Investing in vice stocks, should you abstain?

Is it time to consider investing in vice stocks? What are vice stocks anyway? And should morals form a part of investing?

Article updated: 7 February 2019 10:00am Author: Michael Baxter

Vice stocks — the description covers a multitude of sins, it’s just that not everyone agrees on what a sin is?

The Methodists were the first to try and define vice, or sin stocks, and their big idea was not to invest in them. This led to the formation of ethical funds; funds that traditionally avoid breweries and distilleries, tobacco, betting and weapons companies.

These days, the description sin or vice stock, could apply to a much broader range of companies. It could apply to companies that sell dark coloured, sugared fuzzy water, it could apply to companies that sell food that is packed with sugar, salt or any ‘Es’, or it could apply to companies that poison the atmosphere, or companies that poison our minds.

Or, given that demographic pressures mean that if we really do want to live on a sustainable planet, we should all become vegetarians, should we castigate any company, be they agricultural, producer, distributor or retailer, that sells meat or fish, lumping them into the category: sin stock?

Where do you begin?

Cola makes us fat and is linked with causing diabetes. Ditto for chocolate bars. Well known food and drink brands sell products to us that are very bad indeed for our health, but they package them in such a way that you wouldn’t know it.

Or there is our privacy, what about companies that make money by compromising that?

Or feed our addiction to video games, or watching box sets, or watching, I don’t know, watching shark movies.

One company has made much of their determination to never do evil, yet today fall foul of so many ethical considerations. If you don’t know what company I refer to, Google...it.

On the other hand, some vice stocks may be worth stocking

On the other hand, so called sin stocks are often operating in mature industries, pay out good dividends and because of the moralising of some investors, appear quite cheap.

Should you invest? I am not going to lecture anyone on their morals. We all have our vices, or secret pleasures. I like Coca-Cola, I love crisps, I don’t drink excessively, but do enjoy alcohol and sometimes too much. I probably watch too much Netflix and eat too much fatty food. I even quite like McDonald’s. And biggest confession of the lot: I like red meat, there said it.

I don’t like smoking, am opposed to guns, feel strongly that we may be underestimating the dangers of climate change, and feel furious with food companies that fill their products with stuff that is bad for us, but disguise it in the packaging.

But that’s me. You may share the vices I like, and agree with me on the hates, or feel quite differently.

Political correctness backlash

There has been a backlash against political correctness. Such a backlash may partially explain the support for President Trump. In the UK, certain broadcasters delight in ridiculing the PC brigade, love to shine the spotlight on what they see as the hypocrisy of vegetarians.

I don’t agree with the anti PC brigade. Often, so called political correctness is trying to reverse ingrained prejudice. For too long, people and companies and indeed the media, have gone too far in supporting prejudices, discriminatory practices, intolerance and cruelty. And if some political correctness can feel a tad intolerant itself, well sometimes you need to be over the top to get people to change and reverse such long held practices.

I hate to admit, because I love my meat, but unless we can come up with a way of making meat from stem cell technologies in a way that is sustainable, we really should all become vegetarians. Saying ‘I’ll only eat meat once a week’ won’t do it, because we rarely stick to such ideas.

Gulf of Mexico oil spill

The BP share price is still far from recovered from the Gulf of Mexico oil spill. Shares peaked at 712 in 2006, at one point they were down to 304, now they are at 504p.

I don’t understand, I mean I guess I do, but the gross hypocrisy vexes me enormously — why was BP fined so much when other oil companies that deliberately tried to mislead us over the dangers of climate change weren’t fined at all? If BP nearly collapsed over one oil spill, how did tobacco firms get away with decades of selling a product that has shortened millions, ney, hundreds of millions of lives. I have asthma, and I entirely blame this on the fact my parents smoked when I was a child. I don’t blame my parents; they had no idea of the harm. But I do blame tobacco firms, one of whom my father worked for, in ignorance of the damage the product he peddled caused, because the tobacco firms did know about the damage their products were responsible for and ran a deliberate campaign of disinformation. Why am I not entitled to compensation?

In a just world, companies that deliberately mislead, or worse deliberately promote disinformation, should he fined. And the fines should, in proportion to their asset base, be every bit as much as BP was fined.

Investors

But, as I get down from my soapbox, I have one thought.

Invest in what you know. If you have any particular vices, and you don’t feel there is a strong moral reason for not investing and you feel confident that the companies behind your vice won’t be fined up to the hilt; then consider investing in the stocks that sell products you think are on the up.

Looking at my vices: I like Tyrrells crisps, I like Netflix and think Alphabet is the world’s leading AI company — which makes it potentially much more valuable than it is at the moment. It’s not one of my vices, but I know enough about video games to think they will go from strength to strength.

I think companies in the fossil fuel business will suffer an enormous popular backlash and ditto for food companies that mislead us.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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