Is It Immoral To Buy Stocks?

Foreword from ShareInvestor

This article “Is It Immoral To Buy Stocks?” by Cai HaoXiang was first published in The Business Times on 01 Jan 2018 and is reproduced in this blog in its entirety.

As with any other business activity, investing involves navigating through some grey areas. One needs some principles to steer one’s financial ship

Years ago, when I shared with a friend how one can make money from the stock market, she gave an odd response.

“Is buying stocks immoral?” she asked.

Caught off guard, I explained then that stock investing is fundamentally a practical enterprise, not necessarily an immoral one.

The whole premise of the stock market is founded upon companies requiring capital to expand their businesses. Investors take on the risks and may or may not be rewarded accordingly.

In any case, buying stocks is a pragmatic decision. Investing in stocks like Singtel or real estate investment trusts (Reits), for instance, allows one to get a yield on one’s capital far higher than what the banks are paying.

Investing in businesses that one evaluates to be cheap, meanwhile, enables one to make money should the market come round to your opinion.

Many of us work in listed companies, which struggle sometimes between the obligation to reward their shareholders, and giving more to their employees.

As an employee, even if you make money for the business, your pay will be constrained by the desire of business owners to take their own share first. Why not get on the shareholder side to balance out the risks?

It is only immoral to invest, I contended, if you are buying shares in companies that engage in activities contrary to your own principles. Casino stocks or tobacco stocks are the two most common examples.

For instance, the “sin stocks” taint prevents some people from investing in companies perceived to derive income from activities frowned upon by their religion.

Yet investing and morality can go together. Investing in companies operating on sound economic, social and governance (ESG) principles can make sound financial sense. Stakeholders will be more motivated to strive for a company that treats them well.

It is easy to be glib about the ethics of investing. The reality is more contested.

Partake in the stock market and you will become somewhat calculative on how companies can continue to have bargaining power over their workers or suppliers.

Partake in the stock market, and you are collecting dividends without lifting a finger while others are toiling hard for their futures. Yet too many rentiers can sap the vitality of an economy.

Speculation

Meanwhile, stock investing will invariably involve some form of speculation.

You can bet on economic cycles to shift things your way. You can bet on other people being willing to pay more than you did, for an asset of dubious value.

Speculative activities might not necessarily be morally wrong, but one can argue that too much energy goes into them, with too little value added to society.

There are other issues. Once you start accumulating stocks and money, it is also easy to slip into a mindset of greedy acquisition.

Companies with living, breathing humans behind them become impersonal assets to be coldly measured, collected or dumped.

Little wonder, then, that the overlords of finance rarely get much sympathy in the popular press.

All said, investing, like any other business activity, comprises grey areas that have to be navigated.

Ultimately, one has to keep in mind why one got involved in financial markets in the first place. One needs some principles to steer one’s financial ship.

In the past five years, through a slow period of economic growth in Singapore, this column concentrated its energies on helping people find a path to financial wealth.

The end goal of financial freedom is compelling. Being liberated from the need to work doesn’t mean you stop working altogether. But at least you will have more freedom to choose your destiny, and to work on your passions.
The road there involves mundane things like tracking and controlling expenses, and hard-headed methods of analysing companies and investing, such that the rewards are more in your favour relative to the risks.

Understanding financial freedom also involves a philosophical shift in recognising what is important in life, and how much, or how little, money plays a role in it.

We have also discussed the importance of keeping one’s perspective, and of not wasting time given the brevity of life.

As we reflect on the past and look towards a new year, the only exhortation this column will make is for readers not to lose sight, or heart, in the endeavours they commit themselves to.

Happy New Year. May readers have a good 2018 ahead.