|December 12, 2008
Investing Returns: Virtue vs. Sin
by Ron Robins*
I was recently asked to appear on a
major business television programme to make the case for
the virtuous, ethical investor. And an opponent was to
appear to make their case for ‘sin’ investing.
Unfortunately, the debate never occurred as the fellow
who was to defend sin investing could not be pinned down
for a show time.
However, thinking about the show spurred me to examine
this subject and as to why I feel so strongly that the
future belongs to the ethical, and shall I say, virtuous
Of course the definitions of what actions are virtuous
or sinful vary widely. But, for the sake of simplicity,
I believe that what clearly enriches and enhances life
is virtuous and that which creates death, suffering, and
harms society, is sinful.
Tobacco—the classic sin industry
Consider the case of tobacco. In the past, tobacco was
often considered a good stress reliever. In fact, that
is still how it is sold today in some parts of the
Not long ago tobacco supporters reasoned that society
benefits financially from its use. Smokers pay a lot
more in taxes, and since they die earlier, do not make
as big a drain on health care costs as someone living a
longer life. Today though, we know the toll of this
product on human life and its costs to society are
immense. And therefore most countries are making
substantial efforts to curb its use.
So even though tobacco companies continue to increase
their profits, pay handsome dividends, and have held up
well in these difficult markets, their future remains
Ethical investors consider wider effects of investing
Ethical investors mainly want two things. Firstly, they
invest for profit. Secondly, they want their investments
to create a holistically beneficial environment for
themselves, their family, community and society.
Furthermore, ethical investors understand that when they
invest in a company, (or many companies such as in a
mutual fund, unit trust, ETF, etc.), they share
in the responsibility for the activities of those
companies as well as participate in the outcomes
of corporate actions. Thus, their personal and spiritual
development can be affected by what they invest in.
And concerning investing returns, most long-term ethical
and socially responsible investing (SRI)
studies generally conclude that there is no
significant difference when compared to investing
conventionally. Some actually show that you might do
even better when applying your personal values to
Now what about comparing returns of investments
specifically deemed virtuous or sinful? Well one study
published earlier this year by researchers at Germany’s
University of Regensburg did just that. They found,
“… that the risk-return characteristics of sin stocks
are superior in comparison to regular stocks as well as
socially responsible stocks.” Now I am not at this
time going to critique the study. You can
read it yourself and draw your own conclusions.
But what I will say in regard to this study’s
findings—and of course ‘holes’ can be found in it as in
any study—is that ‘past performance is not an indicator
of future returns.’ This is particularly poignant when
you consider the following points.
Countries around the world are creating enormous
economic stimulus and investment packages that often
focus on green energy and infrastructure. US
President-elect Obama is promising an extraordinary
package in this regard. A recent
Reuters article quoted many ethical
investment professionals in saying that such investments
will be a big boon to ethical investment returns.
Furthermore, with runaway health care costs, societies
everywhere will focus on reducing the principle factors
contributing to ill health. Two key health concerns
revolve around tobacco and excessive alcohol
consumption. Therefore, governments are likely to
further raise taxes on these products to reduce their
use and thereby attempt to lower related health care
Above all, I am of the opinion that we are evolving into
a society that is caring
deeply about ecology and saving the planet, about
relationships, peace, and social justice, about
self-actualization, spirituality, and self-expression.”
This quote comes from sociologist
He is describing the ‘Cultural Creatives’ whose values
he found in his sociological research. These values are
increasingly coming to the fore in societies everywhere.
In this environment, virtuous industries are likely to
flourish much more than those of the sin variety.
Incidentally, have you seen how those gaming and casino
stocks have been doing lately? As of December 12, the
year-to-date results of the big US gaming fund, the
Ladenburg Thalman Gaming and Casino Fund, was down 70%!
Was not gaming supposed to be recession-proof?
The future will indeed be different from the past. And
so are likely to be investment returns, which I believe
will favour virtue over sin.
Ron Robins, MBA, is founder, Investing for the
Huntsville, Ontario, Canada. He advocates, teaches, and writes
on the subject of ethical investing. To contact him,
to Ron Robins or call 705-635-3034.