I Don’t Think These People Understand Stock Buying And What It Means …..

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This idiocy has always bewildered me.  The AP runs a horribly biased and flawed article, but, that’s not the point of this post …..

Sustainable investing: Not a simple choice of good or bad

NEW YORK (AP) — Sometimes it takes more to be good than just not being bad.

That’s the logic behind a shift within the surging sustainable-investing market. For years, the default way to invest responsibly was simply to ignore the companies and industries that some find distasteful, such as tobacco companies or casino operators. It’s still the world’s most popular approach, based on total dollars, but a more nuanced approach to sustainable investing is growing even more quickly.

Instead of barring a list of industries from consideration, more mutual funds are taking into account how well companies do on environmental, social and governance issues. Does the company have a history of emitting a lot of carbon dioxide? Does it pay its executives excessively? Is its accounting trustworthy?

Managers of so-called ESG-integrated funds consider the answers alongside more traditional measures, such as how much profit a company makes and how quickly it’s growing. Adding that layer of questioning is a way to reduce risk for long-term investments, proponents say, in part because companies that score well on ESG issues are less likely to blow up in scandals or face big regulatory fines.

Sustainable investing in general is surging. Assets in the category leapt to $21.4 trillion worldwide at the start of 2014 from $13.3 trillion two years earlier, according to the Global Sustainable Investment Alliance. It’s growing faster than the overall market and represents 30.2 percent of all professionally managed assets, up from 21.5 percent in 2012.

Under the sustainable umbrella, ESG-integrated investing is providing some of the fastest growth. Its assets more than doubled from 2012 to 2014, hitting $12.9 trillion, and demand has been so strong that new ESG mutual funds are being rolled out seemingly every month.

Consider the Matthews Asia ESG fund, which launched on April 30. It focuses on Asian stocks and its lead manager, Vivek Tanneeru, says the region is ripe for an ESG approach given environmental concerns in the region and the rapid ascendance of many families out of poverty.

“We’re not setting out to exclude anything,” Tanneeru says. “We’re looking for companies that do the right things.”

Banks in India that target women and low-income customers are not only helping on social issues, for example, they’re also delving into big, profitable markets. ……

Yeh, well, all that’s fine and whatnot …..  but, if these people believe not buying stocks in a company hurts the company, or buying stocks in a company they like, helps said company, then, they’re morons. 

Once companies get past the IPO (initial public offering), then it’s just individuals (or other companies) that you’re buying the stocks from, not the company itself.  The company, itself, already sold the stocks, that’s why it’s publically available.  Sure, most of the board and the CEOs and whatnots typically hold a lot of the stocks, so, buying or not buying can effect the individuals worth, but, not the company itself.  The company itself has a ledger and a balance sheet …. debts owed, income, cash on hand, etc …… the stocks moving one way or another doesn’t alter the ledgers or balance sheets one iota. 

Now, there are exceptions and I’m generalizing, but, this is the essence. 

Let’s say you don’t like Dutch Shell ….. so you don’t buy their stocks.  Does this hurt Shell?  Not in the least.  Not even if half the people on this earth refused to buy Shell stocks, it isn’t going to hurt Dutch Shell the company.  It could, at least on a theoretical basis, harm the individual owners of Shell stocks …. but, that’s only theoretical.  In reality, it doesn’t change the value of the stocks, much less the value of the company. 

Now, mind you, the IPO is a little bit different story, but, again, only on a theoretical basis.  There’s many, many, many more people who will buy up the stocks, than the people who won’t. 

When you buy stocks off the market, you’re betting that the price of the stocks will go up from the price you bought it at, the people you’re buying them from are betting that they’re not going to go up, and that the value of the stocks have peaked.  Someone will win, someone will lose, but, the company, itself, is unaffected by the transaction. 

Stock values, again, theoretically, is based upon the company’s worth and its prospects for the future.  It’s worth isn’t based upon whether or not you want to buy the stock.  

How many people won’t buy stock in a company which makes beer or liquor?  Yeh, Busch as been devastated, right?

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3 Responses to I Don’t Think These People Understand Stock Buying And What It Means …..

  1. Bruce of Newcastle says:

    Only half right James.

    The intention of forcing BDS on companies is to pressure the executives…who often have a rising share price in their contracts. So when there is political pressure they fold, not because the company will be affected, but because their bonus will be. Its an effective tactic.

    On the other hand you are right that the companies generally don’t see much effect on their gross earnings. This feeds into dividends and buybacks. The former are a better investment price signal – which is bad for you in the US as buybacks are more tax effective so the companies do those with their cash. Unfortunately the BDS tactic hits the aim of buybacks – to raise share prices. Here in Australia we have a tax system which favours dividends and penalises capital gains, so the compaines don’t buy back their shares. Investors like me (ie not speculators) therefore can gain the steady large dividends. The banks I’ve invested in are down about 15% in May…but the actual dividends are up a modest 3% annually and overall pretax annual yield is nearly 9% (compared with term deposits of 3%…taxable).

    The whole world is going to change back from speculation to investment eventually.

    • suyts says:

      Well, I wouldn’t agree with the “1/2 right” bit …. I did write …..

      Sure, most of the board and the CEOs and whatnots typically hold a lot of the stocks, so, buying or not buying can effect the individuals worth, but, not the company itself.

      But, I do understand what you’re saying, and, agree.

      And, yes, one day……

    • cdquarles says:

      Um, no.

      All economic decisions are made under uncertainty. All values are subjective use values, with *right now* being the most valuable. The ‘speculator’ buys when you want to sell, regardless of why you want to sell, if the price is right, right now. The ‘speculator sells when you want to buy, regardless of why you want to buy, if the price is right, right now. Any decision that has any future action(s) tied to it, are, by definition, speculation. So, if you want liquid markets, you must have speculators. Punishing speculators will not help the price finding mechanism of the market.

      That said, the ‘madness’ and ‘wisdom’ of human emergent behavior will make things seem off.

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