Saturday, September 02, 2006

Ethics, Politics, Investing, Poverty and the Ordinary Citizen

The tragic events in Bangladesh following on from Asia Energy's (epic LSE: AEN)
deal with that government for massive open cast coal mining there, caught my
eye last week.

The poorest of people fighting for what little they possess not
being taken from them; the government and a UK AIM quoted company
stitching up a deal over their heads; rioting; death on the streets; AEN share price
plunge; Bangladeshi government (wisely imho) acceding to ordinary citizens; and AEN
shareholders (not I thankfully) facing total losses of their investments,
made for huge drama.

My musings about ethics and investment some while back still seem relevant:

"

... I am
sometimes asked: what shares
would I never buy? This begs the
question of why invest in shares in the first
place. Why not simply bet instead?
I remember a frank post on a bulletin board
by someone who said he used to bet on tennis
matches. He said – only half in jest, I think –
that tennis was a good bet because each game
was a two-horse race, whereas there are
usually more than two horses racing round
Lingfield Park.
Only having two players to consider meant
their form could be studied and the likely
outcomes for a punter who did his homework
were almost a certainty. He made such a
handsome profit from tennis betting that
eventually the bookmakers banned him and
he turned to the stock market instead.
If the sole function of investing in shares is
to make money, then bookie
betting might give a better
overall return. However, I
choose to invest rather than
bet because simply playing
with money serves no
apparent useful purpose
other than the mere chance –
like a spin of the roulette
wheel – that I might profit.
For me money is too
important, in a world
where many have so
little, to be spent and
perhaps entirely wasted in
large amounts on mere
whims. Ordinary individuals
putting relatively modest
sums on horse races and the
like represent no ethical problem for me, but
the expenditure of thousands of pounds on a
mere bet does seem ethically questionable.
The common good
Shares, on the other hand, represent a
financial means whereby products and
services can be developed by individuals and
companies for marketing within society,
potentially for the common good. Investing
in shares, at least in theory, can give added
value to the creation of products and services,
and leads to the creation of employment and
wealth.
I say ‘in theory’ because there are some
companies that are hopelessly or fraudulently
run, and others that hit bad luck and so
everything can be lost. The financial effect of
the loss on the shares investor would be the
same as if he or she had put it all on the
roulette wheel, but the entirely whim-based
factor affecting the big roulette wheel loser’s
losses would not apply to the same extent to
the poor old investor.
All the above then brings me back to the
question of whether there are any shares that
an investor should avoid. Obviously,
financially failing companies are near the top
of any list not to buy. However, a reason for
investing in the first place is that of
purchasing a stake in some underlying
procedure, which results in the creation of a
tangible service or product rather than a
whim. Therefore, some form
of personal ethical yardstick
against which to measure
the worth of the product or
service being bought into by
the investor is needed.
Subjective analysis
This is very personal
and subjective. Bulletin
board examples of
companies to avoid include
tobacco, arms, animal
experimenters, companies
without women on the
board and ‘shops which
buy stuff from child labour
merchants’. Having come
this far, I can only say that I
sympathise with many on that list but not
all. If the endocrine glands of a whale facing
extinction would save the life of a baby, I
would save the baby and not the whale.
Over the years I have been a private
investor, many of my own prejudices have had
to be rethought, as has some of my personal
ethical yardstick. I used to eschew anything to
do with hedging until I learned that the
...Trust,
which I help with, hedged sterling and francs
to keep the ...fares low. Now I have no
problems at all about investing in a company
like RAB Cap (RAB) – except of course when its
share price falls.
Another example giving rise to rethinking
of investment ethics was Pipex (PXC), which I
sold when the company announced a contract
win with a large chain of betting shops. Did
that mean selling off BT as well because
bookmakers or, worse still, people who fire
guns, might use the telephone?
But there is still a line I will not
cross: companies whose main aim is
armament production; human embryology
experimentation; tobacco, and companies that
maintain very poor employment practices even
after tribunal decisions and HR advice has been
given – making mistakes is one thing but not
learning from them is another. I also avoid
companies which heavily pollute and do not
clean up and those which evade taxes.
Some may dismiss the above as irrelevant,
too long-winded or preachy, but for me these
points are at the core of investing, along with
the fundamentals and finances of the
company in question. ■
"

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