Identify any consequences (direct or indirect) to others when you make money from stocks or mutual funds?

Question

Are there any consequences (direct or indirect) to others when you make money from stocks or mutual funds? Identify other individuals or groups that may be affected

a) from a financial standpoint

b) from another standpoint (ethically, environmentally, etc.)

For each, identify who may be affected and explain how/why.

Please clarify each part you are understanding and answer in a clear and understandable manner. Thanks! :)

Answer 1

Here are my answers to these questions. Please note that for part a, the answer largely depends on the intent of your teacher. Stocks are typically considered to have no impact on others when you make money, unless you really want to get into technicalities.

a) From a financial standpoint, there is no direct impact to others when you make money from stocks. Compared to an insturment such as options, which are zero-sum, stocks allow all participants involved to make money. It can be argued that there may be an indirect impact, however. If we assume you made money off a stock because it has risen, then anyone with a short or bearish position would have lost money. Similarly, one stock doing well may imply that it is beating competitors, and their stocks are falling.

b) Stocks do have non-financial implications. When an individual makes money off a stock, it typically propels that company into the public eye as being a good investment. This makes it easier for that company to raise capital and promote their success to investors. As a result, this will further the cause of that company. For example, the success of a clean energy stock can help further environmental causes. Or, the success of an ethically dubious company may push the industry towards that edge, as investors seek better returns from its competitors.