Testing self-developed stock investing criteria

Investment Questions and Chats Stocks
#1

AoA

I entered into stock investing last year, after much research and deliberation. Albeit neither do I have any credentials, qualifications nor experience in Islamic finance, I tend to do my own research than follow a fatwa blindly. I would like to test and get feedback on the approach I took (note I am in for long, with at least 3-5 years, ideally 10 years horizon, and I follow Motley Fool’s Stock Advisor recommendations):

  1. Sector screening: Just like halal stock screeners’ first criteria, this is a given for me. I stay away from sectors that I am aware are a no-no from the Islamic aspect - gambling, banking/lending, alcohol, pork and pork products, porn, etc.

  2. Relationship with the invested company: From here it becomes a slightly different approach than the established screening criteria. When we buy shares from an exchange, we are trading in the secondary market. i.e. whatever money we pay, doesn’t go to the company. It only goes to the company in the case of an IPO (primary shareholders), which I stay away from. The relationship is at an arm’s length and my investing in the company bears no significance for it.

  3. Dividend purification: I just keep an account of and donate all and any dividends I receive, yes 100% of it without needing to follow the purification ratio methodology. Have been doing it for my NYSE/NASDAQ investments, and am planning to start for my PSX (Karachi stock exchange) investments too. Even if the company has been screened halal by any of the services, I just do not want to take any risks, and I choose to go beyond. I’m in only for the capital gains. (I’m also thinking of doing this for the halal ETFs I’m in - ISDE and MZNP-ETF directly and some investments made through Sarwa).

Please can you comment, share your thoughts and challenge the above?

One argument could be that based on points 2 and 3 above, would no.1 be still relevant.

Eagerly looking forward to your advice and comments.

JZK
Owais

#2

Wa alaykum salaam,

Do you not do any financial screening?

#3

Thank you for your response.

I don’t. But since I am not taking any dividends at all, do I need to? The logic is that none of the interest or profit is getting passed on to me (in the form of dividends).
So to summarise, neither is my money going into the company nor their’s coming to me.

#4

Salam @afraideh

An example for you to consider:

Take a company in a halal sector (selling metals), but with purely haram (interest) income as its sole revenue, due to it’s investment choices. Without a financial screen, you would be allowing yourself to profit from a company that only has haram income, or in a different example, a significant portion of income as haram income.

As stocks are bought and sold based on the business that the stock lays claim to - how would you account for that - without a financial screen?

#5

Fair challenge, thank you.
Will continue to study the area, for now have diluted the investments in all the ‘questionable’ companies (using Zoya).
Related Q - should I purify any capital gains made from these stocks?