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Investing in Sin Stocks: How to Oppose Radical Islam in Your Portfolio
by Alexander Green, Advisory Panelist
Wednesday, July 15, 2009: Issue #1041
Last month the first ETF adhering to strict Islamic beliefs, Dow Jones Islamic Market International (NYSE: JVS), began trading.
Following Shariah law, the index excludes anything close to investing in “sin stocks” or firms that produce or market alcohol, tobacco, gambling, weapons, or pornography.
Investors are further assured that the stocks held in the index have nothing to do with borrowing or lending, women’s fashions, cosmetics, modern cinema, popular music, or pork.
Personally, I wouldn’t touch this fund with a barge pole. It is virtually guaranteed to earn sub-par returns.
Here’s why…
Investing in Sin Stocks vs. Socially Responsible Stocks
If you were given the choice six years ago between investing in the environmentally and socially responsible Sierra Club Stock Fund (Nasdaq: SCFSX) or investing in sin stocks with the Vice Fund (Nasdaq: VICEX), which invests primarily in tobacco, alcohol, defense and gambling, which would you have chosen?
I’ll give you a hint. Your profits would have been much bigger if your conscience weren’t your guide.
- The Sierra Fund has delivered negative returns over the past six years.
- The Vice Fund has delivered positive performance – and beaten the S&P 500 handily, too.
This is no aberration.
Merrill Lynch recently examined the performance of alcohol, tobacco and casino stocks in all recessions since 1970 and found that while the S&P 500 fell 1.5% on average, sin stocks rose an average 11%.
This downturn isn’t shaping up to be any different.
Sure, consumers are cutting their spending far more than in past recessions. But history shows that people do not drop their bad habits in hard times.
Rather many people feel an intense need to escape through alcohol, tobacco, or a trip to their local casino.
This is not too surprising.
If a citizen of ancient Greece or Rome were magically transported into the modern era, he would be astounded by the current state of agriculture, transportation, housing, medicine, architecture, technology and general living standards.
Humanity itself, however, would offer few surprises. We remain the flawed human beings we have always been, struggling with the same deadly sins our ancestors wrestled with millennia ago: greed, gluttony, sloth, pride, anger, envy and lust.
Investing in Sin Stocks Through The 7 Deadly Sins
Given this reality, when it comes to investing in sin stocks, four months ago The Oxford Club unveiled its new Seven Deadly Sins Portfolio.
It is already up 41%, more than 10 times as much as the S&P 500.
We locked in a 92% profit in the casino stock Wynn Resorts (Nasdaq: WYNN) in 64 days. Our shares of Smith & Wesson (Nasdaq: SWHC) have doubled in less than four months. All but one of our positions are up over 20%.
Why are these vice stocks outstripping the broad market by such a wide margin? One answer is careful security selection.
But two other studies out of Yale and Princeton offer a further rationale.
- One study attributes vice stock outperformance to the lack of attention pension and other institutional investors pay to these stocks in order “to maintain an aura of respectability.” (That creates opportunity.)
- The other believes it’s because companies in sin industries benefit from high barriers to entry, thanks to strict regulations and taxation.
These factors are not likely to change.
I’m not endorsing the sin industries, incidentally.
I don’t smoke and I hope my kids never do. I don’t gamble unless the stakes are negligible. And I don’t own a handgun, although I am a supporter of Second Amendment rights.
Why Would Anyone Invest in Sin Stocks?
So why would I consider investing in sin stocks and these types of companies?
- Because my investment portfolio is a vehicle for achieving and maintaining financial independence, not for making grand moral statements.
- Consumers and investors have every right to patronize or own any legal, publicly traded business that creates jobs, pays taxes and allows citizens to enjoy their many freedoms.
- Moreover, you only need look at Afghanistan under the Taliban to see what a society unleavened by political, religion and economic freedoms looks like.
Last month French President Sarkozy made news when he said the burqua – a symbol of the repression and subjugation of women – “is not welcome in France.”
Shariah law isn’t welcome in my portfolio either. And the returns have been superb because of it.
Good investing,
Alexander Green
Editor’s Note: Learn more about The Oxford Club and its Seven Deadly Sins Portfolio.
- Sin Stocks: 2 Profitable Vice Investments Soaring Despite the Recession
- Are Casino Stocks a Gamble Right Now?
- Casinos Returning to Blue Chip Status
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18 Responses to “Investing in Sin Stocks: How to Oppose Radical Islam in Your Portfolio”
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Alexander Green is the Investment Director of The Oxford Club. A Wall Street veteran, he has over 20 years experience as a research analyst, investment advisor, financial writer and portfolio manager.
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July 15th, 2009 at 5:56 am
Is not how we invest a true reflection of our morals?
Is it not possible to profit while investing ethically?
Legal is not a synonym of ethical. What is the investment yield premium required to make sin, win over virtue?
Tough questions. Input anyone?
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July 15th, 2009 at 8:38 am
Dear Sir,
For many years Ignorance and far from TRUTH about Islam is being promoted through media including
printing means in Western Society.
Some well informed people and journalist purposely shy away from telling the whole truth about Islam and Islamic Principles.
If in Shariah, Gambling, Promotion of Alcohol,
exploitation of sex and other similar activities are forbidden and making money out of these are not promoted. These Islamic Rules and Regulations
ARE FOR THE BENEFITS OF HUMAN BEING.
For example, with Gambling, if one is honest, the
Harm,Distruction, Discruption of lives are out numbered by several hundred percent, comparing to benefit of employment and collection of taxes it creates, once hooked with this habit, there is no escape.
Would you be happy making money out of this industry knowing that every pound of your profit has contributed towards distruction of some ones life.
Alcohol, now it is agreed by some western experts
that Millions and Millions of Alcoholics around the world are suffering from A DISEASE which is leading to number of other diseases which are well known even by a ordinary person, but any doctor agrees that not using Alcohol is beneficial to health and alcohol harms the body and destroys in some cases beyond repair.
Alcohol IS THE ONLY DISEASE WHICH IS MARKETED EXTENSIVELY AND SOLD EVERY WHERE IN BOTTLES.
THERE ARE NO WARNINGS WRITTEN ON BOTTLES.
IF OTHER DISEASES SUCH AS CANCER, DIABETES, CANCER ETC WERE SOLD IN A BOTTLE,
There will be public outcry and criminal proceedings against Manufacturers and Sellers
will take place.
But not against promotion and selling of Alcohol.
Perhaps you will sleep soundly knowingly that your good fortunes are based on SELLING OF DISEASE.
Islam and Shariah forbids it, as it is against the good of Human kind.
Exploitation of SEX is DEGRADING OF HUMAN BODY.
God has created HUMAN KIND as the Supreme of all
living kind.
Perhaps it is acceptable to MR Green to make profit based on businesses
where Human Intercourse is exhibited in Public, On stage or in other places.
Degrading of HUMAN BODY is forbiden in Islam and Shariah.
If Burkah is worn by some Muslim women, it is not forced upon them but is a Tradition in some part of the world.
Who is Mr Geen or Mr Yellow to critisize such practises. It is better to Hide Female Parts than exhibiting by wearing Bikinis, Minis or Transparent clothing where some private parts are revealed causing some cases of rape or mental rape against females.
Before touching a subject the writer is well advised to gain knowledge and understanding.
A K
Reply
July 15th, 2009 at 8:47 am
Wow. Sharia law (or call it morally and ethically responsible) might not make you rich but it may give you inner peace and satisfaction that atleast you weren’t part of something which is dangerous for the society. People are scared when they read “Shria” anywhere, which is mainly ignorance. If you just take the word Sharia out, everyone will see how following these laws make the society morally and ethically responsible. Islam takes the individual and the society together, where laws that govern an individual life go hand in hand with how that individual would impact any society as well. In present times, where everyone just thinks about themselves, it is not difficult to see why Maddoff did what he did. All governed by the same self serving principles and greed for more of everything.
To Sam: I just follow one principle..money, profit, yield is not everything, there are better things in life like Happiness, family, love and satisfaction.
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July 15th, 2009 at 9:06 am
Thank you for standing up on your hind legs.
I thought , from an earlier e-mail, that you would bend to the will of people with their heads in the sand. Thus compromising on your view of what is going on in the world/market place.
I am again satisfied that 2+2=4 no matter what
Thank you
Paul
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July 15th, 2009 at 10:45 am
Have u study Shariah Laws, what is it, not all living things need freedom, all just freedom, look what had happened US economy, without moral doing business, greedy,drunk on alcohol that why freedom act could be a killer in many ways.
Reply
July 15th, 2009 at 1:05 pm
dear Sir
your are preaching for specific fund against another fund(JVS) which is founded on islamic code(shariha)
it is opveious and clear that your opposition is based on ignorance of shariha,which is the islamic law.
it is opveious and clear that you are trying to scare investor away from the fund by victimizing a great religion like islam.
you did mix between islamic shariha on one side versus taliban and the burqua ( face cover for women)on the other side .
both taliban and the burqua are very extreme and widely rejected by majority of muslim arround the world.also both are not from true islam.
taliban it is like (kkk) in the states,which doesn’t represent christianity.
you have the right to oppose the new fund ,but it should be based on true financial analysis, without preaching about islamic shariha which you are ignorant of .for your knowledge the islamic shariah (islamic law)is large and does cover all aspects of life ,fianance is one of these aspects.
mainly shariha is an ethical code and way of conduct.
you do contradict your self regarding the reasons to oppose JVS fund and invest in the unethical fund that you called it ( the sin fund)
you said that you don’t support guns but you o,k to invest in weapons factories ,you don’t support porno,alcohol,gambling,,extar ,but you approve investing in the fund(vicex).
it seems that the money is the only drive in your life irrespective of ethics which you are caliming that yourn’t opposing to.
good luck with you great sin fund,just be fair and know what you are talking about before talking and hurting others .
it is o,k to profit but ethically is the best way to do it .
regards
Rami Abeido
Reply
July 15th, 2009 at 1:10 pm
Alex,
I have been a subscriber to all of your newsletters for a very long time and thanks to you I have been very successful in my investments.
But what is the point you are trying to make in this article?
The fact that you would even link Sharia law with “Radical Islam” and the repression of women shows that you are VERY MISINFORMED about the faith of 1.5 Billion people across the world.
You also made a clear contradiction to your own writing with the following comment:
“So why would I buy these companies? Because my investment portfolio is a vehicle for achieving and maintaining financial independence, not for making grand moral statements.”
You say this and then you make the “moral” decision based on misinformation that SHARIA LAW EQUATES TO RADICAL ISLAM and therefore it is “not welcome in your portfolio”
Take the time to learn more about this issue before you let terrorists like the Taliban blind you into giving a bad name for Muslims around the world.
Islamic financial institutions currently operate in more than 75 countries with assets exceeding $400 billion. This represents a 45 fold growth rate since 1982.
Read the following articles about Islamic financing.
I wonder what your position will be when Islamic Financing because a profitable investment vehicle for investors.
Quite honestly I was shocked at your article and I hope next time you will be more careful in what you say before you compare investing ethically based on our faith to radical terrorists that don’t care about who lives and dies.
I am a Muslim and I am pretty confident that I am not the only one of your readers that practices the same faith.
http://www.investopedia.com/terms/s/shariah.asp
http://www.reuters.com/article/IslamicBankingandFinance09/idUSTRE53C19620090414
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July 15th, 2009 at 1:19 pm
Oh my goodness, you rightly disapprove of sin but you want to invest in stocks that promote it or profit form it?
What’s going on here? Aren’t you the author of the newsletter “Spiritual Wealth”?
Aren’t you seeing any contradictions between your beliefs and actions?
Regards
Steve
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July 15th, 2009 at 1:59 pm
Alex, you are a walking contradiction. You seem to have no idea that your decision to not only invest your own funds in ’sin’ stocks but to use your position as a financial ‘guru’ to suggest that others do the same has consequences not to be taken lightly. You freely admit that alcohol, tobacco and gambling are responsible for endless human misery, creating a burden on our society of disabled and dying individuals that have ruined their health and destroyed their families because of what you so blithely support, which you somehow justify by reasoning that ’someone is going to profit, why not me’? Then you have the gall and the hypocrisy to write a smarmy newsletter called ’spiritual wealth’, as if someone like you has any knowledge of spiritual matters.
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July 15th, 2009 at 4:46 pm
Alex,
Sorry, but you can’t just check your conscience at the door when you open your portfolio. Our actions are a representation of who we are and what we believe. We have a whole world of rationalists who say, “yeah, it’s wrong, but everyone can do what they want”. That only leads to more sin, which eventually leads to chaos.
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July 15th, 2009 at 7:57 pm
I am not rich, but I am happy.
We live twice and died once.
Once we are dead from this world, our deeds will be decided by the AlMighthy either we go to hell or heaven.
Only Muslims know what is good and why we are in the world. For me in my investment, is to gain and blessed, thus no sin investment but only syariah-approved funds or stocks.
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July 16th, 2009 at 9:34 am
Good day, Mr Alex Green
I believe you are heavily mistaken about the viability of Islamic-based investments.
Do you know that it is precisely the nature of conventional financing that brings the downfall of many once reputable financial institutions to their knees? Just to name a few like the Lehmann Brothers, American International Group etc. Had it not been for the national government’s rescue, many of other such institutions will fold, thus bringing about catastrophic consequences to the nation’s fortunes, in addition to that of other countries.
It is the malady of the dark side of the human emotions which bring forth his own downfall. Traits like greed, overconfidence have enabled them to conjure complex financial instruments that previously do not exist. As what the renowned investment guru, Warren Buffet once quipped ‘derivatives are the financial weapons of mass destruction’. Issues like overleveraging and investing in toxic assets arise from such negative traits. For example it has been revealed that many conventional US banks are heavily exposed to derivatives and are highly geared; Citibank’s exposure is 278 times its capital, JP Morgan Chase is 382 times, Goldman Sachs is 1056 times! Such a situation is like a bomb waiting to explode. So in the end who will suffer if such a scenario pans out? It is the investors followed by the citizens. For the Lehmann Brothers debacle, we have seen so many investors globally whose fortunes have been wiped out by such inconsiderate greed and reckless decisions made by these financiers. So my point of contention is; what’s the point of earning phenomenal rates of return when the end returns are subjected to high risk of default.
In contrast, the Islamic financing model is not based on such negative principles. How else can we explain then that thus far, none of the Islamic financial institutions have declared insolvency? No doubt that their capital reserves have reduced considerably due to the global economic crisis, but it has not come to the point where they have to literally knock on the government’s coffers.
Hence to shorten my point, I wish to ask; between these 2 options, which will most investors prefer:
(1) Earn subpar returns and be virtually guaranteed that his investments stay afloat or
(2) Earn phenomenal returns but to eventually fold up over the long term?
Please consider. Thank you…
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July 19th, 2009 at 8:44 pm
If I hear one more dope defend Islam in these comments, I’m going to puke. Why don’t you spend the same amount of energy denouncing the idiots who give Islam a bad name??? Why don’t YOU join in the fight against these idiots??? All your talk distancing yourselves from the Taliban and extremist Islamicists is purely ~empty~ and ~useless~ rhetoric. Put your freakin’ money where your mouth is — exact some justice within your own religion on these nutjob extremists. Until you’re willing to agree to have these crazies killed/captured, your words will continue to fall on deaf ears. If I were you, I would not stand too close to any of them — you might become collateral damage.
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July 19th, 2009 at 9:20 pm
A really racist, unprofessional and inexcusable title to your article. You could have received the same readership with the Sin Stocks title.
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July 29th, 2009 at 10:52 am
if one makes million dollars by looting or killing Mr.Green and get benefited,will mr.green happily allow him to do so?surely not.so green,don’t be hyppocrite.wo to that money which is earned by destroying lives and families.Islam cares social values more than individual interest hence there is compulsion of JAKAAH and SADKAKHAIRAT in Islam.islam teaches Don’t eat fullstomach when ur neighbour is hungry and neighbourhood means 40 houses on ur right,left,front and back.mr.green,u also will die one day like all others so prepare to face Allah with bright face and not with criminal and dark face.
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July 30th, 2009 at 12:30 pm
mr.green,u give example of afganistan and taliban.why u don’t mention of malaysia prospering with islamic financial system and of saudi arabia which is like heaven both socially and financially due to shariah laws and sharia based economy with least crime rate in the world.and the best way of earning is ur own business which is Sunnah of Prophet{pbuh}which gives more profit than anyother resource.so green,first get knowledge about islamic financing from ABC then only comment otherwise u will be subject of hatret and disgrace for which u should blame urself alone.
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August 24th, 2009 at 2:41 pm
Man, this article really pulled the extremists out of the woodwork. I agree with post 18 – if all these Islam-defenders would protest as vociferously against Islamic extremists, I could take their self-righteousnous a bit easier, and I would not regard Islam as a religion that fosters extremism and promotes hatred. Sure there are loonies in western culture, but we seem to have a lot less than are found in the Middle Eastern Arabic countries. If you hate our society so much, why do you live here? Why not integrate with our customs and norms? We don’t require you to ignore your heritage, just respect others and the society you chose to be a part of.
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September 1st, 2009 at 7:12 am
reply to post22(Ed):don’t u think ur own act is against what u r telling?HYPPOCRICY!u advice all to respect others and u urself doing exactly opposite.u criticise islam and islamic countries without knowing facts.islamic countries are with least crime rates while ur nations’ crime u check figures from ur own statisticians.islam teaches of humanity,even to be kind with animals.there r several verses in quran against extremism,riots and harming innocents.so extremists are not muslims as per definition of quran and hadith.so,first study islam by pure heart without prejudice and then only comment otherwise the verse of quran will fit for u-KHATAMALLAHU ALA KULUBIHIM ALA SAMHIHIM—and also SUMMUM BUKMUM UMYUN FAHUM–the dumb,the deaf and the blind who can’t see the facts,who can’t hear the truth and who can’t understand very simple and open evidences—
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