Guilt-Edged Investment


DEFINITION of 'Guilt-Edged Investment'

An unethical investment that generates profits for the investor. A guilt-edged investment is a colloquial term for an investment or transaction that should inherently produce feelings of guilt or remorse in the investor who engaged in unethical or illegal investment activities. Not all who engage in guilt-edged investment activities, however, feel any remorse in doing so. Typically, a guilt-edged investment involves a transaction in which one person takes advantage of another, thereby profiting through the unscrupulous investment activity. The term is a play on words for gilt-edged securities (high-grade bonds issued by governments or firms).

BREAKING DOWN 'Guilt-Edged Investment'

Guilt-edged investments are not necessarily illegal in nature, but are considered unethical. With these types of investments, the offender may rely on taking advantage of a person who is either unaware or does not fully understand the implications of the transaction. Certain real estate transactions, for instance, may be categorized as guilt-edged investments. For example, a person may purchase a fixer-upper with the intention of making the necessary renovations/remodel and selling it for a quick profit (a practice known as "flipping"). If the seller knows about something important that will affect the future value of the home (for example, that the road will soon be widened and some of the property will be lost to eminent domain) but does not disclose the information to the buyer, the lack of disclosure is not necessarily illegal but may be considered unethical.

In this example, the seller is able to make more of a profit from his or her real estate investment because he or she was able to take advantage of an unsuspecting homebuyer. Many states have laws that specify which disclosures must be made to potential buyers. Certain things have to be disclosed only if a potential buyer specifically asks about the item in question.

Another example of guilt-edged investments involves Internet chat rooms that have moderators acting as trading coaches and who post their trade entries and exits. In some cases, it has been argued that some moderators are in essence "front-running" the trades, or trying to get more investors involved in a particular trade to help push the trade in a favorable direction, thereby allowing the moderator to make a profit.

  1. Bucket Shop

    1. A fraudulent brokerage firm that uses aggressive telephone ...
  2. Bucketing

    A situation where, in an attempt to make a short-term profit, ...
  3. Pump And Dump

    A scheme that attempts to boost the price of a stock through ...
  4. Churning

    Excessive trading by a broker in a client's account largely to ...
  5. Front Running

    The unethical practice of a broker trading an equity based on ...
  6. Circular Trading

    A fraudulent trading scheme where sell orders are entered by ...
Related Articles
  1. Economics

    Online Investment Scams Tutorial

    To bamboozle someone out of their money is an age-old ruse. Learn about some of the gimmicks modern-day swindlers use and avoid becoming a statistic.
  2. Investing

    The Biggest Stock Scams Of All Time

    Where there is money, there are swindlers. Protect yourself by learning how investors have been betrayed in the past.
  3. Investing

    Asset Manager Ethics: Acting Professionally and Ethically

    To aid managers in understanding the requirements for ethical and professional behavior, we offer some basic guidelines.
  4. Investing

    How Conscious Consumers Are Changing Business

    Thanks to the growth of conscious consumerism, corporations must evolve or lose ground to new, ethos-based entrepreneurial models.
  5. Professionals

    How To Keep Millennials Motivated in the Workplace

    Millennials, ages 18 to 34, will soon make up most of the global workforce. What are the best ways to maximize their potential for top performance?
  6. Investing Basics

    Asset Manager Ethics: Valuation Is A Tricky Business

    Asset managers must accurately represent all of a clients assets in the client portfolio. This can be tricky for unique and hard-to-value assets.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI KLD 400 Social

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  8. Investing

    Asset Manager Ethics: Disclosures

    Effective communication and disclosures go a long way towards easing minds and creating a lasting and trusting symbiotic relationship. Here are the four steps to making good disclosures.
  9. Investing

    How To Invest For The Greater Good

    We discuss why is important to prioritize economic, social and governance factors when making investment decisions, regardless of gender or generation.
  10. Savings

    4 Signs Your Financial Advisor Is Ripping You Off

    Pay attention to the habits of your financial adviser to avoid him ripping you off by commingling, churning, scamming or embezzling your money.
  1. Which socially responsible retailers appeal most to ethical investors?

    Ethical investors have many reasons to consider companies in the retail sector. The sector is broad and features an abundance ... Read Full Answer >>
  2. What are restricted shares?

    Restricted shares refer to shares of stock whose sale or acquisition is subject to specific restrictions laid out by the ... Read Full Answer >>
  3. Are investments in the chemicals sector appropriate for ethical investors?

    Generally speaking, ethical investors shy away from chemical manufacturers and companies that have perceived negative chemical ... Read Full Answer >>
  4. Are investments in the drug sector appropriate for ethical investors?

    A number of aspects are factored for ethical investors considering the drug sector, such as animal testing or the type of ... Read Full Answer >>
  5. How do you conduct effective social responsibility training?

    One way to provide employees with effective social responsibility training is to base training sessions on resources offered ... Read Full Answer >>
  6. What are the risks of using CI (competitive intelligence) for espionage?

    The line between competitive intelligence, or CI, and illegal corporate espionage is not always clear. This is especially ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!