The moral person's guide to investing in Ebola stocks

An epidemic jumps from country to country, propelled thousands of miles over land and sea by the ease of modern travel. Researchers at pharmaceutical companies are racing to find a vaccine, a cure, a treatment.

You invest in their stocks, just helping to save lives. You are one of the good guys, adding resources to the fight. Right? But you are also betting on more and more people getting sick and on getting a pretty rich return for yourself.

This is a moral quandary. People profit from bad events. It happens all the time. We all sneer at war profiteers, but entire economies benefited in the economic boom following the second world war. Defense stocks, like Lockheed Martin and Raytheon, hit record highs last month when the terrorist group Isis stepped up its threat.

Turn on any financial news these days, and the talk is how to profit from Ebola. Stocks in vaccines, experimental new treatments, even hazmat suits are showing speculative pops. Companies you’ve never heard of before, such as Sarepta and Tekmira and Lakeland, are dominating attention. Morbidly, even New York City’s body bag supplier, Basheer Mahar of Salam International, Inc, is quoted in the press assuring the city that he has “more than 100,000 bags on hand.” Business is booming.

Let’s say you invested in a speculative small stock such as Lakeland Industries, which makes contamination suits and safety gear. You hedged your bets and put money in pharmaceutical companies developing experimental drugs, such as Sarepta, Tekmira, and BioCryst . You even threw a few dollars at DuPont and Honeywell, the behemoths of protective gear. You got in before the stocks popped in price, and settled down to ride the rise.

But by taking advantage in the rally in Ebola-related stocks are you worse than your friend who invests in Starbucks and Apple? Is betting more people will want a cup of coffee and a fancy new phone a more moral investment strategy than waiting for confirmed Ebola cases to rise?

Not exactly, said three ethicists interviewed by the Guardian.

“That’s how markets benefit society,” explains Thomas Donaldson, professor of legal studies and business ethics at the Wharton School. “Investing is wrong when I know that my investment will cause more harm than good or violate a core human value,” explained Donaldson.

So while it may seem strange that in some indirect way these stocks are benefiting from the panic over Ebola, and perhaps news stories can be more sensitive when touting the rising stock prices or highlighting a pharmaceutical company that has an Ebola vaccine in its pipeline that no one has noticed yet, there is nothing ethically wrong in benefiting from the investment.

The system we have in place requires private investors – you and I – to fund drug discovery. Pharmaceutical companies operate for profit. They research those drugs that will get them more revenue and a higher stock price. Whatever their motivation, pharmaceutical companies make drugs that save lives.

Drug development is a tricky business, and an expensive one. Literally billions are spent each year on research to find new and better drugs to treat humanity’s ills. A popular estimate is that it takes $1bn (£620m) or more to discover and develop one new drug. So educate yourself well, and know that you are taking a big bet, but perhaps one that may save some lives, even if it does so indirectly simply by demonstrating which drugs and target molecules don’t work. It is one of the rare cases where a bad investment can at least still have some benefit.

So invest away. But remember, betting on any drug company can be pretty speculative. When it comes to success, only one in 10 drugs make it all the way from concept to clinic, according to some studies.

Virologist Jonas Salk famously did not patent his polio vaccine, forgoing profits, so that it could be widely and cheaply available to the world’s population. Most of us live in a less perfect reality.

“Benevolence is a motive far superior to that of self-interest and we should encourage everyone to cultivate it,” says Donaldson. “Yet, self-interest is a more reliable basis for organising our economy and securing economic welfare.”

And investors motivate for-profit companies to focus on whatever seems to provide the biggest return. So investing in companies because they are working on treatments for Ebola directly motivates a company to complete research on their pipeline drugs, as well as providing the capital for that research.

It can also be argued that whatever the motivation of the investor, the end result – more funding for research or the production of protective gear – is what really matters. “For those who might be future beneficiaries, it might not matter what was the motivation.” points out Hersh Shefrin, finance professor at Santa Clara University’s Leavey school of business, whose work focuses on behavioral finance.

Putting money into stocks that experience a pop because of the panic over Ebola and then taking your money out before the stock price drops again may be more dubious morally.

“Some people’s personal ethics will lead them to feel that it’s not right to benefit from the tragedy of others. If so, they can always identify the gain from ‘Ebola-investments’ and donate those to a worthy cause, without removing the financial incentive necessary to fight the disease”, points out Shefrin, highlighting the need to fund research into vaccines and better treatments.

“I think most people would say it’s permissible to invest in these stocks. If one were entirely unmoved by the plight of those suffering from Ebola, that would be callous. But one might be very sad about what is happening to them, and yet glad that one’s stocks are rising.” says Roger Crisp, professor of moral philosophy, Uehiro fellow and tutor in philosophy at St Anne’s College, Oxford.

To paraphrase Churchill, the system of for profit pharmaceutical companies and speculating investors is the worse system there is – except for all the other ones.