One time, post-2008 market crash, I was in a grocery store checkout and the guy in front of me was buying a 6-pack of beer. He looked at the cashier and said “Man, I can’t believe how expensive beer has gotten.”
He still bought the beer.
That memory came to mind when I learned about VICEX, a fund invested in vice industries: alcohol, tobacco, gambling, and aerospace/defense.
Why invest in vice industries, or as noted in this article, “sin stocks”?
Vice firms normally require little outside capital and pay sizable dividends. Vice products do not need to be reinvented continually. Thus, growth is profitable and cash flow, rather than being forced back into R&D spending, is paid out to shareholders. Vice industries have consolidated and continue to do so: they operate as oligopolies. Competition is more subdued and they are able to “manage” prices.
And what about aerospace/defense?
These companies have the taint of Vice in that many investors do not want to own companies that produce missiles or fighter planes. However, they produce enormous cash flows and have been actively acquiring other companies and pay above average dividends.
And here’s the fund’s performance:
Like many things, it bombed late 2008/early 2009, but it’s now outperforming the Dow Jones Industrial Average.
In the recent election in NY they’ve started the groundwork for gambling upstate. The state is also supporting businesses like craft breweries, vineyards, and farms that produce greek yogurt. I’ve previously thought of this stuff as the “Yuppie Industry,” but “Vice Industry” sounds a little sexier.
I suppose other states are looking at similar initiatives. Makes you wonder how VICEX will do in the coming years. There’s big money in vice. Why? Listen to this guy talking about his Colorado marijuana business (~4:30). Why did he start it? “I was looking for, essentially, a recession proof job, that I would never go through another lay off.”1
What I love about this video is that the guy who says this is trying his hardest to be viewed as a legitimate businessman in a legitimate industry. Then they show you the guy who grows the product and he’s pretty much what you expect. Then they show the guy who does the pot soda who works hard to distance himself from the word “pot.” “I don’t believe I manufacture a “pot” soda. I manufacture a “medical elixer.” ↩