Between February 2009 and February 2010, RICK grew from
about $3 to about $15. RICK is the stock
symbol for Rick’s Cabaret International, a chain of “gentlemen’s clubs” (an
expression which sounds like the ultimate irony, but that’s not my point
Between May 2009 and April 2010, LZB grew from about $2 to
about $13. LZB is the stock symbol for the ultimate reclining-chair maker,
Both stocks are considered as “vice stocks.” Vice stocks are kind of the opposite of
virtuous stocks, which are favored by the concept of “Socially Responsible
One of the reasons vice stocks fare so well is that people
don’t suddenly quit their bad habits during a recession, - on the opposite. People want to forget bad times and tend to
drink and/or smoke and/or gamble more.
In fact, a Merrill Lynch study shows that alcohol, tobacco and casino
stocks have greatly outperformed the market throughout all past recessions.
Two studies, one from Yale and one from Princeton, show that
vice stocks outperformed virtuous stocks in 35 out of 37 years. One of the reasons found is that many of the
businesses involved benefit from high barriers to entry, because of high taxes
and strict regulations.
So what are vice stocks?
They are recession-resistant stocks that often perform
extremely well, partially because of the constancy of human vice. One financial newsletter recommends (or has
recommended) such securities in what they call their “Seven Deadly Sins
Portfolio,” which includes:
- Gluttony, with stocks like
Diageo, the world’s largest spirit maker, based in London.
- Greed, with stocks like
Goldman Sacks (the investment bank) and Wynn (the casinos).
- Sloth, with stocks like
La-Z-Boy, DirecTV and video games companies.
- Pride, with stocks like
tobacco giant Philip Morris.
- Envy, with stocks like
Tiffany’s and Blue Nile.
- Anger, with stocks like
gun-maker Smith and Wesson.
- Lust, with stocks like
Playboy and Rick’s Cabaret Intl.
Meanwhile, SRI favors companies that make a profit while
making a positive contribution to society.
They must respect certain concepts such as:
- respect for the
- good employer-employee
- respect for human rights –
- On the opposite, SRI shuns
- whose business practices
and products are harmful to individuals, the environment and/or
- allow unreasonable
- contribute to pollution and
- have questionable labor
- allow gender and/or racial
So which ones are better, vice stocks or virtuous
stocks? Instead of a black and white
answer, here are a few questions:
- If you invest in a
timberland company (i.e. that grows trees), like Rayonier or Plum Creek
Timber, does that make you a virtuous investor? Did you ever wonder how cigarette
packaging is made? Or what Playboy
is printed on?
- If you invest in Ford or
Toyota, which make cars that cause pollution, does that make you a bad
- If you invest in a bank,
the epiphany of greed, does that make you a greedy person? How would you buy a car, a house or a
veterinary clinic without a bank?
- If you refuse to invest in
La-Z-Boy but buy their furniture, or in a video game company but use their
games, or in Smith and Wesson but own a gun, does that make your behavior
- If you invest in a mutual
fund, directly or through a 401 (k), are you certain that you don’t own a
few vice stock shares?
What I am trying to say is that it must be really, really
tough to find companies and executives that are totally irreproachable, or
companies that are truly 100% “socially responsible.”
The Forum for Sustainable and Responsible Investing (www.ussif.org) claims that “a growing number of
academic studies have demonstrated that SRI mutual funds perform competitively
with non-SRI funds over time.”
That may be true, but vice stocks investors claim to
outperformed virtuous stocks, so we’re not comparing apples to apples here.
So what’s an investor to do?
Ultimately, only you can decide what you feel comfortable investing
Investing in vice stocks does not mean investing in lying,
steeling or cheating. These are perfectly
legal and sometimes highly controlled companies (whether or not you and I like
their products is a whole different subject), who employ many respectable
employees who need to make a living, pay their rent and raise kids. If you make money in vice stocks and put your
kids through school or improve your odds of retiring one day, is that such a
Phil Zeltzman is a mobile, board-certified surgeon near Allentown, PA.
His website is www.DrPhilZeltzman.com. He is the co-author of “Walk a Hound,
Lose a Pound: How You and Your Dog Can Lose Weight, Stay Fit, and Have Fun
* Of course neither the author nor ImproMed endorses any of
the securities mentioned. In addition,
you may have heard that past performance is not a guarantee of future
results. Finally, the author would like
to reassure his faithful readership: he doesn’t indulge in any of the vices