Let's Talk About Vice

In socially responsible investing, it's pretty well established that alcohol, tobacco, firearms, and gambling stocks are off the table. They're commonly known as "sin stocks."

Some investors embrace sin stocks; cash gushes when people pay for naughtiness, and even though addictive products may cause harm to those who use them, we all know that the reality is that many people do choose to use them.

Government isn't even above capitalizing off such companies. "Sin taxes" may seem like a negative incentive, but the truth is, state governments can generate some mean revenues from their sale. Prohibition ended during the Great Depression because alcohol was obviously in great demand and legality led to tax revenues. State lotteries are another good example of government's love-hate relationship with sin.

There are a lot of ways individuals can strike out against sin stocks and vice-filled industries -- giving investors and policymakers less means to profit from them. One can avoid investing in these companies, and avoid using their unhealthy wares.

However, when it comes to vice and harmful outcomes, maybe investors should rethink their position on what sin stocks really are, especially given the recent drive to push certain foods and drinks into this category. In this day and age, maybe the real sin stocks aren't companies whose products customers abuse by choice, but those whose products abuse their customers.

The sin squad takes on sugar
It's no surprise that many people find fast-food joints like McDonald's (NYSE: MCD  ) reprehensible; public pressure from individuals, health organizations, and politicians has been directed at companies like McDonald's for years.

Companies like Mickey D's have also been responding. For example, McDonald's now has Happy Meals with fewer fries and with apple slices, and it posts calorie information on its menus. You don't have to buy a Big Mac and fries, either; McDonald's also offers healthier fare such as yogurt, side salads, and fruit smoothies.

The anti-sugar and anti-junk-food sentiment is spreading, though. Soda giants like Coca-Cola  (NYSE: KO  ) and PepsiCo (NYSE: PEP  ) both face increasing heated criticism over their servings of "sugar water," helping America grow its obesity problems (and related health problems) into an epidemic.

Much was made about Coke's recent anti-obesity ads, which have received a cynical response. Although Pepsi is working to increase its healthy food offerings (and Pepsi's product portfolio includes everything from Doritos to Quaker Oats to Sun Chips), it's still known for its hated "sugar water."

At some point, though, the discussion about vice has to include how important it is to allow consumers to make educated choices. Maybe ignorance of risks matched with companies' fighting to hide the risks of their products is the most sinful thing.

Personally, I don't buy that fast-food stocks are "vice stocks" per se. There's a point where we take judgment too far.

Don't worry, though; I haven't lost my edge. I believe there are industries where we don't judge nearly enough.

The customer abusers
I've been thinking of a few other industries that should be viewed as vice-ridden. I'd argue that these companies prey on people's hopes for security and therefore may be the most sinful of all.

Financial companies: Socially responsible Appleseed Fund broke from the pack when it blocked too-big-to-fail banks from its investment portfolios after the financial crisis. Financial companies took on so much risk that they threatened the well-being of our entire economy. They privatized profits and socialized losses. A recent Bloomberg article points out that not only is "too-big-to-fail" still out there, but that huge companies including JPMorgan ChaseBank of America, and Wells Fargo have grown since 2007 and may even be "too hard to fix."

Meanwhile, most of these huge companies were customer abusers on a good day, and as a simple matter of policy. Consider banking products that have had fees hitting customers left and right (even as customers had less actual contact with human beings as processes became increasingly automated). Mull the idea of subprime lending and high interest rates for the people who can afford it the least. This is usury, and, technically speaking, it is considered a sin.

For-profit educators: If you've seen recent ads from one of the most well-known for-profit education firms, Apollo Group's (NASDAQ: APOL  ) University of Phoenix, you might feel inspired to get a degree. Just do a search for its "Let's Get to Work, America" ad campaign.

Unfortunately, for-profit schools have several big problems. One of them is that they leave students in massive debt; consumers may be paring down their credit card debt, but they're piling on the student loan debts at a higher rate. Meanwhile, many of the for-profit education companies don't have great academic reputations.

In a world where high unemployment rates means no college graduates are even close to a "guarantee" of employment (an idea that was hogwash to begin with), the return on investment for students who pile on the debt using these companies is likely abysmal.

Apollo Group is one of the companies that has received plentiful scrutiny for use of federal funds, lackluster spending on student education, and the number of its students that are drowning in debt and could default. But here's one place it hasn't cut corners: Forbes contributor Igor Greenwald reported on its cushy retirement package for founder and chairman emeritus John Sperling despite all the bad press.

The capital that's often squandered on for-profit education debt would be better used for entrepreneurial-minded folks who not only help the enterprising, but also could boost opportunities for other unemployed people. As for the interest rates on student loan debt, see: usury.

Sin is risk
I have more ideas for vice-ridden industries that take advantage of their customers in ugly ways -- often preying on people's desire for security -- but I'm out of room for today's column. A week from today I'll follow up with a few more industries out there that I believe should be thrown into the vice category, and will monitor how readers feel about the issue.

Until then, what do you think are the most sinful industries? Are fast-food companies and soda purveyors really that bad, or are some industries worse, as I contend? Add your thoughts to the comments box below; I want to hear them. After all, "the wages of sin is death," and sin stocks' risks can hurt portfolios over the long term. Part of the "sin rush" is risk, after all, and that's a good thing for investors to avoid.

More advice from The Motley Fool
After making investors rich in 2011, McDonald's has been one of the worst-performing blue chip stocks of 2012. Our top analyst on the company will tell you whether you should be worried by this trend, and he'll shed light on whether McDonald's is a buy at today's prices. Click here now to read our premium research report on the company.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (13) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 06, 2013, at 4:14 PM, quiltDesigner wrote:

    monsanto

  • Report this Comment On February 07, 2013, at 12:01 PM, gskinner75006 wrote:

    Sin is just a matter of perspective. The only thing I see here is the usual looking for someone else to blame because I can't walk past a McDonald's without stuffing my face. I can't figure out anything to drink without the help of Coke and Pepsi. I can't get an education from a community college, etc... The real sin in our society today is the parents that did not teach values to their children and filled them with it's always someone else's fault for all you woe's in life.

  • Report this Comment On February 08, 2013, at 12:56 PM, ejazz2095 wrote:

    No discussion about sin stocks would be complete without mentioning Monsanto. Most everyone knows smoking etc is bad for you. Few people realize how bad Monsanto's products are for them.

  • Report this Comment On February 08, 2013, at 1:16 PM, crca99 wrote:

    If it tweaks a person's pleasure centers with a potency that overrides logic, then it could be a sin product. How's that for nutshell analysis?

  • Report this Comment On February 08, 2013, at 1:21 PM, crca99 wrote:

    BTW, banks..."privatized profits and socialized losses" is memorable phrase.

  • Report this Comment On February 08, 2013, at 1:34 PM, TMFLomax wrote:

    Thanks for the thoughts everybody. Agreed on the Monsanto assessment.

    Gskinner, I agree with the personal responsibility element inherent in this argument.

    crca99, I love the phrase but I didn't actually coin it. It may have been my colleague Seth Jayson, I know I heard it from him back when the financial crisis hit. It's a perfect way to put it (and it was certainly not virtuous behavior on part of the financial companies).

    Thanks for the thoughts!

    Alyce

  • Report this Comment On February 11, 2013, at 10:17 AM, jbcerebral wrote:

    Great article, Alyce. Keep diggin' :-)

  • Report this Comment On February 11, 2013, at 11:59 AM, jpanspac wrote:

    I'm still looking for a fund that boycotts retailers who put up their Christmas decorations before Thanksgiving.

  • Report this Comment On February 11, 2013, at 4:46 PM, TMFLomax wrote:

    Cerebal7, Oh, I will... :)

    jpanspac, you may be joking, but I think that's a pretty awesome fund idea. I mean REALLY, that is WRONG. ;) (It was particularly bad this past year, I think they put them up before Halloween actually... Like I said, WRONG!)

    Thanks!

    Alyce

  • Report this Comment On February 12, 2013, at 10:33 PM, dbhendrix wrote:

    Firearms are sinful????

    How about the voluntary tax on poverty and ignorance most of us call the lottery?

    Or an industry that sells "entertainment" that promotes hate and violence?

    and one that takes advantage of their customers by selling them a refund anticipation loan

    or holds your NSF check until next payday

    or sells securities that are misrepresented and backed with overvalued collateral

    or Sports Illustrated swimsuit issue

    I'm just asking

  • Report this Comment On February 13, 2013, at 8:07 AM, cluckgochicken wrote:

    A lot of good comments here, I agree about Monsanto, the food industry needs scrutiny, as well as energy companies, mining companies. All these industries can have an impact on the environment that could last for generations.

  • Report this Comment On February 13, 2013, at 10:45 AM, TMFLomax wrote:

    dbhendrix,

    I actually did mention banks and lotteries in the article; I think I lost you at the word "firearms," but traditionally weapons have been "vice stocks" and blocked from socially responsible portfolios. However the thrust of the article is to actually think about the idea of vice for a more modern age. (And I have noticed more people are sensitive about the concept of firearms here lately.)

    I'm sorry I totally forgot about the Sports Illustrated swimsuit issue!

    cluckgochicken,

    Also great additions/thoughts. I think the energy and mining companies could take up a whole article on negatively impacting future generations as well as our own (very sinful), so I'm sure that one will be coming up too!

    Best,

    Alyce

  • Report this Comment On February 14, 2013, at 3:56 PM, TMFLomax wrote:

    Here's the revisit article, touching upon Monsanto, since many of you mentioned it:

    http://www.fool.com/investing/general/2013/02/13/lets-talk-a...

    Again, I think the energy/mining companies could make up a long article on their own. And I forgot the Sports Illustrated Swimsuit Issue again. Maybe in some other article. ;)

    Thanks for the thoughts!

    Cheers,

    Alyce

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2240097, ~/Articles/ArticleHandler.aspx, 9/14/2014 10:33:50 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement