Investor Moral Responsibility
 

I think this topic is best in Philosophy, though it could work on economics or politics.

Bank of America stocks recently fell significantly after speculation that Wikileaks will release documents indicating that BofA was involved in flagrant violations and unethical practices. The loss to investors was around 3% (the bank's shares closed at $10.95, down 36 cents), which is quite a loss.

Bank of America's troubles are fairly well known now, from the Merril Lynch merger to issues of ethically questionable billing practices. If more unethical behaviors are unearthed in the next leak, it's probable that investors will lose a lot more than 3%.

This brings me to my question: from a moral standpoint, do you believe investors share in the responsibility of the things they invest in? If you knowingly invest in a bank that's involved in unethical or ethically questionable practices, are you not enabling those practices by investing? Or are your hands washed clean by the profit motive?

Personally, I'm concerned with the disconnection between investors and that in which they've chosen to invest. Most investors only care about results leading in a good profit, discounting what and who it is they're investing in. Personally, when I invested in the past with a broker, I was never told about the company other than things like "they're making a pill that makes people feel better" or "they build machine parts". I left the market a few years ago, with the exception of my Apple stock which I only have because I'm a bit of a fanboy. If someone told me that I could invest in a bomb-making company and see an annual increase of 28%, I'd turn them down flat because I would be profiting from death and I can't justify that to myself.

When you are an investor, you are attempting to help the business you are invested in to succeed (unless you are a hedge fund manager.) From a moral standpoint, I would not choose to invest in companies that profit from tobacco sales. However, I am torn in that I own certain diversified mutual funds which are likely to have some investments in big tobacco.

I would like to say that the stock market is just for making profits for investors and if I did not participate, someone else would; but I feel there is some personal responsibility to take for your investments.

Can you explain this? It does not appear to make any sense.

Will to address the original point, the Boards of Directors of these companies along with CEO's have never been held responsible for the morally reprehensible business practices they have engaged in.
In a perfect world they would be held accountable. Obviously we live in a different world. Our world rewards these people with unfathomable riches rather than punishing them.

Investing in a company is like giving them a loan with the risk/promise of being paid back more when the company succeeds with your money and the money of other investors.
I'm not talking about being held responsible by the justice system, I'm talking about personal responsibility, or blame. Do you blame investors for knowingly investing with morally questionable businesses?

Willravel explained the first part as I would. If you mean the hedge fund part, that it is based on short selling. My reference was vague as it is a complicated concept to post about.

What Is a Short Position on Stocks? | eHow.com

The profits are made when the stock declines in value.

Actually if you want to give a company a loan you should buy their bonds.
When you buy stock the money does not go to the company, it goes to the investor who sold you the stock. (Unless you are buying an IPO or a secondary offering from a company.)
The payoff to you as a stock investor comes from dividends or an increase in the price of the stock. Whether the company ultimately succeeds or not is a whole another issue.
And back to the original question: I generally keep my moral judgements and my investments exclusive from one another. I invest to make money and find other ways to pursue justice.

Any if your investment causes suffering?

there are stocks that do exist for those who truly do want to support causes and initiatives they believe in.

If its more about the principle than the actual profit, then do your homework and pick your stock options carefully.

Would you gamble on a Michael Vick-style dog fight?


What if you were in on it solely for the chance of a profit?

Investing in a company that produces a product/service with which you have moral objections simply for the return would be probably be immoral (if you were planning to effect a corporate change as well, it might not be).

Otherwise, investing in most companies is no more immoral than buying a large house in the suburbs and commuting 30 miles to work every day. The extremist moralists/environmentalists will point out that in doing so, you are shirking your moral responsibility to share your wealth to make the world a better place for the less fortunate, and are creating more pollution than if you lived closer to work, in a smaller space that was more energy efficient.

So I don't see any more need to concern myself morally about my investments than I do about the fact I bought a doughnut for my break when I could have used the money to feed a hungry child somewhere.

You'll have to tell me how that happens.
Let's say that as a "typical" investor on this board you have $100,000 to put into equities.
Show me an investment in a US listed equity and how that will lead to suffering.

You invest money in a corporation and that corporation does bad things enabled in part by money from investors like you.

Let's say you invest with Monsanto (MON, NASDAQ). Monsanto is directly involved in child labor in India (and the children are exposed to Endosulgan, a poisonous pesticide). By investing with them, you are supporting and enabling child labor.

I can see how there is a disconnect for most people. It's the same thing when it comes to shopping. How much of the crap at Walmart was made using labour practices that are outright illegal in North America? What about the environmental damage caused by purchasing one type of product over another? Or buying the product int he first place? Or buying too many replacements too quickly (think electronics)?

I imagine investing is much the same: it's about what you get out of it, not what impact it has on those you will likely never meet or places you'll likely never see.

However, I do hear that ethical investing is on the rise. Entire mutual funds are built around the practice and an increasing number of people are learning about the options. I think it goes hand in hand with the new wave of environmentalism that's occurred along with the attention garnered by global warming revelations.

Of course, the world is getting smaller too, so I think as individuals we're becoming more concerned with the implications of our lifestyles. We are more enlightened on what impact we're having. Fair trade? Organic? Shade grown? Bring your own mug? Ten percent of your purchase goes to charity?

I just don't think it's enough. It's not happening fast enough. Over time, I think we'll start seeing significant changes in how we make decisions with regard to consumerism. Investing is a part of that in a way.

I think the problem with the stock market is that it isn't tied to real results. Part of this would be that BoA dropped because of some 'rumor', and I don't think that is right. Companies shouldn't be able to hype things they might do either.

But, the investors are the ones pushing for the stock to go up, or at least they will only invest in companies that are going up at a fast rate. One way to do this is to cut corners and have 'bad' business practices. And when something like the BP oil spill happens, the investors that wanted BP to make a few pennies (which then caused the accountants at BP to look at their spreadsheets and say that we could save some money here, don't over-engineer it) should be penalized as well.