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Suppose that I am an environmentalist and I trade lots of green energy stocks and ETFs and I refuse to trade any that are based on coal and oil. By doing so, am I contributing to the success of the alternative energy industry? Am I hurting the coal and oil industry?

I realize that when you buy shares of a company's IPO that the money goes to the company. However, as long as there wasn't a big boycott, others would still buy them if you didn't. Also, when you buy/sell stock in a company, most of the time it's to other people and not the company itself, right?

If you didn't buy a company's undervalued stock because it's against your views, are you really withholding support for that company or are you just giving free money to another trader?

More broadly, does it make sense to trade based on social views like this?

  • Not quite a duplicate, but this question has a relevant answer. – yoozer8 Oct 23 '19 at 22:10
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    No, but arguably you help the coal and oil industry when you do trade oil or coal futures as you increase speculation liqudity. – Michael Oct 23 '19 at 22:47
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Companies receive money from your purchase IPO shares, from a secondary offering, from the sale of Treasury shares (DRIP), and exercise of warrants. Buying through a broker is exchange traded stock and does not involve the company.

If you refuse to trade a coal and oil stock based your personal concerns, you will have no effect on the those companies or on the alternative energy industry. The amount of daily trading volume by the individual investor is dwarfed by institutional trading so your personal boycott has is insignificant.

OTOH, if you successfully organized a large scale boycott of their services or products, you'd cut into their bottom line and reduce revenues and earnings which would surely affect share price.

If you avoid buying an undervalued stock because it's against your views, you're not giving money away. It's an opportunity loss.

Does it make sense to trade based on social views like this? Only if your standing by your personal views is more important to you than financial gain.

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Am I contributing to the success of the alternative energy industry? Am I hurting the coal and oil industry?

Not materially. Companies do not profit from their stock trading in the secondary market, so your choice to trade or not trade does not affect the company at all.

Plus, one trader is unlikely to have a material impact on the stock price of a company either way.

There might be secondary effects that could happen if there was widespread negative sentiment against a company. It might make it harder for a company to raise more money if its stock price is significantly depressed, since it would have to sell a larger portion of it's ownership in order to generate cash through equity. It might still be able to raise money through debt offerings, though.

when you buy/sell stock in a company, most of the time it's to other people (right?) and not the company itself

Even if it is to the company (through a buyback), the company does not profit. It just reduces the size of the ownership pie in exchange for cash out the door. Theoretically it's a break-even proposition for the remaining owners in the short term.

More broadly, does it make sense to trade based on social views like this?

That's more of an individual decision. If you own stock in a company, you want it to succeed. That can create moral dilemmas if you are morally opposed to how you view the company or industry.

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  • It's a break-even proposition if the stock is stock is rationally priced. Companies will sometimes by back their stock specifically because the company (people in or associated with the company) feel the stock is under-priced. Given that they are in an inside position it seems more likely than not that they are right, if they actually feel that way. Of course, sometimes they don't and the desire is to give the impression that they feel this way to simply artificially inflate the price of the stock. – Michael Oct 23 '19 at 22:45
  • "Companies do not profit from their stock trading in the secondary market, so your choice to trade or not trade does not affect the company at all." This really isn't true. As just one example, the more a company's stock trades on the market, the more easily that company can use its own stock as an acquisition currency. There are lots of other examples. – David Schwartz Oct 24 '19 at 4:44

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