Stock Sector Focus: Can Sin Pay Off?

Alcohol, tobacco,and gaming stock sectors are called the triumvirate of sin. For investors, it can pay be sinful.
3 min read
Photo by

“There is no sin except stupidity,” Oscar Wilde wrote in “The Critic as Artist.” Proponents of expanding broad-based portfolio research to include alcohol, tobacco, gaming, and other “sin” stocks would agree. That’s because they largely believe that smart investors will tend to leave personal feelings toward these industries—for or against—out of their stock-picking.

“Sin stocks are substantially tilted towards value, bear less market risk with an average beta below one, and are prone to momentum relative to socially responsible stocks,” argue two professors from the University of Regensburg in Germany who’ve studied these industries and their performance in the U.S. and U.K. The bottom line in Sebastian Lobe and Christian Walkshausl’s study, recounted in “Vice Versus Virtue Investing Around the World,” is that sometimes it can pay to be sinful.

“Sin” stocks are broadly considered the companies tied to socially unacceptable behaviors of immorality. That’s a sweeping generalization, of course, because drinking vodka, smoking cigarettes, and playing blackjack at a casino might not be considered debauchery by many. Still, stocks in the alcohol, tobacco, and gaming sectors are often referred to as the “triumvirate of sin.”

Immoral Outperformers?

For proponents, these sectors are considered less risky (they do have risks, of course) than socially responsible investing (SRI), which screens out the triumvirate as well as other sectors such as adult entertainment, animal testing, contraceptives, weapons, fur, genetic engineering, nuclear power, and even meat. This vetting process is also referred to as “norm-based negative screening.”

Why, according to historical returns sited by Lobe and Walkshausl, have they outpaced SRI and even some indexes? There are a number of explanations, but the two most popular, research-supported reasons are actually pretty simple: they’re typically recession-proof and are neglected by the analyst and institutional investment communities.

Let’s start with recession-proof. Vice sectors command a steady, addictive demand for their goods and services no matter what’s going on in the economy, says Dan Ahrens, the fund-manager-turned-author of "Investing in Vice: The Recession Proof Portfolio of Booze, Bets, Bombs and Butts."

Recession-Proof Addictions

If you’re hooked on smoking, alcohol, or gambling, it’s not likely that a drop in wages or a hike in prices will slam the brakes on your choice of vices. Of course, economic strength may dictate if consumers reach for top-shelf options or more pedestrian pours (Read our feature on "Premium Hooch"). 

And though government intercession with tobacco—for instance, slapping on higher sales taxes aimed at deterring use—does force some smokers to quit, tobacco companies may have pricing power that tends to help keep their margins intact. What’s more, publicly held alcohol, tobacco, and gaming companies tend to be global powerhouses that limit the competition’s entry points.

Inattention can play an influential role in the numbers game. “Sin stocks also have higher expected returns than otherwise comparable [consumer] stocks, consistent with them being neglected by norm-constrained investors and facing greater litigation risk heightened by social norms,” according to Harrison Hong, a Princeton University professor and Marcin Kacperczyk, a professor at the University of British Columbia. Their study, “The Price of Sin: The Effects of Social Norms on Markets,” updated in 2007, is thought by some to be modern-day benchmark on sin-stock investing.

Many institutional investors will avoid stocks or sectors that may offend a group, or even one, of their shareholders. Analysts, recognizing this, don’t take the time to dig deeply into the fundamentals of some sin stocks. The result can be thinly traded shares that might be more resistant to broader-market fluctuations and could be underpriced. Stocks with a beta below one are less risky because there’s less volatility. If no one is buying or selling a stock, the share price isn’t like to move wildly when the markets do. Keep in mind that can also limit your own entry point for an “attractive” buy.

Like any good stock approach, do your research before sinking money into a particular company or sector. Otherwise Oscar Wilde has you pegged: stupidity is the real vice in valuating stocks.

Comfort Level

Use Stock Screener to sift through sector candidates. Log in at > Research & Ideas > Screeners > Stocks. 


Do Not Sell or Share My Personal Information

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Third parties named above are separate from and not affiliated with TD Ameritrade, which is not responsible for-their services, polices, or findings. 


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. © 2024 Charles Schwab & Co. Inc. All rights reserved.

Scroll to Top