"Ethical Investing" --- Misunderstandings?

[OldShooter]

I have no problem at all with those who want to invest in a way that reflects their values. I even have a niece and nephew-in-law who are quite fanatical about it, to the point of completely avoiding mutual funds.

This morning I was reading this article: https://www.npr.org/2019/10/26/7713...-some-find-no-escape-from-businesses-they-det Here are some quotations:

"For those distressed by gun violence, new weapon-free funds divert dollars from firearms manufacturers and large gun retailers."

""If you're just a person looking to invest your savings and you don't want that money to go to the destruction of the planet ... "

" ... belief that their dollars have the power to alleviate poverty and slow climate change."
​

The problem here is that (other than IPOs) these investors' decisions are completely invisible to the companies they love or detest. They are simply selling, or avoiding buying, these shares from other investors that want to hold them or want to sell them. Sure, in the extreme case their decisions might have an effect on the share price, but that will require market-moving volumes that probably aren't in the foreseeable future. And even then if the stocks become economic bargains due to low PE or other criteria, there will be traders coming in to correct the mispricing.

Nephew-in-law understands. His position is that he does not want to make money, aka dividends, from activities that he disapproves of. Fine. No problem with that.

I think the majority of these investors mistakenly believe, though, that by selling their Winchester, Exxon, etc. to another investor they are actually hurting the company. Agree with me or no?

(To be very clear [and as Porky repellent] I am not trying to start a debate about the wisdom or desirability of ethical investing.)

 

[Senator]

When there are more sellers than buyers, the stock price goes down. Each director on the board, and company officers, are compensated with stock, and typically own quite a bit.

So it does hurt the company, a bit. It hurts me too, if the company is in the S&P. If it goes down, it gets dropped from the S&P hurting it further. At some point, a company cannot get a loan and goes bust, laying off all the employees and causing them to lose their homes.

Once that happens, a recession can start.

I personally do not care if the company clubs baby seals and feeds the carcasses to panda bears so they can make Panda fur coats and harvest panda livers.

 

[OldShooter]

Well, to be picky, every trade requires both a buyer and a seller, so the numbers are always equal.

Essentially you are giving the "market moving" scenario, which I conceded but which I think is pretty hypothetical.

Re S&P going down, maybe. The ethical investors' money is presumably going into other stocks, so if they are also S&P stocks then it is a wash. For those of us who hold total market funds, it is definitely a wash.

Panda livers?

 

[Senator]

Well, to be picky, every trade requires both a buyer and a seller, so the numbers are always equal.

Essentially you are giving the "market moving" scenario, which I conceded but which I think is pretty hypothetical.

Re S&P going down, maybe. The ethical investors' money is presumably going into other stocks, so if they are also S&P stocks then it is a wash. For those of us who hold total market funds, it is definitely a wash.

Panda livers?

You are 100% correct, however is everyone did it, it would cause a dramatic effect. Maybe.

Maybe Gall Bladders from Pandas are worth more than the livers.

 

[njhowie]

One of my college buddies has been involved in ESG investing since before it was even a thing. He's now CEO of one of the pioneers/leaders in the segment. He was recently interviewed for this article:

https://www.marketwatch.com/story/i...ing-has-been-more-talk-than-action-2019-09-25

 

[OldShooter]

Good article. Actually, I think the idea of buying stock and pressuring at stockholder meetings is probably more tactically effective than just avoiding the stock.

His argument against index funds is exactly the same one nephew-in-law makes for avoiding all mutual funds. NIL doesn't even like the supposedly ethical funds because he can't be sure that their criteria are consistent with his.

The article also has some numbers that reinforce my belief that the "market moving" scenario is very improbable:

"Total assets invested in socially responsible funds? Just $161 billion at year-end ... That’s not even a rounding error compared with the $18 trillion invested in all stock and bond funds"​

 

[HFWR]

Everyone is free to invest as they choose. I suppose I’d give some cred for effort, but I doubt it would matter much, nor be a particularly good way to choose investments.

I will say, however, that people calling for “change” who only want others to do the “changing” get no cred...

 

[Montecfo]

Mixing investing and social/ethical issues accomplishes little and tends to hurt overall returns. It is best avoided IMHO.