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A question for investors

July 22, 2009

This question is a bit of a doozy but when you invest, say in stock, forex or REIT, do you care if your investment makes any impact on the companies you invested in – like creating jobs and better products? Or are you just interested in the return?

(Yes you can make a quick killing without the company achieving jackshit – through IPO, pure rumor or speculation, no real fundamentals necessary.)

Honest answer please.

I know I know, an investment isn’t charity. Its a two-way thing. You lend me your money and after some time, I give it back to you with some profit (or loss) thrown in. But I must have a good business plan, or give you the impression that I have one.

I ask because sometimes what they tell you and what you see in real life don’t tally. For example,  seeing investors make billions when companies aren’t performing, or making a killing out of forex as the country whose currency is being traded goes down the tubes. We do have fancy terms like “technical corrections”, etc. to make mass silliness and outright robberies sound professional and legit though. 😀

The truth is, many retail investors I speak to don’t care about whether their money is really advancing the business they invested in. Many have no clue what products or services are involved or see any reason to attend the AGMs these companies hold.

The investor is only interested in money. Which is fair in a way becoz investments aren’t charity. But it is “disintermediated” investment where the layer of disintermediaton is made up of the broker firm, the stock market mechanism, and investment products like mutual funds and derivatives. These put a distance between the investor and the investee. The partnership isn’t personal. Its impersonal and opportunistic.

Its like getting married but you never actually sleeping with your wife and the only thing you know about her is her name. And as soon as you see a hotter chick, you dump the current one and “marry” the next one. The stock market defines marriage of convenience like no other.

There’s nothing wrong with this relationship if the feeling is mutual. The company you invest in doesn’t care whose money it is, and you don’t care what the company does as long as your sources say its “good” and you should buy, buy, buy! In fact, the investor and investee can come together and create an illusion that something of value is being built when there is actually none, just like some marriages. As long as each side gets what it wants, the game is on.

So to answer my own original question, maybe it is normal for investors to say, “Who cares if the company I invested in is doing well, as long as I profit from it.”

But are there any reasons why an investor should care? For one, could it reduce the spurious and irresponsible flight of capital driven not by fundamentals but by pure greed, and protect stock values and the interest of the shareholders in the process? Would it reduce the likelihood of bubbles if that happened?

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2 Comments leave one →
  1. July 23, 2009 8:43 am

    I always invest in companies which i like what they are doing and i see value in them. i no longer do all those short-term investing aka speculation stuff. too risky and i’ve burned myself in the past. but on creating jobs n stuff, mmm, i mst b honest, i don think that far. for example, my stock portfolio only has like 5 or 6 companies and one of them is IOI. the reason is tat i really like their environmentally friendly approach and i do feel that approach will help the company in the long run.

    so basically its how i think the company will benefit from whatever it is doing at the moment 😀

    Yes, most investors don’t think that far about job & value creation in the stock they buy. Although people tell me there’s no difference between investing via the stock market and buying shares directly from a company, I think there’s a huge difference. When you buy direct, its personal and you tend to be more careful about the welfare of the company you buy into. When you have layers of brokers and stock exchange systems and you can buy and sell in the snap of a finger, you don’t need to care. Your focus is on sentiment and timing, not on company strength. The indiscriminate flight of capital creates bubbles and that’s why to me, the system itself is responsible for creating these bubbles.

    Hey you read my mind! I was going to write about companies and environmentalism today. 🙂

  2. August 4, 2009 2:36 am

    Different people have different styles of investment. Warren Buffet does talk about creating shareholder values. 1 example is that his Berkshire Hathaway does not give out dividend. Because dividends are not good for the company as it will be taxed by the government. Instead it should be reinvested or given to shareholder as a last resort.

    Islamic banking is a responsible way of investing I believe. I don’t know much but they have rules like, no porn or gambling. Also, the investment cannot earn interests I believe and there are strict borrowing rules. Perhaps, that is the closest to responsible investing.

    Hi, thanks for visiting.

    I’m not familiar with Islamic banking but I do know that Citigroup’s biggest shareholders are Saudis, and so are many companies on Wall Street. Their products are just like everyone elses though.

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