Book Review: Stocking Up on Sin by Caroline Waxler
Posted by admin on August 15, 2007 in Investment Products
This is a timely review given how violate the stock market has been recently. Research has shown that in recessions and economic downturns, the best sector to invest in is the “sin” industry (more on what this constitutes later); people drink and smoke no matter what the economic cycle and probably do more of it in bad times. To this end, Caroline Waxler, a financial journalist, wrote about the advantages of investing in sin in 2004 (which, assuming it took her a year to write the book, would be in the middle of the tech melt-down). A quick look at the Vice Fund shows that this pattern appears to be holding up. As of yesterday, the Vice Fund was up 6.68% this year- not a bad return. If you add back in the MER of the fund, the Vice Fund would be returning several % points more than the S&P 500 and TSX this year (as a side-note, check out the banks- many of them have been unfairly punished during this correction).
The book can really be divided into three sections. The first section argues that the sin industry is one of the best defensive industries to invest in and is recession proof (consumer staples are supposed to be recession proof as well but margins tend to be smaller on a loaf of bread than a bottle of gin). To cite one of her examples, the S&P 500 was down 33.01% for the 3 year period prior to June 30, 2003 but the Vice Fund was up 66.36% during the same time.
Waxler then tackles the issue that we all face when we invest in sin. Do we sleep easy at night investing in booze, smokes, sex and drugs? It would be unfair to characterize Waxler’s attitude toward the ethical dilemma of investing in sin as indifferent but she certainly shrugs off any concerns about adding to the coffers of big tobacco, the sex industry and the weapons industry with relative ease. Of course, if she wrote that investing in sin is morally reprehensible, she wouldn’t have much of a book would she? Her arguments are manifold. From an investor perspective, investing in ethical funds makes one sleep better at night but you would be hard-pressed to put food on the table with its returns and high-fees to manage these funds. Waxler also raises the definitional issue of what constitutes sin. Is taking viagara a sin? Then, you shouldn’t buy Pfizer. It is a bit of a slippery slop argument because some religions argue that making money from interest is a sin and, ergo, all banks are sin stocks. Nonetheless, Wexler has to sell her thesis somehow.
Using the Peter Lynch principal of investing in what you see, Waxler then argues that the sin stocks you may want to invest in are right in front of us. Are people drinking more? Buy alcohol companies. Have taxes on cigarettes fallen? Buy a tobacco company. Has a war started? Time to load up on defense industry stocks. Subsequently, in the last large section, she analyzes each sub-sector in the sin industry, citing pros, cons, risk factors and best picks. Her sin sub-industries are:
- Tobacco
- Gambling
- Weapons/Defense/war
- booze
- sex
- drugs
The book is a good how-to guide on investing in this industry. Her thesis is not exactly original but she presents it in a well-thought out manner. However, the book is a little mechanical in its reading. It reads very much as an instruction manual- the book could have used more boxes and charts to break up the copy which is dense at times. If you want a paint by numbers guide to investing in sin, this book hits the spot. If you borrowed it in the library because it was the last personal finance book not published before 2000, it makes an above average read but certainly not a page turner.
My take: tastes great but not that filling.
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