How not to give investing advice

Having complained about non-lawyers giving legal advice, I’ll briefly rant about non-finance people giving investment advice.

A quote I won’t attribute to the author:

Common advice for personal finance is to invest in “blue chip” shares such as BHP or the banks. Often overlooked is what “investing” actually means. It is giving a company your money with a vote of approval for them to turn that in to more money in a way they see fit. As such, any investment needs to match the values you live by in other areas of your life. If you are anti-mining, investing in BHP doesn’t make sense. If you don’t eat meat, investing in McDonalds is incongruent. If you bought big on BP when they tanked after the Deepwater Horizon oil spill to cash in on the subsequent rebound, you are part of the problem, not the solution.

Wrong. Most, i.e., all, stock buyers are not “giving” capital to the business whose stock they’re buying. Ugh.

The initial sale of the stock by the company to investors, in an IPO or follow-on offering, fits the description by this author. But every BP share that I buy in the market today sends money to the person who owns it now, not to the company. They’re no longer involved.

NB: Most finance people get the answers wrong, but at least they generally know WTF they’re describing.

NB: Yes, you could argue that by participating in the market, you’re “perpetuating” the valuation somehow, but that’s a pretty indirect, vague, and CYA sort of argument if you started with the “you’re giving them money” theory.

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