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What Are Sin Stocks? Investing in “Vice” Behaviors

By Brian O'Connell · August 10, 2021 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Are Sin Stocks? Investing in “Vice” Behaviors

“Sin stocks” are those stocks that come with some cultural and lifestyle baggage that may not appeal to investors who take an ethical stand on the company their portfolio keeps. Proponents of these types of stocks point to the fact that some studies show that many sin stocks have, historically, performed better than their more “wholesome” market competitors.

Interested? Here’s the deal on sin stocks (also known as vice stocks), along with a close look at what issues they bring to the table and what benefits they may bring to investor portfolios.

What Are Sin Stocks?

Sin stocks take the definition of “sin” (i.e., an “immoral act”) and apply it to financial securities. The term “sin stock” refers to stock in companies that engage in businesses and markets that cultural forces may deem as unethical.

There’s actually no formal sin stock list, and many individuals and institutions have their own idea of what constitutes a sin stock. This may include different types of investments in one or more of the following categories, which include some of the largest corporate brands in the world.

Gambling

This sector includes big name companies, including Churchill Downs, DraftKings, MGM Resorts, Las Vegas Sands, and Flutter Entertainment.

Alcohol

The adult beverage market includes staples like Boston Beer, Anheuser-Busch InBev, Molson Coors Beverage, Constellation Brands, and Willamette Valley Vineyard.

Tobacco

This sector includes companies like Philip Morris International, Turning Point Brands, British American Tobacco, Imperial Brands, and Universal Corp.

Weapons and defense

The weapons and defense market – think firearms and military arsenal providers – includes Raytheon Technologies, Lockheed Martin, Smith & Wesson Brands, Boeing, and Northrop Grumman.

Sex and adult entertainment

This sector includes Playboy, Private Brands, Rick’s Cabaret International, New Frontier Media, and FriendFinder Network.

Fossil Fuels

This sector includes companies such as Royal Dutch Shell, Exxon Mobil, BP PLC, Chesapeake Energy, and HollyFrontier.

Recommended: How and Why to Invest in Oil

Pros and Cons of Sin Stocks

Like any stock market category, vice stocks have their upsides and downsides. Here’s a closer look:

Potential Pros of Sin Stocks

The “shun” factor. With many investors turning up their nose at sin stocks, other investors can wade in and potentially get good value on vice-themed portfolio plays. Stocks that some investors avoid could end up undervalued.

Sin companies may have less competition. While every business has its own unique identifiers, the stigma of being viewed as a company that profits on vice may thin the competitive playing field. Companies in sectors with less competition allow those companies that do operate in a “vice” sector to have products and services with higher demand and fewer barriers to robust profits.

Recession resistance. Are sin stocks recession proof? Not completely, but they may perform better than their peers during a downturn. No matter what the economy is doing, for example, people may down a pint at the pub or puff a quality cigar. Even if those habits aren’t for you, you may be able to profit from other people’s habits.

Recommended: Investing During a Recession

Potential Cons of Sin Stocks

Ethical qualms. Science shows that specific sin stock products like cigarettes, liquor and gambling may create health hazards that lead to severe illness and even death. Investors in those sectors may worry about the ethics of profiting on habits that lead to negative physical and mental health consequences.

Subject to cultural or regulatory shifts. While they may be less prone to recessions, some sin stocks may carry investment risk due to changes in the regulatory or cultural landscape. For example, increased gun control measures could decrease the value of firearms manufacturers while expanded legal betting could increase the value of gambling stocks.

Sin Stocks vs Angel Stocks

Sin stock sectors often sit on the opposite side of the spectrum from environment, social and governance (ESG) stocks, which have risen in prominence over the past 20 years, as investors look for ways to align their portfolio with their values.

Recommended: 27 Potential Ways to Invest in a Carbon-Free Future

Performance-wise, the edge may go to sin stocks, however, which have performed as well or better than ESG stocks. It’s worth keeping in mind that “sin stock” is a subjective term. One person’s sin stock may be another person’s perfectly reasonable stock.

As an extreme example, one of the sins listed by religious historians is sloth. Under that definition, an investor in streaming services may be labelled as a sin stock investor by engaging with companies that contribute to sloth, via long stretches of binge-streaming.

Or, one investor may view defense stocks as a virtuous investment, since these companies build products that help defend the United States from potential enemies. Another investor may view defense stocks as sin securities, since the companies produce tanks, guns and helmets wind up on battlefields where soldiers are killed or wounded.

How to Invest in Sin Stocks

If you invest in broad index funds, you likely already have some exposure to sin stocks, since they’re traded on all the major exchanges. If you’d like more exposure to sin stocks, you can evaluate individual stocks for potential investment, or purchase shares in a thematic ETF in a sector such as gaming or energy more diversification within that field.

Recommended: Why Portfolio Diversification Matters

The Takeaway

While some sin stocks have delivered outsized returns for investors, the decision as to whether you should invest in a specific sin stock or sector is a personal one. You’ll want to consider your own ethics and values as well as the performance of the stock and how it could fit into your overall portfolio strategy.

Whether you decide to put your portfolio into sin stocks, angel stocks, or investments that don’t meet either definition, a great way to get started is by opening an account with the SoFi Invest® online trading platform. You can use the SoFi app to invest directly in stocks, exchange-traded funds, and crypto currency.

Photo credit: iStock/kupicoo


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