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I’m basically fine with investing in evil (2007)
- gohrt 11y agoStandard arguments used in the article: 1. "It doesn't matter what I do -- If I don't do some particular evil, someone else will do that evil in my place" aka "I'm just one person, my vote is irrelevant" 2. "punishing past mishbehavior is not a deterrent to future misbehavior" (In this case, the punishment would be lowering the stock price of a company, by not buying its stock, which punishes the people who (gave money to people who... recursively) gave money to the founders.
- ikeboy 11y agoAlso, the cost of preventing the evil is not worth it. It would be more efficient to spend the money on what you're good at.
- mistercow 11y agoNeither of those strike me as characterizing major argument of the article. Rather, they are used in support of the stronger points about where to aim your resources.
- ikeboy 11y agoPunishing past behavior by a long chain like that seems extremely inefficient. Sure, if society could coordinate well enough to not fund bad behavior, that could be a large enough effect to matter. But the optimal level on which to act seems to me to be the government level. If society doesn't want such companies, society should elect politicians etc that lead to them being banned. Note that boycotts are different. A boycott directly takes money away from the target that would have been spent otherwise. This takes money away from someone who didn't take money away from someone etc. So you can endorse private boycotts of products but not private boycotts of stock.
- Kluny 11y agoThey came for the Jews and I said nothing because I wasn't a Jew....
- Houshalter 11y agoThe main arguments is opportunity cost. Every dollar spent (or lost) on that goal is a dollar taken from some other goal. The "standard arguments" are correct though. Your vote absolutely is irrelevant. And this is a thousand times more true in markets where people can make large sums of money by defecting. And if you get past that, the stock price doesn't even affect the company. It's extraordinarily indirect. If you somehow make the stock price artificially low, that will somehow discourage future investors from investing in something similar? It seems unlikely.
- sideshowb 11y agoIn addition to what gohrt said: the threat of falling tobacco stocks does guide behaviour of these companies, even if they are not raising capital, because if stocks go low the company is more susceptible to hostile takeover, and top tier management probably want to keep their jobs.
- philh 11y ago(I didn't RTFA.) > "It doesn't matter what I do -- If I don't do some particular evil, someone else will do that evil in my place" aka "I'm just one person, my vote is irrelevant" These are different arguments. The second says, my actions don't have any effect. The first says, my actions affect the world, and also other people's actions, and their actions affect the world so as to cancel out the direct effects of my actions. Reducing the first to the second misses a lot.
- Eliezer 11y agoHi! This is the Market Economics Fairy! If you think that not investing in evil stocks can predictably lower the price of their cash flows, that violates the weak form of the efficient markets hypothesis! There's nothing else to say! The end!
- laughinghan 11y agoI'll bite. Hi! This is the Real World Fairy! If you think the real world perfectly conforms to the efficient market hypothesis, that violates obvious facts! There's a lot more to say because economics is complicated! The end!
- p4wnc6 11y agoBut to believe your choice to divest could predictably cause a sustained downward price movement means you believe that to whatever extent the market is inefficient, you can predict the effect of the inefficiency. If you can really do this, you wield enough power to go about eliminating evil in some way more effective way than slow divesting. The bigger issue for me is not that the long-term price impact of divesting is unpredictable (though that's true too). The issue for me is that divesting is a selfish action designed for the divesting party to benefit from the current price of the asset's stream of future cash flows. By divesting in an oil company, say, you are realizing a cash gain roughly equal to the market's appraisal of the discounted stream of future cash flows of the company, per share. Instead of owning a piece of that oil company value in the form of a stock share, you've just converted it to dollar format. You still benefited (if you experienced capital gain on the asset) via the operation of that oil company, and if that company obtained value by inducing a negative externality on the world (say, pollution), some tiny slice of your cash from divesting is equal to the gain from that unpunished externality. If you actually cared about rectifying the problem of the externality, you could instead give your shares away for free to the parties who are damaged by the externality. If you think the oil company pollution will cause oceans to rise and will displace Gulf Coast families, you could give away your shares of Exxon to those at-risk coasters, paying the cost of your lost shares to subsidize their hedge against suffering the costs of some Exxon externality. By divesting, all you would do is to fashion signal that you don't like Exxon. Apart from some remarkable ability to forecast exactly when your divestment will cause a sustained price drop (which you don't have), divesting is sort of like holding up a sign that says "Honk if you don't like _____!" -- it's a fine thing to do conditioned on various goals or preferences, but is not near the highly optimal end of the spectrum of activist actions you could take.
- schimmy_changa 11y agoI think most people miss the point of public, large-scale divestment (as opposed to private, small scale consumer ethical purchases which I find not super useful). Divestment by a well-respected organization like the Gates foundation is a signal to others: a signal that a particular industry is morally unappealing to a society, so much so that it's days are numbered. Thus, it's a bad investment, as likely you will lose capital in the very long term investing horizon. If this sounds a bit circular, you're right! You're looking as an activist to start a spiral: first a few high profile, respected institutions signal that an industry is no longer acceptable to society, then all investors start to wonder about the viability, then all investors start pricing that risk into investment, then startup capital dries up, and eventually you see a slow decrease in power of a once dominant industry. Generally that's a bit naive and simplistic, but you get the idea. Who on HN is willing to start a tobacco startup today in the US? No? Didn't think so :)
- usrusr 11y ago“a signal that a particular industry is morally unappealing to a society, so much so that it's days are numbered.“ Or it might be seen as a signal that said industry might be full of undervalued stock, because a certain fraction of potential buyers opts out without even considering potential revenue and so on, lowering demand in the stock. If enough investors are following this heuristic (instead of actually analyzing the true potential of the companies in question), then high-visibility ethical divestment might even lead to a twisted amorality bubble. For the tobacco example, I think it's the other way around: if (and only if) there is policy against an industry, then divestment will make that policy appear a lot more serious. But this signal would be even stronger when the divestment is done by "pure market rational" actors, that are not influenced by ethics (or that at least give the outside appearance thereof).
- notahacker 11y agoIt largely depends on critical mass. One large institutional investor pulling out isn't going to harm a company because a pure profit seeking firm will pick up the slack. But a significant proportion of investors that won't touch a stock is going to have an impact, because even purely rational investors are going to consider the fundamentals of the business affected by the implied lower future liquidity, higher costs of capital and lower ability to retain senior executives with attractive equity offers in future. Even though that impact is unlikely to be large, it's probably large enough for firms keen to avoid being labelled "evil" by activist investors being encouraged to spend a bit more on CSR, tightening up their supply chain and abandoning an unpopular policy or two. It's that secondary effect of encouraging ordinary firms to be more ethically conscious - which GiveWell's article doesn't mention - that's the larger one. A good analogy is democracy. A few people voting for a fringe candidate doesn't harm the mainstream candidates; awareness there's another party complicating the result might even boost the mainstream candidates' votes. As soon as the fringe party gains some sort of critical mass, however, one of the mainstream candidates is likely to start wooing their supporters by adopting one of their more inoffensive policies in some form.
- mrweasel 11y agoI'm just miffed that the company managing my pension somehow feel that they need to my moral guardian. - "How do you want your pension fund invested?" - "Weapons would be good" - "Sorry, we can't morally justify that" Well why not? The only that that's happing now is that people who aren't me will be making a profit on those stocks. If running a munitions company is legal, then it shouldn't be morally wrong for my pension to be invested in it.
- ZeroGravitas 11y agoLots of things that are morally wrong are legal, and vice versa. There's also an argument (which I think applies to the fossil fuel divestment movement) that having money invested in those industries makes it harder for organisations to speak out against fossil fuels as someone somewhere will be accounting for how that impacts your bottom line negatively. By pre-emptively removing the money, you have more chance of making something illegal (or just heavily, punitively taxed) in the future.
- mrweasel 11y ago>By pre-emptively removing the money, you have more chance of making something illegal Except money isn't actually removed. It's just the money of ordinary people, that is removed. Hedge funds, banks and rich people are still invested in munitions, tobacco, alcohol and fossil fuels. The rest of us for some reason forced to be "better" people, poorer, but better. And don't kind yourself, weapons aren't going anywhere. The US army isn't going to disband because the middle class decides that their pensions won't be invested in Raytheon. It's absolutely bonkers that it's okay for me to want my country to have an army, but morally wrong for me to want to profit from the purchases that army might make.
- ZeroGravitas 11y agoI'm not saying "money" is removed, I'm saying "the money", the money under the control of the ordinary people who might play a part in voting for high taxes on coal for example. The more people that negatively affects financally, the less likely it is to happen. If people have 30% of their pension in Marshmallows then the "War on Marshmallows" is going to have a harder time convincing people that Marshmallows are bad.
- deleted 11y ago[deleted]
- imgabe 11y agoIf we could abolish something we dislike by refusing it an "official" source of funding, we wouldn't have an illegal drug trade. Clearly, that isn't the case. There's no Fortune 500 companies selling heroin, yet heroin suppliers get capital somewhere to run production facilities. If the demand stays the same, it will get funded somehow, because there's profit to be made. I can respect the decision of any investor to not be a part of something they find morally repugnant, but let's not pretend like that's going to cause the demand for the morally repugnant thing to disappear.
- applecore 11y ago> The first thing I want to point out, which I haven’t seen acknowledged enough, is how extremely, extremely minor the impact of a foundation’s investing decisions are on the companies it invests in. The irony is that individual company selection has an overall negative impact on foundation funds' returns. Asset allocation (beta) is so much more important than security selection (alpha) that it explains more than 100% of funds' returns.
- thinkcontext 11y agoCoincidentally last night I was reading about the role of the cotton gin of the expansion of slavery in the American South [0]. Such mechanical inventions were the stuff of the era's startups. The cotton was largely shipped to the UK, which had outlawed slavery, where it was used in their most important industry [1]. There was some debate about the morality of this, but as we know, slavery was not ended for lack of demand for its products. [0] "The Industrial Revolutionaries: The Making of the Modern World 1776-1914" Gavin Weightman [1] The book quotes Karl Marx "Without slavery, no cotton; without cotton, no modern industry"
- matt_morgan 11y agoNot a bad article, but there are no ideas in it that one can't arrive at with a most basic, a priori understanding of charitable giving. No surprise; the author wrote it just a few years out of college, in the year that he founded this givewell.org: Holden Karnofsky | Co-Founder and Co-Executive Director. Holden graduated from Harvard University in 2003 with a degree in Social Studies, and spent the next several years in the hedge fund industry. He co-founded GiveWell in mid-2007.
- jcrben 11y agoWell, you need a basic understanding of equity markets too, and it seems that most who know one do not know the other. At least, they aren't writing about it. Divestment of evil companies drives down their valuations; consequently, those who invest in evil can actually earn greater returns. If those evil companies are not raising capital, their operations are unaffected. It's simple but widely misunderstood.