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Penny Stock Basics

Ethical Investing: What It Is, Pros, Cons, & Examples

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Written by Timothy Sykes
Updated 3/5/2021 17 min read

Ethical investing has a pretty obvious definition — it’s investing according to your values.

This style of investing is highly individual. Is investing in electric vehicle companies ethical? Maybe, depending on how you feel about clean energy. (It’s been a hot trading sector in 2020).

The point is that this style of investing puts ethics on a par with profit.

I became a teacher to help people like you learn about the stock market. I’m not an investor — I’m a trader. But whatever route you choose, I want you to understand the basics of the market.

(And if you’re a true beginner, you need to study up before you start trading! I had no mentor, but I can be yours. Apply to my Trading Challenge if you’re ready to learn.)

I trade penny stocks most of the time, but I learn as much as I can about every strategy. Keep reading to learn some fundamentals of ethical investing.

(Disclaimer: I’m not an investor and I’m in no way giving you financial advice. All trading and investing is risky. Never risk more than you can afford. Do your due diligence.)

What Is Ethical Investing?

what is ethical investing
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Ethical investing is investing in companies based on moral values. These values can be political, social, religious, moral, and so on. These values then become a deciding factor in buying stock shares.

This type of investing has only become popular in the past few years. Until the internet came along, ethical investment was a solo pursuit. Ethical investors had to do all of their research on their own back then … Now there are value-themed funds that help make it easy.

I always recommend you do your own research. If you’re familiar with my trading style, you know I don’t want you to follow alerts. I want you to become a self-sufficient trader. I want you to learn to trade on your own.

Learn from my process every week. Sign up to get my no-cost weekly watchlist and discover the stocks I’m watching.

Is Ethical Investing Possible?

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All types of investing and trading are possible. It’s up to you to find your niche.

If ethical investing is your thing, then do it. It’s as simple as that. You can make anything work. You just have to learn more about it than the next trader … who, by the way, wants you to lose your trades so they can win.

What Are the Types of SRI Funds?

ethical investing types of sri funds
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SRI stands for socially responsible investing. One method of ethical investing is through SRI funds.

What are SRI funds? ‘Ethical practices’ is a broad term, but it’s one way to potentially approach investing ethically. In theory, you get to choose what’s important to you when it comes to the market.

Let’s look at a few types of SRI funds…

Socially Responsible Investing Funds

Socially responsible investing funds usually focus on avoiding companies in certain industries.

SRI funds can avoid stocks that deal with gambling, smoking, alcohol, or other vices. Or they can target other stay-aways. But they don’t have too fine a focus on the companies in which they choose to invest.

Impact Funds

Impact funds are a category of environmental, social, and governance (ESG) funds. ESG funds look at the practices of the companies they invest in. It’s not enough just to be operating in an ‘ethical’ industry.

Impact funds are a type of ESG fund that places equal importance on investment returns.

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Faith-Based Funds

Another type of SRI fund is a faith-based fund. Faith-based funds get their ethical compass from the religion they’re associated with.

These funds usually steer clear of any companies that don’t hold their beliefs and can be more restrictive.

Trading for Charity

This is another system of ethical investing. Actually, it’s the one I practice.

I’m not too worried about what a company does because I trade the sketchiest stocks out there. And I have my own way of caring for the environment … I donate all my trading profits to charity.

Ever since I became a teacher, I’ve focused more on helping my students learn than how much money I can make. My trading now is more about the process so I can teach by example. 

Every year I start with a little over $12,000 in my trading account. Any trading profits I make, I donate to charity.* I like to think of this as ethical trading because it ultimately supports a good cause. And I get to be more selective with who and what I support.

Karmagawa, the charity I helped found, has donated over $5 million to 60 charities around the world. We help provide food, medicine, and education while working to cut plastic waste.

I’m not saying all this to pat myself on the back, but you should know the good you can do when you make money. Values aren’t just important for building your trading plan — they should be a part of your life.

For me, the amazing thing isn’t just inspiring traders to become self-sufficient in the markets, it’s seeing them pay it forward, too. It’s another reason I’m proud to keep it real in an industry of fakes.

New to penny stocks? Start your education with my free online guide here.

Advantages of Ethical Investing

advantages of ethical investing
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No matter what your niche is, you’ll find pros and cons. You need to weigh the advantages and disadvantages of ethical investing if you decide it’s your thing.

Here are some potential advantages…

No Shame

The biggest draw of investing ethically is that you (probably) won’t feel shame for where your money’s going.

Regret’s not a good feeling. I’ve been there…

Moment of truth — the biggest loss of my career was $500K. You can read more about it and, hopefully, learn a few key trading lessons. It’s all in my no-cost book “An American Hedge Fund.”

Learn from my experience. Don’t put yourself in a position like that! Think about what kind of investing and trading would make you feel proud.

Your Support Could Help Ethical Companies

When you buy stock in a company, you give them a tangible form of support. You’re showing the market that you think its practices could pay off in the future.

But before you buy in, do your research. Check its balance sheets, SEC filings, news releases … You don’t want to end up throwing good money after bad.

Disadvantages of Ethical Investing

disadvantages of ethical investing
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In my opinion, the biggest disadvantage is missing out on potential gains. Think about it. People come to the stock market to make money.

If you’re biased toward certain companies you might miss opportunities. Your focus could be too narrow. You could end up…

Missing a Hot Sector Run

In my niche, I trade volatile penny stocks. Most volatility — and opportunity — comes when there’s a hot sector.

Hot sectors change all the time. When I started trading about 20 years ago, the hot sector was dot-coms. All a company had to do was add ‘dot com’ to their profile to generate huge upsides.

In 2020, we saw a ton of hot sectors — coronavirus, EVs, food delivery, and more. The pandemic caused a lot of changes. But you could miss out if something didn’t align with your ethics.

Or in 2019, weed stocks ran like crazy. Some SRI investors avoid weed stocks. I’m not saying that’s right or wrong. I’m just saying that there was a missed opportunity because they steered clear of weed stocks.

Missing out on some of the biggest upsides of the year isn’t fun. But end of day, it’s up to you. And remember…

Every Company Claims to Be Ethical

The SRI funds I mentioned earlier may not always be what they seem. Some companies claim to be ethical. But many compromise values if push comes to shove.

Since this can happen often, researching these companies is a big priority.

This isn’t a bad thing. Spending time studying is crucial. All of my top students spent countless hours studying to find consistency and learn to adapt to changing markets. This is something I emphasize in my Trading Challenge, along with patterns, strategies, trading rules, and much more.

Do Ethical Funds Underperform?

This is an important question. But I think it has an easy answer.

Most ethical funds track similar to the S&P 500. That’s because a lot of the S&P 500 stocks are found in ethical funds.

At the end of the day, it depends more on what stocks are in each fund rather than whether the fund is ethical. And these well-established stocks don’t often make the kind of moves I’ve built my trading career on.

2 Examples of Ethical Investments

I gotta say it again. These are just examples, not investing advice. Talk to a financial advisor for that kind of thing.

Vanguard FTSE Social Index (VFTSX)

This fund contains mid-cap and large-cap stocks. They’ve all been screened in some way to show they’re socially responsible. Do your research!

Walden Equity (WSEFX)

This fund avoids tobacco, alcohol, animal testing, nuclear power, gambling, and weapons stocks. And it seeks out stocks that are focused on the environment, human rights, and other issues.

How Do You Know if a Company Is Ethical?

ethical investing how do you know if a company is ethical
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This requires some time and dedication. If you want to know if a company is ethical you need to do your research.

Start with the brand’s policy page. Good companies don’t tend to hide things. And companies motivated by their ethics usually love to tell you what they’re doing right.

But never assume a company is telling the truth. With penny stocks especially, I expect the worst so I’m never disappointed.

How Do You Create an Ethical Investment?

how do you create ethical investing
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Again, I’m not an investor. And I know I’ve said it a lot, but I’m going to keep saying it. Do your research. Study. And no, looking up ‘ethical investing’ on Reddit doesn’t count.

Some of my top students started by studying over 10 hours per day. They each built a knowledge base. Now it only takes them a few hours per day to do their scans and build their watchlists.

Certain things make research easier and more effective. Like joining the community of motivated traders in my Trading Challenge.

Our chat room is amazing. It has helped many traders become self-sufficient. Apply to join us today.

The Best Apps for Ethical Investing

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The market is a battlefield. Without the proper equipment, you can get destroyed.

I use StocksToTrade for my stock screening needs. This is the best platform for the stocks I trade (makes sense since I helped design it and am an investor in it).

But ethical investors could have different needs besides tracking the biggest percentage gainers. Here are a few apps to consider…

SoFi Invest

SoFi Invest is a well-rated platform with a ‘Doing Good’ collection. This collection is specifically designed for SRI stocks and ETFs. It’s a decent option for beginners, with a low minimum investment and zero management fees.

M1 Finance

This is another good option, with an easy-to-use interface. They also have special collections for socially conscious investors. They call these collections ‘pies,’ filled with ‘slices’ of tasty stocks.

What Is One of the Best Ethical Investments?

best ethical investing
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This is a highly personal decision. One stock might appeal to religiously-motivated investors. Another might be the right choice for the ecologically-minded.

Let me give you an example of a stock. Some could argue this stock is ethical because of its goal to eliminate gas-powered cars…

Others love to hate its CEO. What I really love is that this big stock can trade like a penny stock

Tesla, Inc. (NASDAQ: TSLA)

Tesla designs, develops, manufactures, and sells electric vehicles. It also produces and sells energy storage systems.

You could argue it’s an ethical company because it deals with fully electric vehicles. Environmental sustainability can be a big value to traders and investors. Tesla’s product doesn’t run on oil or gas.

Tesla ran from under $400 a share to over $2,000 a share this year before doing a 5-to-1 stock split. It was a huge catalyst for the electric vehicle sector.

Here’s the one-year TSLA chart:

ethical investing tsla
TSLA chart: 1-year, 1-day candles (Source: StocksToTrade)

Look at that August-September breakout. Even though it’s a large-cap company, it acted like a penny stock on the charts. Nothing to feel bad about here … unless you were a short who got squeezed.

Socially Responsible Investing: Why Should You Care?

ethical investing why should you care
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Like Tesla, there are other ethical investments with potentially huge upsides. It’s the best of both worlds when you support companies because of your values and make money.

Or at least that’s the way I think about it. Like I said, ethical investing is a personal decision. There are a million reasons to care … but ultimately the answer has to be your choice.

Conclusion: Can You Make Money with Ethical Investing?

ethical investing conclusion
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I think a lot is possible in the market with a strong education and solid strategy.

But it’s gotta come from you. You have to do the work.

I’ve found my own way of being an ethical trader. It’s why I donate all of my profits to charity. I also teach to help other traders find their own way in the market.

And I think the world becomes a better place when more people find financial independence. That’s why I tell you to study and learn as much as you can.

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I hope you take me up on the offer to apply for my Trading Challenge. My students build the kind of confidence in their trading to figure out what they really want from it. And that confidence helps them make smart trading decisions.

What do you think about ethical investing? Would you do it? Let me know in the comments!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”