Are We Doing Any Good?

[randomep]

 

Assuming that you are a small time manager of your own portfolio, and so you are always a minority shareholder, do you think the time you spend (possibly full time) doing investments is doing any good for society, assuming you make a decent return.

 

Let's restrict the investments to long stocks, so no shorting, options , etc etc......

 

I think we are but wonder your thoughts..... maybe this could be a poll!?

thanks

[ERICOPOLY]

Good for society? 

 

Certainly.

 

1)  I left my previous salaried job.  This means that another worker was hired in my place and this took stress off of government services who provide for the unemployed.

 

2)  Now I'm spending my savings instead of increasing it.  That stimulates the economy and provides jobs.

 

So you see, I'm a job creator.

[rkbabang]

If you are making a profit, then yes.  In any market profits are the result of doing good.  For a simple example, if you notice that oranges are cheap in Florida and expensive in Alaska, and you have a way to bring them to Alaska and profit, then you are doing good and being paid to do so.  You aren't just doing good because you are providing people with oranges, but also by helping the market come to an equilibrium in pricing.  By buying the oranges in FL you are helping to raise prices there and by selling them in Alaska you are helping to lower prices there.  The same is true with the equity markets. When you find an undervalued stock and you buy it, you are helping to nudge the price higher (or at least to slow the decline). Conversely by selling an overvalued company you are helping nudge the price lower or at least slow the rise.  Obviously the more money you can put into play the larger effect you will have on the price of the stock.  Your return is your payment for helping to drive stock prices to their proper market value making the capital markets more efficient and useful.

 

When you make money in a market you have done good for society, even when you can't figure out how. When you make money through politics or by taking advantage of government regulations, grants or monopolies, then you have profited from violence even if you haven't seen the violence.

 

[yadayada]

If you are making a profit, then yes.  In any market profits are the result of doing good.  For a simple example, if you notice that oranges are cheap in Florida and expensive in Alaska, and you have a way to bring them to Alaska and profit, then you are doing good and being paid to do so.  You aren't just doing good because you are providing people with oranges, but also by helping the market come to an equilibrium in pricing.  By buying the oranges in FL you are helping to raise prices there and by selling them in Alaska you are helping to lower prices there.  The same is true with the equity markets. When you find an undervalued stock and you buy it, you are helping to nudge the price higher (or at least to slow the decline). Conversely by selling an overvalued company you are helping nudge the price lower or at least slow the rise.  Obviously the more money you can put into play the larger effect you will have on the price of the stock.  Your return is your payment for helping to drive stock prices to their proper market value making the capital markets more efficient and useful.

 

When you make money in a market you have done good for society, even when you can't figure out how. When you make money through politics or by taking advantage of government regulations, grants or monopolies, then you have profited from violence even if you haven't seen the violence.

Not to be lame, but most of the time when you make a profit its good. There are plenty of ways you can make a profit and be bad for the world.

[Palantir]

I expect that most of this board will say yes, being an investing board, yeah of course investing is good for society!

 

But I will disagree, as a passive investor, all you're doing is moving capital around, from one place to another.

 

So it may be profitable to you, and it's great, but I don't think it adds value to society any more than other activities like say, driving a taxicab.

 

Conversely, I am beginning to feel that when companies seek to satisfy shareholders' interest at the expense of long term goals, investing could quite feasibly destroy value.

[ERICOPOLY]

But I will disagree, as a passive investor, all you're doing is moving capital around, from one place to another.

 

You are moving it from places that generate less return to places that generate good return.  You are a steward for society's capital -- you are good at it, so you tend to manage ever-higher amounts of society's capital.

 

Your selling depresses the stocks of low-return companies (unproductive assets) -- this enables a low price profit opportunity where an activist investor finds an opportunity to unlock the value of those assets (liquidation, spinoffs, management changes, etc...).

 

But you make that opportunity available to him by encouraging low prices on unproductive assets.

[watsa_is_a_randian_hero]

Good for society? 

 

Certainly.

 

1)  I left my previous salaried job.  This means that another worker was hired in my place and this took stress off of government services who provide for the unemployed.

 

2)  Now I'm spending my savings instead of increasing it.  That stimulates the economy and provides jobs.

 

So you see, I'm a job creator.

 

From a societal point of view, I would have to disagree Eric.

 

The economy is not a zero sum game.  Your leaving the labor pool did not "open" up a spot for someone else.  Your act of leaving the labor pool reduced the percentage of people working.  Your statement is very anti-supplyside economics. 

 

To the extent you are rich and continue to work, (like buffett) you provide to help society become more efficient and produce productivity gains.  Even if your work is limited to investment decisions, you are helping society allocate capital efficiently. 

 

To the extent you retire and do not work and put your money in an index fund and just spend down your retirement, you cease to provide society any benefit.  However, this is not necessarily a bad thing; it is your reward for providing a large benefit to society in prior years. 

[watsa_is_a_randian_hero]

If you are making a profit, then yes.  In any market profits are the result of doing good. 

 

+1

[watsa_is_a_randian_hero]

Not to be lame, but most of the time when you make a profit its good. There are plenty of ways you can make a profit and be bad for the world.

 

2 separate interpretations of this come to mind.  First is related to profits from items on the black market (ie, drug dealer), and the second is related to fraud/theft.

 

1st - to the extent a black market profit is achieved, most of the time I think its still a sign of doing good.  You are providing a customer with something desired.  The exception is for items used to assist in future crimes (if you are aware of this), such as a dealer of weapons to a terrorist group. 

2nd - to the extent your wealth is derived from fraud or theft, this is not "profit."  Bernie Madoff did not "profit" from his ponzi scheme...he defrauded investors and committed theft.

 

 

[LC]

If you are making a profit, then yes.  In any market profits are the result of doing good. 

 

+1

 

How do you explain dealing heroin or any of the other various forms of criminal enterprise? Or cutting costs to the bone in 3rd world chemical plants to the point where poison leeches into drinking water?

 

1st - to the extent a black market profit is achieved, most of the time I think its still a sign of doing good.  You are providing a customer with something desired.  The exception is for items used to assist in future crimes (if you are aware of this), such as a dealer of weapons to a terrorist group. 

 

I never bought this argument. It makes sense logically if you want to rationalize it that way, but it's so far from common sense I want to cringe.

 

So here I am, knowing that the heroin I sell may very well ruin your life and the life of your loved ones. Or it may not, and you may use it responsibly. Heck, how should I know for sure? I just met you 5 minutes ago before we walked down this dimly lit alley.  In any case, you want it, so I'll provide it. If I don't someone else will, right? So don't blame me, I'm just making a profit, doing my daily dose of good for society.

[randomep]

If you are making a profit, then yes.  In any market profits are the result of doing good. 

 

+1

 

You've got to be kidding me. So the following are doing good for society?

 

- the lobbiest who pushes for oil companies to drill everywhere

- the late Senator from Alaska behind the bridge to nowhere

- the folks who put do whatever to put their servers closer to the exchange so they can peek and get ahead of other traders

- oh those 80% of bankers that munger says we should layoff

 

and so on.....

 

[watsa_is_a_randian_hero]

to the last 2 posts quoting me "+1"...

 

1.  I had previously addressed 2 examples that touches on some of these (Scroll up).

2.  I guess I should clarify my position that a profit made in a free market (devoid of crony capitalism) is due to the result of doing something good.  This also presumes that laws regarding property rights, theft, fraud, and externalities of behaviors are enforced.

3.  Regarding munger...???  I don't know what you want me to say to that.  You are clearly quoting someone who said an exaggeration and generalization as though it is gospel.  I'm going to turn your quote "Are you kidding me?" back on you with this one.

 

I dont want to hi-jack this thread and turn this into a totally separate discussion (the thread is about whether investing results in a societal benefit, which I believe it does).  If you want to discuss the topic of whether any profit is good for society more, feel free to PM me. 

[Uccmal]

This question can be posed for a whole host of businesses and occupations.  When you get right down to it only a handful of things are actually necessary for human survival, and perhaps some extra things for some fulfilment.  We need food, shelter, companionship, some security and safety, and some entertainment.  So we need farms, storage and food distribution.  We need homes and infrastructure to supply our homes with energy and water.  Most of us need friends and family.  We need a cohesive social group for safety and security.  We can entertain ourselves with music, shows, dances, story telling, and playing games. 

 

We dont need Mcdonalds et al.  We dont need pro athletes, pro musicians, pro actors, Las vegas, Philip Morris, Seagrams, or Budweiser.  We dont need Coca-cola, Pepsi, Mars bars.  We dont need car dealers.  We dont need 95% of the clothing retailers in the average mall.  We really dont need as many lawyers as we have.

 

Once you clear out the occupations that dont provide the basics most of us wouldn't have or need jobs.  On the other hand it was probably pretty boring sitting all winter on the farm in 1914 in rural Ontario.  In fact it was so boring that young men volunteered in the thousands in 1914 to fight in an overseas war - anything to get off the farm.

 

My investing does me good and makes my life more interesting.  Perhaps it will enable me to go on and do something really good for society or assist someone else in doing so.  Elon Musk is a good example of this, or Bill Gates.  The question is really quite philosophical. 

[LC]

I think in the general case, yes obviously investment benefits society. We need investors to pump capital into solar energy.

 

In specific cases of course it can be harmful. Focusing on the bottom line at the expense of safety spending etc. can be terribly harmful.

 

So I guess, like all things, there is good and bad and you can't have one without the other. Overall, investment has benefited society IMHO.

[ragnarisapirate]

This question can be posed for a whole host of businesses and occupations.  When you get right down to it only a handful of things are actually necessary for human survival, and perhaps some extra things for some fulfilment.  We need food, shelter, companionship, some security and safety, and some entertainment.  So we need farms, storage and food distribution.  We need homes and infrastructure to supply our homes with energy and water.  Most of us need friends and family.  We need a cohesive social group for safety and security.  We can entertain ourselves with music, shows, dances, story telling, and playing games. 

 

We dont need Mcdonalds et al.  We dont need pro athletes, pro musicians, pro actors, Las vegas, Philip Morris, Seagrams, or Budweiser.  We dont need Coca-cola, Pepsi, Mars bars.  We dont need car dealers.  We dont need 95% of the clothing retailers in the average mall.  We really dont need as many lawyers as we have.

 

Once you clear out the occupations that dont provide the basics most of us wouldn't have or need jobs.  On the other hand it was probably pretty boring sitting all winter on the farm in 1914 in rural Ontario.  In fact it was so boring that young men volunteered in the thousands in 1914 to fight in an overseas war - anything to get off the farm.

 

My investing does me good and makes my life more interesting.  Perhaps it will enable me to go on and do something really good for society or assist someone else in doing so.  Elon Musk is a good example of this, or Bill Gates.  The question is really quite philosophical.

 

Playing devil's advocate- one could argue that these are in fact essential things, as they act as a humane population control... dying of a heart attack after washing down a juicy cheeseburger with a coke seems a lot better than starving because there are too many people out there relying on food infrastructure that isn't developed to where it needs to be for a significantly larger population.

 

Additionally, with the study NASA just put out on climate change and the like, it's arguable that there are too many people anyway.

 

 

[rkbabang]

I'll try to answer some of the above without quoting every person who has replied.  Ask yourself: Would the capital markets function if people did not try to buy undervalued securities and sell overvalued securities?  This type of profit seeking is essential to the operation and efficiency of these markets.  Then ask yourself what would society look like if the capital markets didn't exist?  Someone above dismissed trading stocks as no more valuable than driving a cab, and it is true that trading a small amount of stock may not add much more value than driving a cab, but I'd argue that driving a cab is valuable.  Getting people to where they wish to be is valuable and this is the reason the cab driver makes a profit doing so.  The cab driver doesn't add as much value as a jumbo jet pilot does (when they land safely and their passengers survive), but that is the reason a cab driver doesn't make as much.  You and I haven't created the value to society that Bill Gates or Warren Buffet have, which is the reason we haven't profited to the extent that they have.  I don't buy the heroin argument, most of the problems with the heroin trade are the result of its illegality. 

 

The only exception I'd make to my statement that if you make a profit you are benefiting society, is that it doesn't apply if you initiate violence against one or more people to do it.  This would include things like theft, murder for hire, and lobbying the government.

 

Someone mentioned poisoning people in the third world for fun and profit, but in a functioning market, devoid of government protectionism, and with a functioning tort system, such things would be far from profitable.  Now for those educated in government schools who think that a tort system couldn't function without political authority and the aggressive government violence that it implies, that is too complicated a subject to get into on a message board.  Whole books have been written on it and I'd be happy to give you the info you need to get started if it is a subject you are interested in.

 

But on the topic of this thread, the answer is unequivocally Yes.  Don't sell anything you do to peacefully make a profit in our society short.  Whether you are a cab driver, a plumber, an engineer, or an investor, you are doing some good in your own way.  All of those jobs, and many more, are necessary for society to function.  When they cease to be necessary, such as cab drivers after automated cars are the norm, they will cease to be profitable.

 

[NeverLoseMoney]

I'm pretty skeptical about it being good for society. Every stock needs to be owned by someone. All that I'm doing is cherry picking: picking up the cheapest things and avoiding the overpriced things like the plague. If I do this right, it will benefit me. If I choose not to actively invest at all, someone else will own the bargains and he will get the benefits.

 

I guess you could reason that you help make markets more efficient and help capital allocation in some way. Still, that's all pretty abstract stuff. Let's face it: we're not brain surgeons, fire fighters or farmers. Those professions offer a much more visible and greater benefit to society. Of course, I'd like to believe it is good for society, but I see plenty of people doing jobs that I think are pretty meaningless making the same claim.

 

The main way where investing could help is indirect. It can provide you with a lot of freedom in the way you spend your time and money. That can provide a real benefit to society, whether it is by supporting a charity, doing volunteer work, being able to be a better parent, etc. But when you're able to do those things it is still your decisions and actions that provided the real benefit. Investing just allowed you to do it more or better.

[JSArbitrage]

It's neither good nor bad; it's just investing.  It's funny to me that anything anyone does, they have to make it out to be some higher good.  Oh, you like playing football? It's not about football - it's about competition, discipline, work ethic, personal character, etc.  You probably invest because (a) it's fun and (b) it's profitable.  If you didn't find it fun, you'd probably do whatever you find fun like fishing or whatever.  But it'd not fishing - it's getting back to nature, conservation, respecting Mother Earth, etc.

[ERICOPOLY]

To the extent you are rich and continue to work, (like buffett)

 

I'll stop you right there...

 

I am a passive investor.  (I buy shares in companies and also allocate dividends)

 

Buffett is a passive investor.  (Berkshire buys companies with management intact and just allocates the dividends)

 

So if I work "like Buffett"... then... what will happen?

[watsa_is_a_randian_hero]

I think the fruits of labor of the capital allocator may be more visible in the debt markets than the public equity markets.

 

-If a company wants to expand and needs additional financing in order to do so, they are dependent upon this market.

-If it is a project that is likely to be popular with that company's customers, it will be profitable.  If it is a project that will enhance productivity saving the company money, then it will be profitable (and customers will benefit in the long run through reduced real cost).  If it is a profitable project, then the company is more likely to get its financing.  This capital allocator distinguishes between a proven farming technology that will reduce long term costs or enhance crop yields and funding for a man who wishes to become an auto dealer in Alberton, Montana (population <500).

-The capital allocator in this case chooses which projects get funded and which do not.  There are likely an excess of profitable projects choices and a shortage of capital; in this case the most profitable projects will receive favorable treatment and lower interest rates.  The converse is true for the least profitable. 

 

All of the above is true of the debt markets (and more visible).  The results are most visible in the debt markets, and maybe next in the private equity markets.  The results are also most visible on the large investor, institutional scale.  However, that doesn't invalidate that at the margin the small capital allocator in the public markets is beneficial to society. 

[watsa_is_a_randian_hero]

To the extent you are rich and continue to work, (like buffett)

 

I'll stop you right there...

 

I am a passive investor.  (I buy shares in companies and also allocate dividends)

 

Buffett is a passive investor.  (Berkshire buys companies with management intact and just allocates the dividends)

 

So if I work "like Buffett"... then... what will happen?

 

this is false.  neither of you are passive investors.  a passive investor owns an index fund.  youve made buy/sell decisions on individual stocks, and so has buffett.

[ERICOPOLY]

To the extent you are rich and continue to work, (like buffett)

 

I'll stop you right there...

 

I am a passive investor.  (I buy shares in companies and also allocate dividends)

 

Buffett is a passive investor.  (Berkshire buys companies with management intact and just allocates the dividends)

 

So if I work "like Buffett"... then... what will happen?

 

this is false.  neither of you are passive investors.  a passive investor owns an index fund.  youve made buy/sell decisions on individual stocks, and so has buffett.

 

Okay, I mean in the tax jargon sense of the word.

 

An "active investor" gets involved in the management of the business (doesn't take a "passive" role) and is somebody who really makes an impact.

 

My method of investing is in fact classified as "passive investments" under the tax code.  It's a fact.

 

Elon Musk starts a company that can build reusable rockets to save society a lot of money.  He starts a company that puts more solar panels on rooftops.  He was a driving force behind Paypal.  He is a change agent.  He is seeing a unfilled need, and then filling in those gaps.

 

Guys like me and Buffett -- we just either buy shares in those companies or buy them.  No entrepreneuirial risk taking.  We like companies that already succeed with management intact.  We just milk the cow, we don't create better strains of cows.  If a geneticist can create a better strain of cow, we'll milk that one too.

 

[Otsog]

Someone mentioned poisoning people in the third world for fun and profit, but in a functioning market, devoid of government protectionism, and with a functioning tort system, such things would be far from profitable.  Now for those educated in government schools who think that a tort system couldn't function without political authority and the aggressive government violence that it implies, that is too complicated a subject to get into on a message board.  Whole books have been written on it and I'd be happy to give you the info you need to get started if it is a subject you are interested in.

 

I'd be interested in any book recommendations.

[jschembs]

Good for society? 

 

Certainly.

 

1)  I left my previous salaried job.  This means that another worker was hired in my place and this took stress off of government services who provide for the unemployed.

 

2)  Now I'm spending my savings instead of increasing it.  That stimulates the economy and provides jobs.

 

So you see, I'm a job creator.

 

From a societal point of view, I would have to disagree Eric.

 

The economy is not a zero sum game.  Your leaving the labor pool did not "open" up a spot for someone else.  Your act of leaving the labor pool reduced the percentage of people working.  Your statement is very anti-supplyside economics. 

 

To the extent you are rich and continue to work, (like buffett) you provide to help society become more efficient and produce productivity gains.  Even if your work is limited to investment decisions, you are helping society allocate capital efficiently. 

 

To the extent you retire and do not work and put your money in an index fund and just spend down your retirement, you cease to provide society any benefit.  However, this is not necessarily a bad thing; it is your reward for providing a large benefit to society in prior years.

 

I haven't fully formed my opinion, but I tend to disagree (and agree with Eric). I don't know Eric's skill set, or what he did in his previous life, but I would wager there were alternative labor options seeking employment who, all else being equal in the economy, now are employed as a result of his decision to remove himself from the labor pool (yet remain a consumer not reliant upon the government).

 

I also disagree with the assertion folks spending down their retirements "cease to provide society any benefit." Do waiters and hotel personnel not benefit from retirees vacationing throughout the year? Do the wide range of service providers to the elderly also not benefit from servicing their needs?

 

Society doesn't benefit when people aren't working but have no means to be a consumer. Spend a week on a Caribbean island and you'll see that in full force.

[watsa_is_a_randian_hero]

We just milk the cow, we don't create better strains of cows.

 

This would be better stated as "we choose the cow to milk."  I think the juxtaposition of these two statements makes clear and epitomizes my argument.