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Bonus weekend thoughts: Ethics in investing
In my monthly links post for February, I mentioned the RSX trade that had gone against some people. The short story is that the Russian market has looked cheap for years. When the market dipped before the Ukraine invasion, a lot of investors stepped in, bought the weakness, and then got demolished when Russia invaded and sanctions sent most of the index components to zero.
Anyway, I got quite a few emails from people on the heels of that post who said something along the lines of “I thought RSX looked cheap but I couldn’t buy it because it felt icky morally” or “The people who bought RSX deserve the beating they got; buying RSX in the wake of (or lead up to) the Ukrainian invasion was/is morally reprehensible.”
Those emails got me thinking: should morals come into the picture when it comes to investing?
My gut reaction is no. The goal of investing is to make money. As long as you’re not doing anything illegal, who cares if that money comes from investing in green energy or coal stocks? Take the money you make from investing and use it to change / improve the world on your own time.
Plus, if you’re going to let morals come into investing, whose morals are you going to use? 50 years ago investors would have looked at tobacco stocks as consumer staples and anything that touched cannabis as the height of illegality; today legalizing and normalizing cannabis is a social justice issue and tobacco is the ultimate sin stock. Heck, two months ago, most institutional investors would have said guns and weapons were off-limits sin stocks; today it’s looking like they might get added to ESG funds as investors look for ways to support Ukraine.
So, in general, I’m ok with investing in pretty much anything. However, particularly for concentrated investors, I do think there’s an argument to be made that investing ethically / morally will help you avoid some land mines / blow ups, and avoiding those land mines will improve your performance in the long term.
An example might show this best: Valeant is a stock that a heck of a lot of investors blew up on in the mid-2010s. Now, there were lots of issues at Valeant. But Valeant’s core business was basically buying drugs that were already on the market and then hiking their price ~10x. I know lots of investors (including Buffett and Munger!) who were quick passes on Valeant not because of any of the accounting issues or business issues or anything, but because they looked at the Valeant business model as deeply unethical and were quick passes on that.
Anyway, I don’t have the answers here. But it is something I’ve been thinking about, and I will at least be considering the “ethics” of the companies I invest in going forward.