Estimated reading time: 8 minutes
Your kneejerk reaction to the idea of investing in Sin Stocks might be, “no way!” But before you dismiss the idea, it’s important to understand what Sin Stocks are…and what they aren’t.
I remember the first time — WAY-back-when — I heard someone talk about Sin Stocks. This was before I knew any better. I thought, “What, really? Are there stocks actually called that? Why would anyone invest in sin?”
At the same time, I was admittedly a little intrigued. Sin Stocks sound exciting and even a little sexy. Once I got clarification on the idea, my entrepreneurial (okay, maybe my greedy) side came out. I thought, “Hey, why not create a killer strip-mall with all the undesirables, and watch the money flow in?!” Can you imagine what a party my strip-mall would be? (Oh yeah, it’s called Vegas!)
But all kidding aside, are Sin Stocks a good investment? How do we determine and define a sin stock? Is it really so bad to invest in sin?
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What Are Sin Stocks?
To understand what it means to invest in Sin Stocks, you must first understand what the “sin sector” is. Typically Sin Stocks are investments in:
- Fire Arms
- Sex-Related Industries
As we’ll explore, these industries aren’t always “bad” or even amoral. Typically, though, Sin Stocks get the moniker from their appeal to the vices of humanity. The government often regulates these industries and some may hold higher liabilities and risk.
One side note: if you’re new to investing in the stock market, familiarize yourself with the terms and stock market basics first (before you decide to invest in ANY stocks — sin or otherwise).
“Money is like manure. You have to spread it around, or it smells.” – J. Paul Getty
Are Sin Stocks All Bad?
Once you’re comfortable with the concept of investing in stocks, you may wonder why you would consider Sin Stocks that include tobacco, alcohol, gambling, sex-related industries, weapons manufacturers, and most recently, marijuana. Sin Stocks are typically found in sectors that deal directly with activities that are looked down upon or perceived as making money from exploiting the weaknesses in humans.
Before you decide if investing in sin is for you, let me explain what Sin Stocks are and what they are definitely not. Sin Stocks are either involved or somehow associated with an activity that would be considered, by some, as unethical or immoral.
It’s important to consider that what may be sinful in the United States may not be regarded as immoral in other parts of the world, and in fact, is viewed as the norm. Similarly, what we don’t consider amoral or sinful in the U.S. can be appalling behavior in other parts of the world.
Even within the U.S., morality looks different to different people. For example, a vegetarian might not feel comfortable supporting Tyson (TSN) or Hormel (HRL) meat processing. An environmentalist might avoid stocks that support the mining, drilling, or foresting sector, but none of these areas are considered Sin Stocks. Morality isn’t always limited to religious behavior.
Some religions may have no qualms over supporting the firearm industry. Other religions may not have a problem with smoking or alcohol. Some view marijuana as a medical-friendly industry; others consider it a vice. When you start to research Sin Stocks, you can find yourself going down quite an interesting rabbit hole of “right versus wrong.”
So, while it’s hard to determine and define a “sin” or an amoral stock, we can definitively say what a sin stock is not. Sin Stocks aren’t considered Socially Responsible Investing (SRI). SRIs are basically the yin to sin stock’s yang. SRI is investments in stocks or mutual funds that yield an overall benefit for society. So, when comparing one to the other, consider Sin Stocks and SRI opposite sides of the investment coin.
If investing in sin isn’t your thing, but you’re curious about Socially Responsible Investing, it’s important to do your research. SRI’s sound virtuous and like a great idea, but there are some drawbacks there as well. Prepare for any investment with knowledge.
“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” – Warren Buffett
Why Sin Stocks Can Be a Sound Investment
So, what are the benefits of investing in Sin Stocks? Can you earn money from investing in the black sheep of the stock market world?
Well, first of all, Sin Stocks generally perform well — especially in times of economic crisis. The reality is, when the economy struggles, people turn to vices.
When people are feeling down on their luck, they turn to gambling, drinking, smoking, and other activities as an escape, often causing these stock to get a little boost. During a recession, Sin Stocks hold up.
Investing in a vice isn’t such a bad idea, especially when times are tough. After all, when the economy is in a downturn, and life gets stressful, people cancel luxuries. How many people do you know who give up smoking or drinking during a recession? You might cancel Netflix; you may stop shopping. People cut “extra” purchases, but smokers will still pool together change to buy a pack of cigarettes. Gamblers will put their money in a slot machine, hoping their luck will take a positive turn. Alcohol sales increase as people seek comfort and escape.
Luxury purchases may go out the window during a recession, but liquor stores are still considered an essential business. While it’s not a “sin stock,” I LIVE on coffee. I’ll tell you, to get my fix, I will go to great lengths to ensure I get real creamer (none of that half-and-half garbage). When people have a vice, they will continue to do what it takes to scratch that itch, even when it’s a challenge.
Though Sin Stocks tend to cater to people’s vices, they are usually a very strong indicator of the stock’s future outlook. Sin Stocks generally outperform Socially Responsible Investments because the reality is they are known as more recession-resistant.
The industries covered under Sin Stocks are often highly regulated. While this can end up affecting your investment (for example, when the cigarette tax is increased), it also means these businesses are carefully watched. The additional regulatory oversight can lead to fewer unexpected risks cropping up.
The regulation in “sin” industries also means that competition is limited. It’s harder for newcomers to jump into the market. The lean field can certainly work out in investors’ favor.
Because these stocks are dismissed from large investment companies and excluded from SRI options, they are often undervalued. This undervaluation also works out in your favor if you’re willing to invest. You can often snap these stocks up for a reasonable price.
Since they cater to vices, some of the biggest Sin Stocks have great long-term records of generating value for their shareholders and are found to be very sound investments, continually showing solid profits year-after-year.
“Money may not buy happiness, but it can damn well give it!” – Freddie Mercury
Are All Sin Stock Companies Amoral?
Again, the relative morality of a sin stock depends on your personal views on topics ranging from alcohol all the way to the newest sin stock player, marijuana.
So as you can see, it’s not always a black and white answer. It’s also important to consider other aspects of the companies themselves. For example, how do they treat their employees? What are their environmental policies? What are their stances on human rights? Some companies that don’t fall into the “sin stock” category still engage in shady behavior.
When you read about a tobacco company such as Philip Morris International (PM), whose motto is, “We are committed to designing a smoke-free future,” you may start to wonder about their ethics. On their website’s home page, they write, “How long will PMI be in the cigarette business?” and explore the question thoroughly. Does a more socially responsible stance change your thinking on their status as a sin stock?
What about a gaming stock such as Caesars Entertainment Corporation (CZR) and the adult entertainment arena such as RCI Entertainment (RICK), whose stock is considered by some as less-than-virtuous? These companies entertain consenting adults. When you go to Vegas for a weekend of fun, you may even enjoy their offerings — does this make investing in their stock seem more palatable?
Do you enjoy wine, beer, or spirits? In that case, investing in the alcohol industry may seem like no big deal. In fact, you may even see it as supporting a company whose product you use and enjoy.
Depending on your moral compass and your stance on any particular topic, you may or may not decide that a company is worthy of your investment. So before you dismiss “Sin Stocks” immediately, you may want to explore your views and look for companies with policies you can stand behind (even if their stocks are considered “sinful”).
Investing in Sin Stocks might not be what every investor is looking for, but don’t dismiss them at first glance. No matter what sectors you’re investing in, it’s essential to do plenty of research. Work with someone you trust. As long as a reputable advisor reviews your investment portfolio at least annually, you should hit your desired goal in the right timeframe (while still feeling ethically sound about your investments).
“Diversify your investments.” – John Templeton
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