In Tough Economy, Sin Sells


In this time of economic strife, investors are searching for avenues of monetary gain in order to maintain their standards of living. It is a difficult market to navigate with confidence. Despite the schizophrenic state of Wall Street, there is one area that has defied the trend — sin stocks: things like booze, tobacco, and weapons.

For some, this seems like a worthwhile avenue of investment, particularly in such a volatile time. But others hesitate, even refuse, on the grounds of social or moral responsibility. It is becoming increasingly apparent that while money and morals can co-exist, they don’t mix.

Look no further than Jeff Middleswart, who’s appropriately named Vice Fund focuses on four areas: gambling, defense, alcohol, and tobacco. The Vice Fund has seen sustainable growth in the volatile economy. When asked if he was reluctant to manage the fund because of its focus on sin stocks, Middleswart replied, “Not at all. I’ve always been a contrarian and I’ve always looked for deep value stocks.”

Sin is profitable. So why not invest? As Middleswart says, “If you listed everything you look for in a stock — companies with growing cash flow that pay dividends and buy back shares and have clean balance sheets — you'd find a huge list of sin stocks.”

And though they may get a bad name, let’s not forget that sin stocks are legal. Unlike the Ponzi schemes of Nevin Shapiro or Bernie Madoff, booze, cigarettes, gambling, and weapons are all lawful within their parameters. And with the stock market littered with losers, these industries are excelling. Over the past five years, Vice Fund stocks have gone up 53%. To put that in perspective, the Standard & Poor's Index has grown 12% in that same time.

In the end, if you want to make money, sin stocks are a clear winner. As investor Dan Ahrends says, “No matter what the economy's doing, whether it's growing, whether it's in recession, people keep drinking and smoking and gambling, no matter what.” When asked about investing in the weapons industry he replied, “Somebody is always at war in this world. And they're doing it mainly with U.S.-made weapons.”

Not everyone agrees. Amy Domini of Domini Social Investments argues that the way we invest matters. “The investments we make today will define the world our children will grow up in,” says Domini. “These are three industries that are addictive and where the victim is very often the family of the abuser, not the abuser.”

It’s a valid point. And perhaps many investors can identify themselves as hypocritical, advocating against substance abuse or protesting against armed conflict while investing in their culprits.

But we live in a consumer-driven culture. Aren’t we more concerned about immediate satisfaction than distant repercussions?

“I think people should invest to make money,” says Ahrends. “And when they have money, they should donate it to good causes.”

Ahrends’ response may seem somewhat insensitive. Nevertheless, it illustrates a paradox within our society. We are motivated to acquire green while soothing our conscience. “Unlike gin and vermouth,” Ahrends points out, “morals and money do not mix.”

Photo Credit: Wikimedia Commons