Investing in Sin Stocks

by Mike on April 9, 2010


The Rat is a young investor and entrepreneur hailing from the east coast. In January 2010, he was able to retire and hence “end the rat race” in his early 30’s. Ending The Rat Race is a personal finance blog that shares various personal finance topics with others having similar interests, and learning from one another.

What Are ‘Sin Stocks’?
‘Sin stocks’, often called ‘sinful stocks’, are defined by Investopedia to be stocks “from companies that are associated with (or are directly involved in) activities that are widely considered to be unethical or immoral.”

Some examples of companies in which investors and people in general may regard as being sinful include those that are involved in distributing “alcohol, tobacco, weapons and sex-related products”


Ethics & Looking In The Mirror
Each of us has our own moral principals.

There are many who are adamant and believe quite strongly that investing in such stocks is not only downright wrong, it’s socially irresponsible to engage in such activity. Abstaining is of paramount importance.

On the other hand, there are some who feel there is nothing wrong in relation to being associated with such companies as an investor, largely in part, perhaps, because they are abiding within the legal framework in which they reside.

So who’s right anyway? Depending one ‘s one view of the world in relation to God, society, personal morals, and principals, we know that there are many people that fall under one of the two ‘categories’ (for lack of a better word) mentioned above.

In taking this into account however, I firmly believe there are many people who tend to fall in between the two ends of the spectrum, if you will. When I look into the mirror – I see that someone.

Temptation & The Luring Effect
The temptation and root causes that lead to investing in such stocks is understandable. For many investors, the opportunity to earn long-term share price appreciation is a real possibility and opportunity; for others, the notion of greed as one of the Seven Deadly Sins comes into play.

For the purposes of this thread, I won’t get into citing the names of several companies, nor provide intricate investment details; however, I will mention one company in order to bring to light what could play a key role in determining investors’ motivation and behavior.

Take the massive company British American Tobacco (BTI: AMEX), a company I featured in one of my previous posts. As the company website states, they “are the world’s second largest quoted tobacco group by global market share, with brands sold in more than 180 markets.”

Without getting into details such as dividend yield and so forth, we’ll just take a brief look at the performance of this stock since 1987, complements of Globe Investor:

Do you notice anything interesting? Over the past 23 years, the share price of this company’s stock has risen dramatically. My intent here is to simply highlight the luring effect these types of stocks can have on investors.


My Personal Perspective

From a personal standpoint, I seemed to have crossed a ‘line in the sand’ as it relates to investing in ‘sin stocks’. Perhaps subconsciously, I believe quite strongly that my past investment behavior reflects what my own views are and what I consider to be acceptable.

For example, I have never invested in tobacco companies because my ‘mind and body’ just won’t let me – at least for the time being. As a past smoker, it bothers me when I see people who are close to me that continue to smoke. I can totally relate to what they’re going through, and it’s not easy. For one reason or another, I just can’t find it in myself to invest in tobacco companies despite the fact they can often offer lucrative places to park your hard-earned dollars.

On the other hand, I never thought twice about investing in companies that distribute alcohol. I think it’s probably due to the fact that it’s more socially acceptable, but I openly admit that I have not thought twice about venturing into purchasing shares in companies such as Liquor Stores (LIQ.UN.TSX) and Corby’s Distilleries (CDL.A.TO).

In addition, I also have a position in Game Host Income Fund (GH.UN.TO), a company that operates two casinos. I suppose it’s safe to say that I currently have no issue owning these shares either.

I haven’t really considered investing in weapons or defense-related companies (such as those provided on this list); however, if I were to quickly decide, I don’t believe I would want to.

Lastly, investing in adult entertainment companies is not something that I would embrace as part of my investment strategy.


Readers, what about you? Would you ever invest in ‘sin stocks’? Perhaps you’re like me in that you would consider some to be ‘more acceptable’ than others? Maybe you already own some? Regardless, I’d like to know your thoughts on this subject!


Many thanks are in order to Personal Finance Journey in having me publish this guest post!


Editor’s Note: For the beginning / novice investor, mutual funds & exchange traded funds are the recommended course of action, however “The Rat” has done very well with individual stocks. He has also shared a candid view of his decisions which are based on his personal values. I’m looking forward to everyone’s respectful responses in the comments, whether you agree, disagree, or agree to disagree.

{ 3 comments… read them below or add one }

1 Chris Peters November 13, 2010 at 4:06 pm

Great post, thank you!
‘Sin stocks’ are not discussed a lot although they seem to have gained popularity since financial crisis began.

My first introduction to ‘sin stocks’ was when I was when watching a debate bout whether the Netherlands should buy the F-35 Joint Strike Fighter.
I did some research and found out how much money we were spending on airplanes and weapons while on the same time health care has become a lot more expensive.

I also figured that by investing in the companies that manufacture those airplanes and weapons, I can benefit from the huge government contracts and hedge against inflation and increasing costs for health care.

I managed to make a decent profit, and likely to continue investing in the Aerospace & Defense industry.

I must admit that from an ethical point of view it’s hard to defend my strategy.
The predecessor of the Internet (ARPANET) however, was initially a project of the US Department of Defense. And I sincerely hope that not just the DoD and shareholders, but everyone will be able to benefit from future innovations such as the Internet.

2 The Rat April 9, 2010 at 5:41 pm

Thanks Joseph.

I think you’re right when you mention how ‘sin stocks’ are not discussed a whole lot.

I had not realized, but throughout the process of writing this article, it made me define some of my core values more clearly. It’s also not a subject that everybody is comfortable talking about, nor coming to terms with what they feel are legitimate investments.

Thanks for the comment.
.-= The Rat´s last blog ..Investing In Hollywood =-.

3 Joseph | April 9, 2010 at 6:57 am

Great post.. we never hear these things often. One of the important things that i learnt last year during entrepreneurial l training was defining core values. These are things that you cannot compromise, and that guides your business/investing behavior. Sometimes because of these values you will decline a business deal or investing opportunities as you stated above.
.-= Joseph |´s last blog ..Finding A Family Doctor =-.

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