NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, June 6, 2014

Michael Douglas’ famous words from the 1987 movie Wall Street were ’Greed is good’ and this quote has been the mantra for free market pundits and capitalist businessmen ever since. It worked well for them for a long time but the 2008 collapse made people realise that greed might be good, but there’s definitely something out there that’s even better. We might as well take the liberty of calling it ’the greater good.’

Traditionally speaking, there are mainly two ways of investing money. People like Warren Buffett prefer to look at the fundamental value of an investment and then decide whether to put money into it or pass it over. Then there are people who basically follow the herd, try and find out which way the wind is blowing, and plan accordingly. But in both cases, the average investor simply assumes that his money is being used for a good cause and the returns will justify the risk. Thanks to the 2008 crisis, we now know that there’s more to just investment and returns.

A company could be very profitable, but that does not imply it is the best.

People who have invested in British Petroleum go to bed at night knowing full well that this is a company that pollutes oceans and rainforests. People who have invested in Lockheed have to live with the knowledge that drones that kill thousands are mass-produced with their money. And it’s not about conscience all the time. When the financial crisis hit Asia, people who lent their huge amount of stocks to others in order to increase yield and liquidity, found that their stocks were mainly used to short-sell the stock prices.