# Ethical Investing



## JustAGuy (Feb 5, 2012)

I'm curious how much thought goes into your investments. I'm finding myself at a point where I don't feel like I'm going to get any serious growth to my savings without diving in and doing some trading... but at the same time now that I'm getting into it I'm finding myself concerned with actually giving my money out to corporations to use. I mean... who wants to be giving their money to a company like Monsanto? I look at Goldcorp as a potential stock... on the surface it seems like an ok company... but then what is their core business? Exploiting poor countries for their raw minerals?

Does anyone have any thoughts on the subject? Do you just go for whatever will reap the most rewards? Or does anyone have any recommendations for some solid companies that aren't earning their fortune by burying others in the latrine?


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## HaroldCrump (Jun 10, 2009)

You will find it very, very hard to draw the line with so-called "ethical" investing.

So Monsanto and Goldcorp are the bad guys? Fine, agreed.

Who are the good guys?
Kinross? SNC Lavalin? Ivanhoe?
The banks?
The drug companies?
Where do you draw the line?

Treasury bonds?
You mean the same ones used to fund the wars in Iraq and Afghanistan and sell arms to disruptive regimes in Africa and the middle east?

Very soon, your options will be down to stuffing all your money into a mattress.


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## JustAGuy (Feb 5, 2012)

That's what I've been thinking myself. I mean... if you want to get into being ethical what really is there? Finding a local yoga studio and investing directly with the owners?


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## Smoothie (Jul 11, 2011)

Hold your nose and jump in. Tobacco stocks are great. So is any stock that depends on human weaknesses like vanity or desire to be part of a group - see Coach or those retail stocks which sell to teens/young adults.

Businesses, like countries, are run by psychopaths. They do not care and understand only profit or force. Such is the world.

The crumbs in their trails can be very comforting, however, and provide well for you and the ones you love. Get some. Pay for a good education for your child. Maybe he or she will have a better world, but we have this one.


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## KaeJS (Sep 28, 2010)

JustAGuy said:


> Do you just go for whatever will reap the most rewards?


Yes.

Why do I care? It's a fact of life that these things will happen. If you don't invest - will that change anything?

In any sense, maybe you should be careful if you start trading. Don't let these emotions come back to bite ya.

Money is money. You do what you have to in order to get it. Everyone else will.


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## Causalien (Apr 4, 2009)

The most ethical thing you can do is to suck the money away from everyone else and funnel it towards what you believe is right.


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## MrMatt (Dec 21, 2011)

Really matters what you think is ethical, and there are always tradeoffs.

Monsanto helps make sure there is enough food to feed the worlds population, isn't that a good thing.
Goldcorp provides jobs and investment to poor countries, they may be low by our standards, but they're much better than what they had before.

What do you consider an ethical company, I bet we could find some holes in what they do.

Apple has the antitrust investigation on price fixing, as well as charging for an 2yr extended warranty in the EU, even though the legal minimum is 2 years under EU law. That and the whole exploiting poor workers in such atrocious work conditions they're committing suicide, not that ethical.


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## brad (May 22, 2009)

There's a relatively new (actually centuries old, but with a new name) branch of ethical investing called "Impact Investing" that's a lot more interesting and probably much more effective than what we normally think of when we use the term "ethical investing." With standard ethical investing you're buying shares on the market, in most cases from some other investor who is selling them. Where does your money go? Into the other investor's pocket. Have you actually helped the companies you want to support by buying their shares or hurt the companies you want to boycott by not buying their shares? It's debatable. Yes, you may be helping in a tiny way to keep the share price up of companies you support, but it seems like a very indirect and very dubious way of having an effect. And just because you own shares in Monsanto doesn't mean that you're contributing to Monsanto's success. In fact, one could argue that if you want to change Monsanto's behavior you should buy shares in it so you can become a shareholder and have a voice in shareholder meetings and votes.

Impact investing is much more direct. Your money goes to the companies or organizations that you want to support, so your principal is put to use directly. Right now the impact investment opportunities for retail investors are limited, and mostly involve debt rather than equity, so you're not looking at serious returns (unless you redefine what you mean by "return" to include social benefits as well as financial returns). But venture capitalist and institutional investors are getting into impact investing in a pretty big way, and there are examples of people getting 200% returns and higher (and of course examples of people who lost everything, just as with any other equity investment).

To learn about impact investing in Canada, check out http://socialfinance.ca/impact-investing. There have been a few new opportunities (mostly bond offerings) since that page was written, and you can look through the blog at http://socialfinance.ca/blog to find more.

There's also a really good book called Impact Investing: Transforming How We Make Money While Making a Difference (http://ca.wiley.com/WileyCDA/WileyTitle/productCd-0470907215.html) that is worth reading, although again it doesn't help very much if you're a small-time retail investor. I found it inspiring enough to make me completely rethink my investment strategy, and I'm gradually shifting all of my investments over to impact investments, even though for me it represents a huge opportunity cost in terms of dollars (and that's only because equity opportunities for retail impact investors are pretty much nil right now in Canada, so my only choice is debt). But that opportunity cost is counterbalanced by the knowledge that my principal is being put to use directly to finance projects and programs and organizations that are doing things I support, and that those projects might not happen without the support of myself and the thousands of other people who have put their money into these impact investments.


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## brad (May 22, 2009)

Also, for a good critique on standard "ethical investing," read this article:

http://www.moneysense.ca/2007/04/05/confessions-of-an-unethical-investor/

However, the argument that investing is for making money and donations are for doing good things with your money is entirely arbitrary and doesn't hold up to logical scrutiny, as the Impact Investing book I linked to above explains. Impact investing makes it possible to do both: earn an entirely competitive return while putting your principal to work to support causes you believe in. It's just that, as I explained above, the impact investing opportunities for us retail investors in Canada are currently very limited and not very exciting in the financial returns department. That will change, but it'll take some time, because most of the attention right now is focused on the big players (venture capitalists, institutional investors, etc.)


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## HaroldCrump (Jun 10, 2009)

Causalien said:


> The most ethical thing you can do is to suck the money away from everyone else and funnel it towards what you believe is right.


That is already being done...indeed has been done for centuries.
It is known as taxation.


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## brad (May 22, 2009)

HaroldCrump said:


> That is already being done...indeed has been done for centuries.
> It is known as taxation.


Yeah, but it looks like taxation hasn't yet solved all the world's problems, and may even have created some new ones. We can stick our heads in the sand and say "not my job," or we can try to help right the wrongs in whatever ways we can. It's not a responsbility, but it is a choice.


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## MoneyGal (Apr 24, 2009)

If you want to take MON out of your portfolio, you could short the equivalent amount that exists in your index funds. I wouldn't try to avoid the indexes. 

And I know everyone wants to hate on Monsanto (and I actually wrote my undergraduate thesis on the impacts of genetic engineering on native farming technology in southern India when I was living in India a couple of decades ago; I care deeply about these issues -- which is why I would even go to do the research on-site in the first place) -- but they are doing some amazing genetic research. Global food security is still a huge issue and I think it is getting largely overlooked in the current debates and lawsuits over sugar beets and alfalfa.


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## brad (May 22, 2009)

MoneyGal said:


> And I know everyone wants to hate on Monsanto ... but they are doing some amazing genetic research.


Many of their facilities are also models of environmental performance. I used to work on a program that recognized facilities that were top environmental performers, and quite a few Monsanto facilities made it into the program; their results and commitment were always impressive. 

Virtualy no company is entirely good or evil, which is why I've never supported boycotts myself and prefer more targeted pressure tactics that confront and try to address the specific problem rather than painting an entire company with black paint just because they happen to get some important things terribly wrong.


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## Zeeshan Hamid (Feb 28, 2012)

JustAGuy said:


> I'm curious how much thought goes into your investments. I'm finding myself at a point where I don't feel like I'm going to get any serious growth to my savings without diving in and doing some trading... but at the same time now that I'm getting into it I'm finding myself concerned with actually giving my money out to corporations to use. I mean... who wants to be giving their money to a company like Monsanto? I look at Goldcorp as a potential stock... on the surface it seems like an ok company... but then what is their core business? Exploiting poor countries for their raw minerals?
> 
> Does anyone have any thoughts on the subject? Do you just go for whatever will reap the most rewards? Or does anyone have any recommendations for some solid companies that aren't earning their fortune by burying others in the latrine?


I wouldn't invest in certain companies. If I own funds, I find out what percentage is invested in certain companies and I (very literally) donate that money away. I know others think I am crazy but if I don't live up to my principles with my money then they wouldn't be my real values.


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## brad (May 22, 2009)

Zeeshan Hamid said:


> I wouldn't invest in certain companies. If I own funds, I find out what percentage is invested in certain companies and I (very literally) donate that money away.


I don't think you're crazy for doing that, but I do think it might help to think through the process clearly. By buying shares of a company on the stock market, are you actually giving any money to that company? Only in relatively rare cases, such as an initial offering. Most of the time you're buying shares from another investor who's selling them. Your money goes to the investor, and the company you're investing in doesn't get anything from the sale. The only advantage to the company is that the stock found a buyer, which in some small way helps maintain the value of that stock.

This is one of the things that soured me on the idea of traditional ethical investing, because when I buy shares my money is simply going to other investors, who could for all I know be people who don't share my values at all and might use that money to do things I find reprehensible. So not only am I not directly supporting the companies I want to support (or directly "hurting" the companies I refuse to buy shares in), but I have no idea what's actually being done with my principal. 

Do I have any more certainty with impact investing (which is more direct)? No, but it seems the chances of good things being done with my money are higher that way.


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## Zeeshan Hamid (Feb 28, 2012)

brad said:


> I don't think you're crazy for doing that, but I do think it might help to think through the process clearly. By buying shares of a company on the stock market, are you actually giving any money to that company? Only in relatively rare cases, such as an initial offering. Most of the time you're buying shares from another investor who's selling them. Your money goes to the investor, and the company you're investing in doesn't get anything from the sale. The only advantage to the company is that the stock found a buyer, which in some small way helps maintain the value of that stock.
> 
> This is one of the things that soured me on the idea of traditional ethical investing, because when I buy shares my money is simply going to other investors, who could for all I know be people who don't share my values at all and might use that money to do things I find reprehensible. So not only am I not directly supporting the companies I want to support (or directly "hurting" the companies I refuse to buy shares in), but I have no idea what's actually being done with my principal.
> 
> Do I have any more certainty with impact investing (which is more direct)? No, but it seems the chances of good things being done with my money are higher that way.


And you're right. But you are (albeit indirectly, unless they pay dividends) benefiting from the company's business. And when I blacklist a company, it's because of their business. So lets say there's irrefutable proof that a company employs child labour and make them work near-slave-like conditions in Bangladesh. The company decides not to do anything about it. Then I don't want to profit from that business, directly or indirectly. 

It's a personal decision.


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## tendim (Nov 18, 2010)

JustAGuy said:


> but at the same time now that I'm getting into it I'm finding myself concerned with actually giving my money out to corporations to use. I mean... who wants to be giving their money to a company like Monsanto? I look at Goldcorp as a potential stock... on the surface it seems like an ok company... but then what is their core business? Exploiting poor countries for their raw minerals?


This came up with the BP spill previously, where people were saying that anybody who bought BP was unethical.

Think about it: When you buy shares on the open market, you are buying them from _other investors, not the company_. Look up the IPO process. You are not directly giving the company anything.

You may be in an ethical dilemma if they pay a dividend, and at that point the company is paying _you_ with unethical earnings.

But in terms of just buying shares? There isn't a link between you and the company -- cash is not changing hand between you and them. Cash is changing hands between you and another investor.

If anything, as a shareholder, you now have the right (some would say the obligation) to vote, and change the company. True, realistically an individual investor would never hold enough of the market to influence anything, but if enough "ethical minded investors" invested in an unethical company, and they all voted in the same way, that would change the direction of the company. Theoretically speaking of course.


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## humble_pie (Jun 7, 2009)

brad, one detail if i may. Companies do indeed benefit on a daily basis from the health or lack thereof of their publicly traded stocks. They borrow money in one way or another every day from their bankers. Share price is a sensitive indicator of a company's health. Many believe that share price is an advance forecaster, visible to everybody months before bank analysts can ferret out any reason why they should watch a client corporation's loans more carefully. So a company's cash tap via loans & credit is related to its stock value.

share price will also determine close to everything if & when a corporation wants to raise additional capital via a secondary stock or a debenture offering.

a big thank-you to members who have raised & discussed this all-important topic. It's not just about charity. It almost has nothing to do with charity. It's about how to use capital for the future. Brad, i'll look for your links & references on impact investing & read up on em !


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## brad (May 22, 2009)

Thanks, humble, I was hoping you (or anyone here who has more depth of knowledge about how stocks works than I do, which is almost everyone on this forum) would step in and provide clarifications and corrections. That's good to know.


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## Sampson (Apr 3, 2009)

I thought Google was pure Good. Or at least pure Not Evil.


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## JustAGuy (Feb 5, 2012)

Thanks for the info Brad, being new to the game I definitely will be reading the links you sent.

It's perhaps unfair for me to have pointed out Monsanto or Goldcorp specifically... Monsanto has a notorious reputation so they slide off the tongue like BP, and Goldcorp I don't even really know much about... there's lots of info suggesting they're doing good things, but then there's some info suggesting that they're not quite as clean as they look at first glance. Which I'm sure is true for almost all companies... hence the reason I wanted to start the discussion.

It's just that I was about to put money into Goldcorp, decided to learn a bit about them so I could have an idea other than a chart of past performance as to whether it would be wise to invest and then I started to consider "Hey wait a second... is investing really just about me getting better return than the bank is giving me?


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## brad (May 22, 2009)

JustAGuy said:


> is investing really just about me getting better return than the bank is giving me?


Yes, that's the question! I think for me the answer is "it's not just about me, it's what I can do with my money." I like the idea of maximizing my returns not just in the financial sense but in the social/environmental sense as well -- which I view as really making my money work for me. The Impact Investing book (which by the way is available for much less than the $41 listed on the Wiley site, I downloaded the eBook version for about half that price) has a good discussion of the concept of "blended value." 

The big difference between impact investing and the standard ethical investing funds you see on the market is that with impact investing you don't generally accept a lower financial return in order to invest according to your values. As I mentioned up above, some impact investors have seen fantastic results. I keep watching to see when the opportunities for us retail investors will become more interesting than they are now. My current impact investments are limited to a special line of GICs established by a credit union in my province that invests in social and environmental projects; the rate of return is close to that of GICs offered by most other institutions, but compared with the possibilities of the stock market it's still very low and represents a significant risk over the long term due to inflation.


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## CanadianCapitalist (Mar 31, 2009)

Never heard of impact investing before. Very interesting. Thanks Brad!

I don't think it is crazy to invest according to one's values either. For many people (and even businesses) investing isn't merely utilitarian... it's also a way of expressing their values. 

There was controversy sometime back about the inclusion of Microsoft and Intel in a SRI fund. Turns out some SRI investors did not think these companies were "socially responsible" because they were offshoring jobs.


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## HaroldCrump (Jun 10, 2009)

CanadianCapitalist said:


> There was controversy sometime back about the inclusion of Microsoft and Intel in a SRI fund. Turns out some SRI investors did not think these companies were "socially responsible" because they were offshoring jobs.


There is another recent controversy around Bill Gates taking a large position (in his personal account) in Monsanto stock.
SRI is a very grey area.


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## gimme_divies (Feb 12, 2011)

This is a great discussion and something that bothers me a great deal. How are corporations supposed to be ethical when shareholders constantly demand more and more profit? To me, the mere idea of a competitive market is unethical, because ultimately there are winners (the rich) and losers (the poor). How can you even say that such a system (capitalist) is ethical when inevitably a portion of the players will go bankrupt? 

There is also the issue of maintaining the status quo that is required by the system. For example, if the drug companies discovered a cure for cancer that was abundant and could be given for free to all cancer patients, would they even want to share this discovery? What would happen to the $50 billion cancer drug market? The only problems worth solving are the profitable ones, and corporations have an (profit)incentive to ensure that the problem persists indefinitely else they face bankruptcy.

Unfortunately, we are stuck in this horrible system based on greed and competition and the best we can do is fend for ourselves. My motto when it comes to investing is "Don't hate the player, hate the game."


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## Zeeshan Hamid (Feb 28, 2012)

gimme_divies said:


> Unfortunately, we are stuck in this horrible system based on greed and competition and the best we can do is fend for ourselves. My motto when it comes to investing is "Don't hate the player, hate the game."


Imagine if slavery was still legal in the United States. Would you invest in a company that went to different African countries, kidnapped villagers and sold them into slavery? Would you say "don't hate the player, hate the game?" And if you'd avoid these companies then you already believe in ethical investing, now it's just a question of where do you draw the line. 

Extreme example, but there are actually corporations that use forced labour. In fact, we have more "slaves" today than ever before in the history of the world. Heck you can buy a Haitian slave for just $50, less if you travel to Asia and even less if you get to Africa. 

I don't want to talk about slavery here but the point is that I like to believe that we all (in North America) hopefully draw a line somewhere. So it's not as easy as "don't hate the player, hate the game". If I don't have the power to stop an injustice, the least I can do is not participate in it (or worse, not profit from it).


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## gimme_divies (Feb 12, 2011)

Zeeshan Hamid said:


> I don't want to talk about slavery here but the point is that I like to believe that we all (in North America) hopefully draw a line somewhere. So it's not as easy as "don't hate the player, hate the game". If I don't have the power to stop an injustice, the least I can do is not participate in it (or worse, not profit from it).


Zeeshan, that's a great point and I definitely do have my own line (as arbitrary as it may be), and you are right that such an example would be one where I would refuse to invest. However I don't kid myself that the companies on the good side of my line are innocent angels from above here to spread wealth across the world. But you're right, if you use my motto to the limit, then you can justify any profitable investment. There is also the issue of information assymetry where many people invest in corporations that may use forced labour, but they don't know/care and are happy to share in profits. There a lot of money to be made by using the "turn a blind eye" investment approach.

Ultimately, if the business model is sustainable and the yield is high enough, you will find investors, no matter what business you're in.


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## Zeeshan Hamid (Feb 28, 2012)

gimme_divies said:


> Zeeshan, that's a great point and I definitely do have my own line (as arbitrary as it may be), and you are right that such an example would be one where I would refuse to invest. However I don't kid myself that the companies on the good side of my line are innocent angels from above here to spread wealth across the world. But you're right, if you use my motto to the limit, then you can justify any profitable investment. There is also the issue of information assymetry where many people invest in corporations that may use forced labour, but they don't know/care and are happy to share in profits. There a lot of money to be made by using the "turn a blind eye" investment approach.
> 
> Ultimately, if the business model is sustainable and the yield is high enough, you will find investors, no matter what business you're in.


One of my mentors a long time ago had a solution: give away 10% of your income. He did it as a religious obligation (he is a Mormon). I have no such religious requirement, but it's a good rule to live by anyway. I like to think it hopefully makes up for some of my "ill-gotten" gains while allowing me to hopefully make a (small) difference in someone's life.

I don't want to sound like an angel here, my list of "companies / industries to avoid" is pathetically small. But if there's a clear case of a company not playing by even the most basic and rudimentary civilized rules, then it goes in my black list.


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## Toronto.gal (Jan 8, 2010)

I don't have time to read all posts now [will do so when I have more time].

There is plenty of all kinds of corrupt/immoral/unethical behavior in the world; the list of companies/individuals is rather shameful and endless. 

I mostly invest in things I/the world needs and can't do without, like: appliances/banks/gas/oil/medicine, etc. 

A lot of companies these days [small & large] do support community/humanitarian organizations and fund many charities worldwide. NXY for example, has helped students in Yemen.
http://www.nexeninc.com/en/Community/YemenScholarships.aspx

Companies also encourage & support their employees in volunteer initiatives.

IMHO, I make a greater/faster impact by spending more hours donating my time, than by worrying about unethical behaviour of companies, for which I can do little about [though not saying nothing should be done]. I also donate money to charities [here and abroad] and yes, a lot of the money that I donate comes from my investments & yes, such an investment includes BP, but no, I don't feel unethical in the least, it's not like such a tragic accident had been deliberate, and is not like deep-water oil/gas exploration was 100% safe.

I never short the markets and never feel guilty about trading either, as I'm simply buying what others are willing to sell and selling what others are willing to buy.


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## indexxx (Oct 31, 2011)

Great topic.

For many years I was an "Ethical Funds" investor, and some of my funds did OK. But then I decided to take control of my finances and stop paying ridiculous MERs, and now make my own picks- I don't believe in the attitude of making money any way you can ( I feel that this is EXACTLY what is wrong with society ...), so I don't touch tobacco companies or Monsanto. Or nuclear, for that matter; I am aware of the medical and other uses for nuclear material, but it's a personal decision as I feel there are equally good or better returns in other industries. However, I have no problem with offshore factories as I feel that the input of capital is better in the long term for the local economies; who cares if someone someplace is only earning $4.00 a day; if it's a good wage for their economy, feeds their family, and more importantly, allows education which leads to better working conditions in the long term.

I have unlimited optimism for the human condition and our creativity- sure, corporate greed is pathological, etc etc. I understand these things but also believe that time and the dissemination of information will eventually foster positive change- so if I invest in Ford, or an oil company, it's not because I am a supporter of oil- I believe that due to their infrastructure, these huge companies are the ones that will respond to public wants and change their product development accordingly, leading to mass-scale adoption of better technologies. So say that Ford developed an amazing, super-light electric car, and partnered with Exxon to develop a rapid charging system based on renewable green technology that was installed at highway service stations. They'd have a huge, sea-change level of product implemented and my shares would reflect it. (of course, this is just an example). So to answer your question, yes, I do give thought to my decisions for the most part; although sometimes I buy shares in things that I don't give a crap about but are mostly benign- like financial companies. Benign meaning that what they do might be cutthroat and meaningless, but they are mainly playing games with figures and takeovers, so I don't care. Yeah, I know that they in turn might be investing in something I don't approve of, but it's not a perfect world. 

Yet.


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## MrMatt (Dec 21, 2011)

I'm ethical in my investing and personal choices.
I own Google, not Apple.
I own the big banks, not payday loans companies.
I own oil companies, not solar companies.
I don't buy organic food, or fair trade products.


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