Home » sin stocks » Sin Stock Due Diligence: How Might Legislation/Regulation Impact My Holdings?

Sin StocksAll investors should do due diligence on the stocks they plan to buy. And on sin stocks, investors need to ask some additional ques6tions. This post is part of an occasional series on how to do due diligence on sin stocks.

“If I’m holding a sin stock, and the law changes, how might my holdings be impacted?”

This is a common issue that people who hold sin stocks will face from time to time. Changes in the past have included changes to how companies can advertise products, how products or services must be sold, how regulated the industry is, etc. Legislation is usually more likely going to make it more challenging (not less challenging) for that particular company to do business — for example, you’re not likely going to see legislation that decreases the amount of space set aside in a cigarette ad for a health warning, and you’re not likely going to see legislation that eases up on where a sex stock is allowed to publish its content.

Here are some possible ways that your holdings might be impacted by regulatory changes:

  • Increased legislation could wipe out a business by creating too many loopholes for a company to go through in order to sell its product or service.
  • Increased legislation does necessarily mean decreased sales. An increase in legislation can create enough “social taboo interest” to drive more people to buy the product or service.
  • Increased legislation also has an advantage of creating a “competitive moat” around existing businesses who learn to work within the law. For example, it’s hard for new tobacco companies to start because of the amount of legislation
  • Increased legislation can eliminate inefficient competition and create a monopoly, which could increase profits for one company but open the door for new innovators and upstarts to unexpectedly shift the industry.
  • Increased legislation can create a false sense of scarcity, which can inspire stockpiling by consumers. This can drive up prices and profit margins and stock prices.

DISCLAIMER

Nothing on this site is a recommendation because, hey, I can't read your mind and I don't know what you have in your portfolio, and I'm not a licensed financial advisor. So never EVER trade without doing your due diligence. If you want more information about this fascinating topic, please check out the Sin Stocks Disclaimer page which basically says the same thing but more emphatically.