Whenever the markets are in a free fall, investors
typically turn to the safe securities like the
treasury bonds, hard assets and more
optimistic sectors like pharma and FMCG. But, there are some
`not very popular' sectors of the economy that often have
a tendency to hold up even during gloomy economic conditions. Called "Vice stocks", this group includes
stocks of companies that focus on alcohol, tobacco,
gambling, and defense. Other vice stocks include scrips of
weapon makers, defense contractors, etc. Over the past one
year, major indices like the NYSE have been falling
and inflationary fears are still abound across the
world. Conventional wisdom and historical performance
shows that vice stocks perform no matter how the other
markets are performing.
The reason cited for the same is that
tough times may compel people to cut down spending, but will
not stop gamblers, partygoers and smokers from
satisfying their vices and addictions. In fact, economic
instability gives them even more reasons to indulge in these vices.
As people come under financial pressure and try to
reduce spending, there always seems to be enough to spend and
to find solace to their woes with vices. That makes vice
stocks a safe bet and these stocks are often touted as
great investments during economic downturns. A study
by Merrill Lynch analyzing the performance of the vice
stocks during the recession periods since the 1970s, revealed
that the earnings growth for the vice group was 25% more
than that for the market as a whole. |
