Some Ideas on Ethical Investing

Ethical investing for some people is an oxymoron, but not for me.

Years ago I saw an article in a financial section of a newspaper that argued the only way to invest money profitably was amorally (without regard to ethics), and then suggested if you wanted to ease your conscience, give some of your gains to charity. My feeling is that this argument mindless nonsense. First there is no guarantee that investing in something unethical is going to make money, any more than investing ethically will lose money. If we could predict the future that way, we might all be rich and evil. (Can it actually be true that all rich people are evil?) Let's take an example of a classical "bad boy" investment, tobacco companies. You invest in a tobacco company, then make a lot of money (the basic assumption of investing in evil), and take part of that money to give to anti-tobacco charities. Now your conscience is clear, I suppose, as you attempt to shoot yourself in the financial foot. Sorry, this is just a ridiculous situation to illustrate the contradictions of the "evil investing/nice charity" school of thought.

But to address the fears of new investors, who are somewhat idealistic in their ethics. Often their concerns go far beyond avoiding tobacco, alcohol and armaments industries. They seem to challenge the entire idea of any company being truly ethical. How would you know, for example that a wind turbine investment isn't hiring slave child labour in China to make blades for the turbines? How do you know they aren't killing bats with the blades as they spin in the wind? How can you be sure that they aren't cheating on their taxes? Well, seriously I don't know, and really I cannot account for every single act of every employee of any company.

Ethical investing comes down to this important question. Do you believe that there is any good anywhere in our entire economic system? For people who deny there is any good in the economic system, are you doing that as just a rationalisation because you want to convince yourself that investing unethically is OK? Because I don't agree.

When it comes to making investment, there are varying degrees of buying into a certain industry. For example buying shares in an armaments company could make you money in times of war, but lose money in times of peace. Thus you are basically betting on, and profiting from human misery. But if you buy a bond with an armaments company, you do not make any more or less money during a war, and so are profiting less from human misery. And there is even a way to bet on peace, by "shorting" the armaments company stock, you make money when the war profiteers lose, and vice versa. That almost makes it the opposite of an unethical investment doesn't it? Meaning it could be way to profit from peace.

There are far worse ways to invest money than looking for ethical investment. For example, the popular method of investing in any "hot" stock, meaning a stock that has recently had a sudden price increase. Usually these investors chase the hot stocks and buy with the intent to protect their investment by selling if it drops a certain amount. This is a recipe for losing money. (Buy high sell low) Not always of course, but stock chasers do have a dismal record on the average.

It is generally a more profitable strategy to think ahead about how world needs to go in the future, given what we know about population increases, limited oil supplies, environmental degradation etc. Choose a stock that is going to help answer those problems in the long term, and stick with it through highs and lows. I don't see any worse financial return with this strategy than in chasing hot investments to make a quick buck.