Guilt-Edged Investment

What Is a Guilt-Edged Investment?

A guilt-edged investment is a colloquial term for any investment which may violate ethical standards and for which the investor should feel some remorse. This does not necessarily imply that the investment violates any law, nor does this term indicate that people selling these investments feel any guilt. Instead, a guilt-edged investment typically involves taking advantage of another individual for the financial gain of the investor.

Understanding a Guilt-Edged Investment

A guilt-edged investment is a play on the term gilt, which refers to British government bonds known for their gilded edges. Gilt bonds have historically been considered among the highest quality and safest investments available.

Guilt-edged investments, on the other hand, occupy a space between the legally permissible and the ethically unacceptable. The term is misleading in many cases where the investor who benefits may not feel any remorse over their profits depending on the nature of their personality.

Investments of this sort have long inspired arguments over the ethical responsibility that investors have toward others. Does the social contract that permits individual access to open markets require that they adhere to any standard beyond legality? If one side of a business transaction pays a price, in their own health or financial well-being, does the profiting party owe them anything? If the profiting party holds information potentially harmful to the counterparty, are they obligated to disclose it?

Answers to these questions range from the barest expectation of moral behavior from a participant in any open market to a refusal to enter into any investment without full knowledge of its social, economic, and environmental consequences. Investors leaning toward the latter end of the spectrum now have the opportunity to invest in socially responsible investment (SRI) funds.

Real-World Examples of Guilt-Edged Investments

Perhaps the classic example of an ethically questionable but legal investment is the ownership of tobacco stocks. The underlying product is unquestionably damaging to individuals’ health and imposes social and economic costs on all of us. Without addressing these costs, Warren Buffett has said that he loves the sector as an investment thanks to unmatched customer brand loyalty, customer retention rates, and profit margins.

Buffett’s comments ignore the feeling of guilt that an investor might experience from investing in tobacco. Perhaps an investor should feel no guilt for buying tobacco shares. After all, one investor’s decision to buy or not to buy tobacco shares does not add to social misery brought about by tobacco products. It can, however, lead to personal profit resulting from the suffering of others.

Another example could be investing in gambling stocks. Many of these companies make great profits at the expense of most gamblers losing money. After all, a casino is in business to make money and provide a service.

There are people who struggle with gambling addiction and thus this sector could be considered a guilt-edged investment. But, like in the prior example, by investing in gambling stocks an investor could have no remorse for any potential negative impacts that the investment has on society. As long as the enterprise is legal, a guilt-edged investment can make sense for many.

Even oil and gas stocks can be considered guilt-edged investments, considering how much harm the oil and gas industry does to the environment. Not only through the use of the products themselves, such as gasoline, but the drilling process to access oil and the many oil spills that have occurred.