Ethics and morality act as a critical consideration for many investors. When some investors put their money into a certain stock, they are considering social responsibilities and personal moralities to also be a part of that investment. However, the realm of “sin stocks” are controversial securities that have proceeded to challenge investors’ stigma by proving to be resilient and profitable regardless of economic conditions. This leads to the question whether or not investing is simply about the profit or does it also involve one’s conscience?
Some categories of sin stocks include tobacco, cannabis, alcohol, firearms, and gambling, to name a few. The term “sin stock” is also subjective to one’s political stance and what they categorize as controversial or not. Personally, I believe a sin stock can be part of a diversified portfolio to act as a systematic risk mitigator. Here are some pros and cons of sin stocks:
Sin stocks are highly resilient and profitable, making them attractive to investors looking for steady returns without unpredictable behavior. Sin stocks are known for performing successfully even during economic recessions. This can be attributed to psychological tendencies in people during economic crises. For example, high unemployment rates during a recession may lead to a higher demand for alcohol or cannabis as a coping mechanism. This results in sin stocks outperforming other sectors during a depression. Additionally, the habitual tendency of the gambling industry for example allows for steady growth of the stock. They are also dividend paying stocks.
On the other hand, sin stocks also have disadvantages of political risk and sin taxes. Political risk goes hand in hand with regulatory risk since government policies can affect how strict regulations are for these products and also affect how heavily they are taxed. The demand for these products decreases when the sin tax is extremely high, which causes the stock to be affected as well.
Now to answer the burning question, are sin stocks part of an ethical issue? I personally believe that putting your money into a controversial security is also the same as booking a vacation to Las Vegas; your money is being used to “support” a certain lifestyle even if your stay just consists of walking around the Strip. However, I can understand those who believe in putting your money where your conscience is. I just hope they’ve never vacationed in Vegas before or else that would be hypocritical.