Nota bene: You're probably not a gun owner

“You probably are a gun owner.”

That’s the way the NYT begins an article under this headline:

It’s a common refrain: Barron’s, for instance, similarly says that “We’re All Gun Owners”. But it isn’t true. Just because you own a fund which owns shares in companies which manufacture guns, does not mean you own guns, not even metaphorically. And it certainly doesn’t mean that you’re giving gun companies money.

The financial reaction to the latest school shooting in Florida has been unprecedented, in a good way. The share price of gun manufacturers went down rather than up, for starters, and substantially all of the companies which were connected to the NRA in some way have at this point severed their ties.

There is a very good reason for companies not to deal with the NRA: it’s an organization devoted to making the world a worse place, and it’s just not cool to get into bed with those kind of people.

There could even be second-order real-world effects on the NRA itself. If the NRA can no longer offer a long list of membership benefits, it stands to reason that some of its members won’t renew. Most of its members probably pay their dues mostly for ideological reasons, but at the margin, there will be gun nuts who no longer consider an NRA membership worthwhile, if they can’t get the associated perks. The result is likely to be slightly lower revenue for the NRA, and maybe that will mean slightly less effective lobbying prowess. Although I’m not holding my breath.

If you sell shares you own in gun manufacturers, the real-world effects would be even smaller and more attenuated. It’s worth being crystal clear about this: if you buy shares in these companies you are not “giving them money”, and if you sell shares in these companies you are not taking money away from them. Whatever money they received from selling the shares hit their corporate bank accounts years ago.

I’m certainly sympathetic to people who don’t want to have anything to do with bad companies. That’s why I’m in favor of divestment: it’s just, ethically, a good thing to do. On the other hand, it doesn’t have any visible effect on the companies themselves, or even, realistically, on their share prices. If you sell a share in a gun company, that’s just an opportunity for some arbitrageur or high-frequency trader to snap it up at the lower end of the bid-offer range. And the long-term value of gun-company shares is not a function of who’s buying and who’s selling, so much as it is a function of financial engineering (how much debt they have) and sales (how many guns they sell). If you want to hurt gun-company share prices, you’re much better off not buying guns, and persuading other people not to buy guns, than you are selling shares.

But the point is that if you’re anti-gun, you won’t be buying guns anyway. You wouldn’t buy guns regardless of the effect on the gun company’s share price. The important thing here is to reduce the flow of guns into American households, not to reduce the amount of money that people have to pay in order to buy a residual claim on the income and assets of the manufacturers. After all, if those claims become cheaper, then buying shares in gun manufacturers just becomes more profitable. Why would anybody want that?

A much more effective intervention is for Blackrock, Vanguard, and other large institutional shareholders to keep their shares, to demand a meeting with the gun manufacturers they own a large chunk of, and to tell the board and CEO that they want the company to stop selling AR-15s. They have much more power as shareholders than they would if they owned no shares at all.

So I perfectly understand if you feel a bit queasy about owning stock in gun manufacturers. If you’re one of those people who has a large portfolio of individual stocks, each of them hand-picked, then, by all means, sell your shares in gun manufacturers, since it’s not a great feeling to profit from death and misery. But most sensible individuals don’t invest that way. And if you’re invested in some kind of mutual fund or pension fund or index fund which owns gun stocks, don’t stress it too much. They’re not doing harm, and they might even do some good.