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Investing In a Company You Don’t Believe In

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The Challenge of Morally Responsible Investing

Deciding where to invest your hard-earned money can be a tricky task.  You have to weigh your goals and your aversion to risk.  There are industries you may want to avoid if you think they are on their way out.  ETFs (Exchange Trade Funds) can be linked to foreign markets that may be more or less stable than domestic ones. Performance of the stock over a period of time is a factor.  Whether you are looking for a short-term buy and sell or a long-term investment.  Outside of the money, you may also look at what you are actually investing in.  Even if profit potential is higher, if you have personal and negative feelings about the company (or even the commodity – like coal), that may play into your decision.  As an investor your goal is to make money –but that shouldn’t interfere with your principles.

What I Look At

As an avid dividend investor I tend to focus more on numbers than on company descriptions.  Specifically my eyes are drawn to that magic number – yield.  If you haven’t done much in the way of trading I’ll explain what that is.  Firstly, a dividend is essentially a small payout per share from a company you invest in to share in the profits of that company.  Not all companies have this practice – but it is a need-to-have for me to invest.  Yield is that dividend expressed as a percentage of the cost of one share of the company.

If the stock qualifies I’ll look at current cost, performance over time, etc.  Those are less of a factor for me but always important.  Last on my list (but still part of the decision process) is what the company actually does.  Secondly what they stand for.  I don’t have to be a customer – I hold shares in most Canadian Financial Institutions but only do business with a couple of them.  I invest in Bell and Rogers even though I only chose one for my telecommunications needs.

What I’d Have Trouble With

I will invest in a company I don’t have positive feelings about if their dividend game is on point.  Regardless of the dividend I would have major issues investing in a cigarette company or a fast food company (even if I’ve on occasion indulged in a quick burger, and McCafe coffee is the bomb).

I would look at this as putting a price on my morals – something I’m not comfortable doing.  I’d even go so far as to sell a stock that is performing very well if that company did something that went against my moral fabric.  My best performer over my investment “career” is Bell Canada.  In the past four and a half years it has seen a total profit of 56%.  Almost half of that has come from dividends which have been reinvested into other funds.  Given that – if Bell were to hire a raging racist or something else I didn’t feel comfortable with I’d sell in an instant.

Why ETFs Make It Difficult

As mentioned, ETFs are linked to specific markets (ie TSX, NYSE) and hold shares in a number of companies that list on that market.  As an investor I have no control over the choices made by fund I’m investing in.  That ETF could have holdings in a company that I am not okay with and without some digging I wouldn’t even know about it.  What is worse is that those holdings can change so even if I do the homework the ETF could include a company after I’ve held them for a year.

While this does pose a bit of a problem regarding morally responsible investing, I can’t dwell on it.  At the end of the day I’m going to invest in the ETF solely on dividends and performance – I cannot dwell on what companies that fund holds.  I can avoid an ETF from a foreign market that I don’t want to support but that is different.

Through a site like Blackrock you can easily see the full list of holdings from an ETF – however with holdings of more than 200 companies in some cases this would be a long and painstaking task!

Morally Sound Investing

With the way the market is built, it is really difficult to be a morally sound investor and still keep your eye on the prize of portfolio growth.  I really feel that when it comes to investing it is important to have some flexibility.  Most investors and advisors will recommend diversity in your portfolio – and being diverse can sometimes mean going a bit outside your comfort zone.  You can be morally sound and still be successful, I think it would be difficult to be morally rigid and say the same thing.

Would you ever invest in a company you have a moral opposition to?

Scott

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2 comments

  1. This is something I’ve thought quite a bit about and, honestly, I haven’t come up with a good solution. I’m willing to stick to my morals when it comes to owning individual stocks but not so much when it comes to funds. I know there are some ‘ethical’ funds out there but that doesn’t always mean they invest with the same thinking you would, and many of them don’t keep up when you compare returns.
    Things can also change so rapidly in the markets. If a company does something morally wrong their stock will often take a hit and you could end up losing a lot of money for selling when it’s down. Feels like a lose-lose situation.
    Basically, I don’t have a good position on this!

    • Couple of Sense says:

      It really throws you for a loop I know – and great point about how a stock typically tumbles when the company has a public release of unethical behavior. If your goal is to make money at any cost you may actually PREFER to invest in companies that throw away their moral compass. As soon as the stock tanks you buy buy buy and then wait for the court of public opinion to forgive and forget. I don’t chose to go down that path, but I can see why it might be attractive to some.

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