Sin Stocks Can Make You Rich

One of the most controversial topics many fund managers face is the decision to invest in "sin stocks." Some investors even refuse to hold shares of companies operating on the other side of their moral spectrum…

That's why tobacco, alcohol, and gambling ― along with pornography, strip clubs, and guns ― are all considered to be "sin stocks."

Historically, socially responsible investors (or SRIs, as they're sometimes called) forgo potential profits from companies like cigarette manufacturers and alcoholic beverage producers, no matter how lucrative they are.

This movement is coming into light more often as more investors view traditional market powerhouses like Big Oil's Exxon Mobil and Chevron as sin stocks. Even coal miners and stem cell researchers are beginning to feel the wrath…

However, just because some investors are steering clear does not mean these companies are just going to go away. Historically, sin stocks thrive in generally poor economic conditions…

You see, most people think of vices like drinking, smoking and gambling as discretionary activities. Drinkers, smokers and gamblers don't. As we've seen over the past few months, companies that aren't selling essential products or services are falling out of favor. Take Panasonic, for example. The company's largest source of revenue comes from TV and other electronic sales.

Since no one is buying these products during our current recession, the company posted its worst third quarter in years. Investors fled, sending shares down more than 60% from their 2007 highs.

But drinkers, smokers and gamblers ― the ones actually spending the money on these vices ― don't view these habits the same as someone would a TV. In fact, it's not even hard to imagine recessions like ours causing more drinking, smoking and gambling.

The fact remains that most recessions are great for investing in alcohol, tobacco and gambling. Taking a quick look at our last downturn (2000�2002), it's clear how lucrative these stocks can be.