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Stock Market

Would you invest in Ashley Madison?

February 21st, 2011 by

Sin stocks and the business of naughty

 
 
 

Bad boys, trashy magazines, junk food. Why is it that the things we know are so wrong for us are still so damn appealing?

Whatever your shrink might tell you, the world knows that there is money to be made on our collective human weaknesses. The Toronto-based online adultery site AshleyMadison.com was recently featured as a cover story in Business Week magazine. One year ago, the company attempted an IPO in Canada and failed when the investment bankers got cold feet. Yet the company is earning profits hand over garter belt, has an aggressive growth plan and sees a future possibility of going public in the US.

Analysts say that so-called "sin stocks", companies that trade on the vices of their customers, are often some of the most lucrative to investors. Companies that produce tobacco, alcohol and gambling often have large barriers to entry. They face high regulatory hurdles, large capital expenditures and difficult marketing and advertising challenges. As a result, when a company does succeed in overcoming these barriers, they often have little competition and can therefore command high prices and a captive market of buyers for their products.

These companies are often spoken of as being "recession-proof". Think about it. You have a bad day at the office, or watch your RRSP get decimated in a sudden market turn. What's your first reaction? "Man, do I need a drink/cigarette/lottery ticket". We're not sayin', we're just sayin'.

But perhaps one of the nicest features of these naughty businesses is that they tend to pay out lovely dividends to their shareholders. And dividends are a girl's best friend.

So when you find yourself sipping a Bud Light Lime or a Ketel One martini, or rummaging around for that secret pack of Marlboros you keep hidden in the kitchen drawer (we won't tell!), you might want to think about which publicly traded companies you are supporting. And when that high-rolling hubby of yours comes home from his boys weekend in Las Vegas, you might also start thinking how he can use some of his winnings on a piece of the bigger action - Wynn Resorts and all the gaming companies that make those slot machines are also publicly listed.

So what's a fine, upstanding investment-savvy girl to do? We leave it to you and your financial advisor to decide what has a place in your portfolio. If it helps you sleep at night, know that for every sin stock there is an ethical company that would love to have a few of your investment dollars.

Let your conscious be your guide honey, then go forth and profit.

 

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