Morality In Investing

Hey Guys,
I am sure many of you people might have invested in companies with which are generally considered ‘bad’ on the basis of ‘morality’.

As ‘morality’ is subjective I wanted to open this thread and have your opinions on it.

What triggered me to get to know your thoughts is a quote of Warren Buffett which I came across recently:

“I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty. I’m wealthy enough where I don’t need to own a tobacco company and deal with the consequences of public ownership.” - Warren Buffett

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Hi @arjunbadola,

This is an important issue, and I think everyone needs to think about it. Thank you for bringing it up. I assume that this has not been previously discussed on this forum, but I have not checked.

I think that, as a rule of thumb, one should not own stocks of companies that engage in major criminal activity, because it amounts to a form of endorsement.

Companies like tobacco companies are particularly good examples, because they engage in legally sanctioned mass murder. Though I hear that tobacco companies have historically been excellent investments, and pay handsome dividends. Though with increasing pressure from governments on an international level, this may be changing.

But I expect there are other examples. Military contractors come to mind.

I have a entirely different viewpoint on this matter.

We as investors, have one job, to create wealth/money. Largest of the wealth creators have been “immoral” one way or the other. ITC and VST Industries comes to mind.

The problem with this approach is, almost every good company has been doing something immoral.

Banks and other financial institutions lend to needy people too, who commit suicide solely for non-repayment. HDFC Bank , HDFC, Kotak etc, who again, have been huge wealth creators.

Even McDonalds’ burgers kill people. We all know about Nestle too.

If we leave out these companies who have obviously got a “virtual moat”, we are limiting our investing choices, especially in a market, where there are very few trustable names.

Most important thing is, as a retail investor, we don’t really know what’s going on behind the curtains.

Take Apple for examples, a huge company which makes premium electronic items. Happy customers, employees, owners and everyone. Then we hear about kid slavery being used by them in countries like China and Congo. Now what? Would be able to sell those massive money-making stock? I doubt it.
On the contrary, companies like ITC, yeah, they sell sin goods, but through their various other verticals (like E-Choupal) and CSR do massive good for the society too.

We need to see both sides of the coin.

In the end, it’s a matter of personal preference of choosing stocks, but it would become double-y hard to beat the index.

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(my original post has been banned XD…it says the community got offended. Well I just wanted a humble discussion on morality that’s it. Anyways.)

I think what you are mentioning is quite valid. If we look behind the curtains there are many reasons that most of the companies could be considered as ‘immoral’.

As even Karl Marx had made us realize that without exploitation it becomes very difficult for companies to make profit.
Well, certainly there are companies who are ‘not-immoral’ but then we as retail investors would be limited to very less amount of companies + we are not sure if they might be performing well.

But again if look it from another lens like @faheem said buying shares of such companies would be like endorsing that activities and its not easy to overcome such feeling.

I personally believe that even though things like fast food could not be good for your health it wont be that much harmful compared to consumption of tobacco. For example: I do eat outside in fast food restaurants but I also exercise and that balances my health. But I doubt that same could be done for tobacco consumption.

Again, this is just a personal opinion do not take it personally.

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This all evens out towards personal preference.

You draw the line at the their core business, I on the other hand, draw line between forced vs. non-forced.

No one’s forcing other to drink. smoke, eat junk etc, but Nestle did “force” harmful chemicals on their customers in Africa.

It’s a completely subjective topic and everyone would differ from another on what they think is “too much”.

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Hmm interesting take
My grandfather took tobacco all his life and lived for 90+ years but now a days teenagers falling prey to metabolic disorder -diabetes, hypothyroidism and hypertension because of fast food culture (Pizza, burger, noodle , Aerated drinks) and sedentary life style.
Multiple clinical trials on animals have shown that high sugar diet over the period causes many diseases including cancer. Hence, there is new concept of Sugar tax (Finland implemented already).
Gold /diamond digger have violent and bloody association. Pharmaceutical organizations have been alleged to use unfair means (hiding adverse effect of their drug because of which people died) and inhuman treatment of animals during clinical trials (I can confirm as work with Pharma co).
Chemicals, leather, plastic manufacturers are biggest polluters of underground water sources and reason for many diseases and associated death.
Mining displaces indigenous people and one of biggest cause of deforestation and ecological misbalance. Peril of alcohol is well known.
Poultry farms inject high dose of antibiotic, feed birds on food fortified with growth hormone, force thousands of them in cramped space, transport these to retailers in highly inhuman way.
However all companies involved in above activities function within legal framework , so one wonder why Tobacco companies demonized and singled out of being immoral. Is it because these are advertised more (disgusting pic on packet) Govt forces disclaimer every where ( I always wonder why govt do not enforce similar pic for alcohol and fast foods which are equally harmful).

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I don’t think there is much point getting into an argument over this. This is obviously a grey area, and everyone should make up his or her mind about it.

But I should clarify my earlier comment by saying that I am talking about companies whose business model depends directly on harming people.

Tobacco companies obviously fall into that category, as do arms dealers.

There are plenty of companies whose products may not have a good effect on people, or may hurt people as a side-effect. Making profit a high priority, as capitalism does, inevitably has such effects.

A random example is Coca Cola, which is a well regarded and reputable American company, that had been very profitable to those who have invested in it. And people like Warren Buffet has done so. But their business model is selling sugary carbonated water, which isn’t exactly good for one. And manufacturing this product has all sorts of ecological problems associated with it. But it’s not in the same category as tobacco, which is very very nasty stuff. See for example https://en.wikipedia.org/wiki/Tobacco#Harmful_effects_of_tobacco_and_smoking

To put it differently. refined sugar isn’t good for human beings, who aren’t evolved to deal with it. But it’s not in the same category as something like tobacco. One can safely ingest sugar, alcohol, and fast food in moderation. There is no safe moderation in smoking. Even second-hand smoke is bad for one. So I don’t think that tobacco companies are being demonized.

And I can’t think of anything good to say about people who manufacture weapons. One could argue that there are legitimate uses of military weapons, but mostly they are just used to murder innocent people.

I’m not trying to write a thesis here, just trying to make a point.

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Personally, I hate smokers. Even second hand inhalation of smoke makes me angry and fear for my health. It brings my emotion into picture. But that is about my physical health.

When we talk about our financial health, “morality” is no where in the picture. A good business, good management, good cashflow and a good price to enter is all that matters. My emotions don’t.

Companies that make footwear are killing animals. Can we live without leather shoes? Yes. But the customer wants it and someone will provide it. Similarly, with any of the Sin goods.

While this is a good thread and I would like to hear other people’s thoughts, the end goal of investing is our financial security. As long as you reach there, doesn’t matter whether you invest in “moral” or “immoral” stocks. :slight_smile:

I would just like to make a point regarding what @ajay.singhraj said. I have read articles where research shows that sugar is quite harmful. But I think controlling your consumption of sugar products is much easier than to stop smoking as there are purposely made addictive. It all boils down to addictiveness. You can stop a person from drinking carbonated drinks and he wont show extreme symptoms of craving. But I doubt same could be done with tobacco products.

But again on the other side we can say same for technology. Smartphones are becoming more and more addictive day by day and we are being fed manipulated information.

what is stopping me from investing in tobacco companies is the feeling which I would get, that is I would want more people to smoke so that I earn more money?

I would recommend you people to watch the movie: Thank You For Smoking.

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I believe these should be personal and should be kept like that and there is no need to discuss. If someone is not comfortable do not invest.

Earlier when Reliance Mart started, they used to have a section where they used to serve Chicken, fish and other non-vegetarian dishes. Also, they used to sell Raw Chicken, Fish etc. This section always used to be crowded and I am sure they were doing good business. After some time suddenly, this non-veg section closed. I asked a store manager for the reason and he said that Reliance has a significant Jain community shareholders and they went to Mr. Ambani and they objected to Reliance Stores having Non-Veg items as it is against their sentiment. Immediately Ambani Sir ordered to close the meat section. (they still sell Eggs though :-).

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Beautifully said. It all depends on how Morality is defined. If we take pollution aspects, lending, defence stocks, real estate which comes at the cost of environment into the ambit ,95% of the listed stocks will be non-investible. If we consider tax collected via selling of cigarrettes and liquor and the usage of that money for overall development of the country no company would be morally right than these companies to invest. It is a cycle and it would be infructious to bring the aspect of morality in a limited context.

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Investing based on moral thinking has been prevalent for a long time known as Socially Responsible Investing (SRI). Its latest form where moral investing is done for financial advantage is called as Environment, Social and Governance (ESG) investing.

The underlying principle behind ESG based investing lies in identifying & quantifying the intangible value possessed by socially responsible, environmentally friendly firms with robust governance policies in place. These firms are believed to exhibit better risk management measures on ESG parameters which in turn creates value for investors with long-lasting sustainable business models.

ESG investing is in its nascent stage in India though funds have started appearing. To see the benefits one has to apply some second order thinking regarding risks the company is taking. If only ESG compliant firms are selected then portfolio level risk can be reduced significantly.

Eg.

Gambling stocks
Investor thinking: Gambling is addictive and cash flow would be steady.
SRI investor thinking: Gambling is sin causing harm to society, individuals and family.
ESG investor thinking: Gambling is socially irresponsible activity, political pressure will always be there to stop the business and any change in policy can lead to tremendous loss of investments.

Tobacco companies
General investor: Tobacco is consumer defensive stock with steady cash flow. They will be better placed than other companies in corona era.
SRI investor: Tobacco is harmful to user and his family.
ESG investor: Tobacco is bad for health and increase in health consciousness after corona can lead to decrease in new user additions.

Chemical companies
General investor: Ban on certain chemical companies due to environmental concerns in China can increase its production in India.
SRI investor: Companies producing harmful chemicals or waste endangers society.
ESG investor: Similar ban can occur in India also. Protest and closure of such factories will lead to loss of revenue and missed opportunity.

Oil companies
General investor: Shortage in oil will increase profits.
SRI investor: Oil burning leads to CO2 production which can lead to climate change.
ESG investor: Better alternatives will replace oil in future and present better opportunities to make profits.

There are many myths regarding ESG investing.

https://morningstar.in/posts/55033/6-myths-sustainable-investing.aspx

All companies try to show ESG compliance and give data regarding it in their annual report. ESG investing is gaining traction after corona pandemic.

Details and methods can be found in ESG index white paper and methodology in NSE site.

https://www1.nseindia.com/products/content/equities/indices/thematic_indices.htm

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A nice thread indeed I was looking for my participation…as I always look for ESG compliance before I put my money into stocks…
In India, though it is in a nascent stage… was talking to one FII on ESG while I was flying from Delhi to Frankfurt sometime back…
He said he would prefer to invest in a City Gas Distributor Co in India rather than an oil PSU…
It was a very intersting discussion I had…he said which I could immediately make out is Petroleum fuel is a fosil fuel…if one molecule of diesel is burnt , 16 molecules of CO2 is produced … if one molecule of petrol is burnt 8 molecules of CO2 is produced where as if one molecule of CNG or PNG or LNG is burnt , only one molecule of CO2 is produced …The natural Gas is methane with one carbon atom and 4 hydrogen atoms…Petrol and diesel have a mixture of Hydrocarbons with 6 to 18 carbon atoms … .
So CO2 is a Green house Gas which leads to Global warming and climate change… Petrol and Diesel are non renewable energy and natural gas is renewable energy …they would like to invest in companies which produce Solar energy / Wind energy / Hydroelectric company rather than thermal power plants running on Coal… so on…
Then he said they would like to invest in a Seed and Crop Protection company with Zero factory discharge and balanced carbon foot print rather than a business on poultry farm, animal feeds…
He referred me a study conducted in Europe how different food stuffs human beings consume leads to Global warming /climate change!
Giving the link below…the objective is not to invest in a company which is responsible for releasing enormous amount of Green house Gas
Today, even our Mutual fund industry are debating to introduce exclusive ESG funds … I came across this article today…(2nd Article)

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Does it make sense if we change the Subject line as " ESG Investing’" rather than "Morality in investing ":slightly_smiling_face:

I think ESG Investing could be a defined concept where the thinking is almost same.

But when I said Morality in Investing its becomes very subjective.

For example: A company which is doing good things for environment might be a good company for ESG investors but what if I know that their CEO or promoters has been convicted of sexually harassment.

Or it can also be that promoter that my ideology does not match with the promoter and I actually hate the ideology which the promoter might have.

So, I think stating it as ‘Morality’ gives us a broader scope for discussion.

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I thought If the promoter of a company is convicted of Sexually harassment, it is a Social issue … and ESG covers all Such issues which goes against accepted social norms…
Environment, Social & Governance…:slightly_smiling_face:

True, but Morality also includes subjective thinking.

For example:
Some, a people who has right wing ideology might not like to make an investment in a company where the promoter has left wing ideology.

So, morality cover a very broader idea where ESG limites it.
:slight_smile:

Being right wing or left wing is not even distantly comparabale to sexual harassment.

I never compared it. I just gave an example of about morality as it is very subjective.

One might judge someone because that person might be have been accused of sexual harassment or one might judge based on someone’s ideology.

I am nowhere comparing them. It just people are different.