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.

RELATED TERMS
  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. Circular Trading

    A fraudulent trading scheme where sell orders are entered by ...
  5. Front Running

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

    Excessive trading by a broker in a client's account largely to ...
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. Mutual Funds & ETFs

    Investing in More Than Money: A SRI How-to Guide

    Here's how socially responsible investing stacks up against green and impact investing. Which category is right for you? Read on.
  4. Investing Basics

    The Value Of Sin Stocks

    Typically, “sin stock” refers to the stocks of companies that deal in tobacco, alcohol or other products deemed harmful.
  5. Entrepreneurship

    What a Career in Impact Investing Could Look Like (C, JPM)

    Learn about careers in impact investing. This rewarding business career makes it possible to earn money for clients and impact social change.
  6. Mutual Funds & ETFs

    Fund Highlight: Parnassus Core Equity Fund (PRBLX)

    Learn about the Parnassus Core Equity Fund, which invests in a concentrated portfolio of stocks of companies that have socially responsible businesses.
  7. Fundamental Analysis

    3 Trends to Watch in ESG Investing

    Understand why climate change, equal pay for women and executive compensation are three ESG investing trends you should watch for in 2016.
  8. Your Practice

    Will ESG Investments Become a Staple of 401(k) Plans?

    Discover information on the rise and growing acceptance of ESG-based investing strategies and why they are becoming more commonly available in 401(k) plans.
  9. Investing

    10 Fastest Growing Social Ventures in 2016

    The success of these social ventures embodies a new hybrid business model that will lead the global economy into a greener, more sustainable world in 2016.
  10. Products and Investments

    SRI Funds and Your 401(k): What You Need to Know

    Socially responsible, green and impact investing options are now DoL-approved for 401(k) plans. Here's what investors should know.
RELATED FAQS
  1. Which socially responsible retailers appeal most to ethical investors?

    Learn why ethical investors have many options in the retail sector, and discover which retail companies are most popular ... Read Answer >>
  2. What are restricted shares?

    Understand what a restricted share is. Learn why a company would issue restricted shares to employees and why an employee ... Read Answer >>
  3. Are investments in the chemicals sector appropriate for ethical investors?

    Learn why many ethical and socially responsible investors avoid or dramatically limit their portfolio exposure to the chemical ... Read Answer >>
  4. Are investments in the drug sector appropriate for ethical investors?

    Explore the question of whether investments in the pharmaceutical industry are appropriate for investors who wish to pursue ... Read Answer >>
  5. How do you conduct effective social responsibility training?

    Read about social responsibility training resources and international guidelines intended to assist organizations in their ... Read Answer >>
  6. What are the risks of using CI (competitive intelligence) for espionage?

    Learn about the primary risks involved in performing corporate espionage and how to differentiate between espionage and competitive ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center