What if a company being considered for investment turns out to do something that one thinks is morally wrong?
Not illegal. Not against any regulations. But wrong. Something about its customers, its tactics, or its leadership strikes one as ethically off.
Maybe the company uses a dominant market position to beat family-owned businesses into insolvency. Perhaps its management team is insufficiently diverse from a gender or an ethnic perspective. Or possibly it’s the very nature of its products, because they’re unhealthful, addictive, or dangerous.
Whatever it is, something in one’s makeup—upbringing, religion, or just a conviction on how civilization should work—shoots a sharp message: the world would be better off without this firm.
I don’t raise this issue as some sort of moralist. I’m not a philosopher, missionary, or member of the clergy. I raise it for practical reasons.
To achieve long-term after-tax outperformance, one must hold on to stock in good companies for a long time. It’s easier to do this with a portfolio that’s consistent with one’s moral posture. Not exemplary or praiseworthy, just consistent. Otherwise, a sudden awakening of principles could compel one to sell stocks for an uneconomic reason. If that happens when prices are down,
financial health suffers.
It’s therefore useful to define one’s ethical disposition early. I’ve seen smart people do it in one of four ways.
The first is amorality.
It’s not viewing investing through an ethical lens. It regards money management as an activity that sits outside of moral consideration. Put differently, it sees the ethical imperative of investing as growing wealth.
The second is what I call moral failure abstention.
It’s not investing in companies with certain unsavory characteristics. It’s a list of don’ts. It often entails dismissing firms that make certain products. Cigarettes and handguns are two common current examples.
The third is what I call moral success affirmation.
It involves investing only in companies with certain desirable characteristics. It’s a list of do’s. Again, this is commonly related to a firm’s products. A popular current example is renewable energy.
Fourth is what I call moral failure activism.
It involves buying stock in companies with undesirable characteristics for the purpose of pushing for change as a shareholder. It’s premised on stockholders having more influence over company affairs than do mere citizens. For example, shareholders may be able to force a shareholder proposal onto the agenda of a company’s annual general meeting.
My purpose in sketching out these four ethical postures is not to advocate one over the other three. My purpose is to encourage the picking of one—or of some variant—to avoid a hiccup in performance later on.
Practicality may not be the only good reason to define one’s moral posture. But it’s the one that’s easiest to accept. And while one’s ethical views can change over time, I’ve observed that they tend to change less than other facets of an investor’s makeup. It’s an enduring feature with which the investor reckons, either early and painlessly or later and less so.
Summary
There are four different moral postures toward investing:
1. Amorality
2. Moral failure abstention
3. Moral success affirmation
4. Moral failure activism
Not illegal. Not against any regulations. But wrong. Something about its customers, its tactics, or its leadership strikes one as ethically off.
Maybe the company uses a dominant market position to beat family-owned businesses into insolvency. Perhaps its management team is insufficiently diverse from a gender or an ethnic perspective. Or possibly it’s the very nature of its products, because they’re unhealthful, addictive, or dangerous.
Whatever it is, something in one’s makeup—upbringing, religion, or just a conviction on how civilization should work—shoots a sharp message: the world would be better off without this firm.
I don’t raise this issue as some sort of moralist. I’m not a philosopher, missionary, or member of the clergy. I raise it for practical reasons.
To achieve long-term after-tax outperformance, one must hold on to stock in good companies for a long time. It’s easier to do this with a portfolio that’s consistent with one’s moral posture. Not exemplary or praiseworthy, just consistent. Otherwise, a sudden awakening of principles could compel one to sell stocks for an uneconomic reason. If that happens when prices are down,
financial health suffers.
It’s therefore useful to define one’s ethical disposition early. I’ve seen smart people do it in one of four ways.
The first is amorality.
It’s not viewing investing through an ethical lens. It regards money management as an activity that sits outside of moral consideration. Put differently, it sees the ethical imperative of investing as growing wealth.
The second is what I call moral failure abstention.
It’s not investing in companies with certain unsavory characteristics. It’s a list of don’ts. It often entails dismissing firms that make certain products. Cigarettes and handguns are two common current examples.
The third is what I call moral success affirmation.
It involves investing only in companies with certain desirable characteristics. It’s a list of do’s. Again, this is commonly related to a firm’s products. A popular current example is renewable energy.
Fourth is what I call moral failure activism.
It involves buying stock in companies with undesirable characteristics for the purpose of pushing for change as a shareholder. It’s premised on stockholders having more influence over company affairs than do mere citizens. For example, shareholders may be able to force a shareholder proposal onto the agenda of a company’s annual general meeting.
My purpose in sketching out these four ethical postures is not to advocate one over the other three. My purpose is to encourage the picking of one—or of some variant—to avoid a hiccup in performance later on.
Practicality may not be the only good reason to define one’s moral posture. But it’s the one that’s easiest to accept. And while one’s ethical views can change over time, I’ve observed that they tend to change less than other facets of an investor’s makeup. It’s an enduring feature with which the investor reckons, either early and painlessly or later and less so.
Summary
There are four different moral postures toward investing:
1. Amorality
2. Moral failure abstention
3. Moral success affirmation
4. Moral failure activism
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