Can there be ethics in investment? I do not know. But there can be situations when you are called upon to make an ethical choice before you decide to invest or not. And I am not talking about what normally goes as ethical investment, such as not investing in pharmaceutical companies that test drugs on animals or not investing in companies that manufacture cigarettes along with consumer products or not investing in companies that employ child labour, etc. I am talking about choosing when I know that my particular investment may cause a loss directly to another person.
There are many situations where we need choose between what we think is right and what we feel may not be entirely right. One such situation comes when you try to take an investment decision based on some information that is not publicly available. After all the best of equity investment is about beating the market. The market moves on consensus opinion. Going with it does not take you anywhere. The profit comes from picking a stock that the market does not fancy, and then reaping the windfall when it attracts the attention of the market. If this wisdom comes from your superior understanding of the market you definitely deserve the gain.
But if your decision is based on some information which your girlfriend who is the assistant to the CEO of the company gave you then it is definitely an unfair gain. Your decision need not be to invest only. It can be to disinvest also. If you have some inside information about the company doing badly in near future and decide to sell the stock then too it is unfair. The severity of your unethical behavior depends on whether you just stumble upon such information, without a deliberate attempt to seek it, then you have sinned relatively less. But if you make an attempt to deliberately buy or steal the information, with the purpose of gaining from it, then your sin is much greater.
As for instance, happens in the movie Wall Street, where Bud Fox, a stock broker whose life dream is to be become a big shot in the broker world like his idol Gordon Gekko goes in the disguise of a janitor to steal information from a company. The choice is difficult not only because you are caught between an almost certain gain and nothing, and perhaps even a loss but also because it is not easy to decide whether you are really wrong or just lucky.
Another situation of ethical nature that may arise is regarding using intermediates or agents or consultants or advisors for your investment or not using them. If you decide to seek the advice of an advisor and then you pay her for her advice or invest through her so that she gets a commission fine; that’s a fair transaction. Or if you get your information on the investment from the media or books and take your own decision to invest you are on a fair ground. But if you try to seek free advice from one advisor and then invest through another for some personal gain or invest directly to save some money you are definitely being unethical.
A third situation where your ethics may be questionable is when you do not make proper disclosures in the application that you make for investment. Often investors try to camouflage their investments to avoid tax. This, I would say, is more a matter of shortsightedness than ethics because in such a game you are likely to be the bigger loser. Currently both PAN and Aadhaar number have become so ubiquitous and the information technology has become so cheap and easy to use that it is futile to hide anything. So simply furnish all the necessary information and sleep in peace. I am not saying that you will always be able to sleep in peace even if you are totally transparent. There are unethical persons on the other side of the fence as well so often you will be troubled for a sin that you have not committed. But that is beyond your control. In such situations when you are on the right side of the law you will find that sooner or later the truth prevails as surely as the stone thrown in the air falls to the ground.
*The author is an investment consultant. Readers can send their comments and queries to firstname.lastname@example.org