any perceived discount in their price.  this will cancel the effect of the ethical investment strategy.  however you will have wasted "moral energy" on a pointless exercise.

if you want to influence the behaviour of companies, you should boycott their products, campaign against them or better yet, get involved at a political level to influence legislation and the regulatory environment.  promoters of "ethical investment" actually help unethical companies by diverting people's energies away from effective action against their bad behaviour.

for this reason, ethical investment is bad.


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## Marie (4 Feb 2005)

Hi Darag - I'll mull over that.  Still not sure I understand the mechanism you're evoking.

If we start with a blank slate...........two businesses equal size, comparable share-value etc.........and one structures itself so that it is 'ethical' (towards its employees, the society and the ecosystem) and 'struts its stuff, shoots its bolt' etc.

.............whilst the second does not invest in its people, its environment, or involve itself in the means through which its business-objectives are reached (thus allowing some unsavoury stuff to creep in along the way)

the shareholders of both businesses will get their dividend at the end of the year.  Both businesses may still be comparable in value.  _Arguably/possibly_ the ethical business will have better recruitment and retention with (possibly!) better work (no skiving, ripping the firm off etc. because staff feel valued).

Where does the shark-shareholder come in?  The share-price would not be "depressed" but (possibly!) higher..........or am I being really thick here?  I must 'fess up I'm on this forum to learn about money - something I've gone through 56 years on the planet knowing zilch about........Be gentle with me!


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## Janet (4 Feb 2005)

I think he means that if people invest in the ethical company the shareprice of the other company will fall and at that stage unscrupulous investors will buy up the cheaper stock.  D's argument is contigent on the share price of the unethical company rising again (thus netting the unscrupulous investors who bought when the price was down a nice profit).  I'm always a bit hazy on the workings of the stock market so I'm not sure if this would necessarily happen but I suppose demand (from all those unscrupulous investors) would push the price back up.


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## oysterman (4 Feb 2005)

Janet,

Not wishing to put words into darag's mouth but, if we accept the efficient markets hypothesis (a great orthodoxy on AAM), then there is never a right time to buy or sell a share. So, the speculative gains you point to are not the issue. The point is that a permanently depressed share price (which is what these despised unethical companies should have) will simply result in a better dividend yield for those prepared to invest unethically. QED for Darag. A nice point.


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## Janet (4 Feb 2005)

Ah-ha!  Now I get you.  Sort of.  Will certainly never be much of a one for stock and shares even if I ever did get rich (rich?  ha, I'd settle for being able to save a bit every now and again!)


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## Marie (5 Feb 2005)

I think I understand a bit more not, not all.  I think Darag's point follows logically from Marx's ideas of unequal distribution of wealth.  A relatively small (yes?) number of unscrupulous investors zone in on the low share price of the unethical business, they buy cheaply, the market value rises, they sell higher.  They become wealthier than the 99% who buy ethical at midmarket values and do not become wealthy because they are numerous.

I wonder would Darag accept the point that if such a change in business ethos were to occur becoming significantly wealthy - in financial terms - would lose its point, and corrupt money be less 'valuable' as a commodity?


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## darag (6 Feb 2005)

yes oysterman, i wasn't considering speculative gains - i was thinking more in terms of the cost of gaining access to a share of a company's profits.  e.g. two companies which pay out all of their profits as a dividend of 1 euro a year where a share in the "ethical" company costs 20 euro while one of the "unethical" costs 14.  thus the "ethical" investors get a return of 5% while the unethical get a return of 7%.

however that part of the argument is there just to cover all possible outcomes and i believe that market mechanisms will rarely or never allow patterns of "ethical investing" to affect the price of shares.

i not sure i understand your question marie?  money as far as i can see is an quantification of value;  if x is more valuable than y, then the money required to acquire x will be more than that required to acquire y.  these are simple numbers which by design must be comparable without quantifiers.  and i'm not sure that trying to fit the argument into marxism really helps.  this is slightly off topic but i recently reread some marx and in my mind it has aged very poorly.  i also recently read adam smith who, more than a century before marx, presented a theory of wealth which seems to have been verified at least to some degree by subsequent history.  in contrast, marx's theory of wealth seems to have been soundly refuted by subsequent developments.


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## MissRibena (8 Feb 2005)

*Ethical Investment*

OMG, Darah, you have completely depressed me now. As a conspiracy theorist, could I take it a little further and suggest that perhaps it is the unethical investors who dreamt up ethical investing? They know liberal, guilt-ridden "nice people" like me will fall for this ethical investing idea.  

First I wondered if it really mattered in the end since most investments are made on a speculative basis?  But isn't it true that if everyone went mad buying ethical shares, then the price of these would become massively overinflated relative to their unethical counterparts, which would mean if there was a crash the unethical companies would rule the world.

So in the end, is the only ethical thing you can do (with your money) to boycott the products of the unethical companies?

Rebecca


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## darag (9 Feb 2005)

*Re: Ethical.....*

hi missribena.  you should simply buy the market through unit index funds or etfs and don't worry about what companies make up the index.  then, to make the world a better place, join an ngo,  give money/time to a charity,  campaign politically or write letters to newspapers, etc.


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