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Sin StocksGeopolitical attitudes are always shifting. The Chinese once feared the Mongol hordes so badly that they built a giant wall; native American tribes in both South America and North America were devastated by aggressive and militant colonizers; anti-communist sentiment during the cold war turned into anti-Russia, anti-China, anti-Cuba sentiment.

Today, geopolitical attitudes have shifted again and many first world countries possess (to varying degrees) an anti-Middle-Eastern sentiment (which lumps many people-groups together) as well as an anti-North-Korea sentiment as well. There are mixed feelings on China, too, since they are a powerful economic engine right now who are providing cheap goods and services to the western world and are buying western goods and services.

How are sin stocks impacted by geopolitics? This is a huge topic that we can’t possibly answer in just one post.

  • When popular opinion turns against a particular country, goods and services from that country become sin stocks. We saw anti-German sentiment during World War One, and anti-German and ant-Japanese sentiment World War Two have this impact and it took many years for German companies and Japanese companies to gain acceptance in the marketplace. Your Volkswagen might be a popular vehicle today but it wouldn’t have been in 1946! We also saw this during a brief anti-France sentiment in the US when french wine was poured down drains and french fries were renamed to Freedom Fries.
  • Developing nations have a big impact on sin stocks because of conflict: Conflict can give a boost to conflict sin stocks either because of arms sales or because of increased military attention. Yeah, the idea of sales of guns to warlords in developing nations is repulsive and we are not endorsing it. We’re just stating a reality. But even more than some unknown militant buying guns, there’s also the impact of the massive military machine of the US (and other nations, to a lesser degree) as they gear-up and deploy around the world.
  • Developing nations also have a big impact on sin stocks because of a desire for indulgence: The western world, with all of its freedoms and liberties, is a promise of lifestyle. Although many people in developing nations will not be able to move to the US to fully live out the “American Dream”, they can enjoy some indulgences, which can particularly impact alcohol sin stocks and especially with tobacco sin stocks. (We’re not saying that boozing and smoking are American activities. In fact, these activities are much more highly regulated in the developed world and likely enjoyed far less ubiquitously. However, the marketing of these activities in the developing world is very American, suggesting that boozing and smoking are part of the first world lifestyle.
  • Developed nations change the definition of sin stocks because of shifting attitudes about what is a “sin”. Today’s sin stocks are not going to be tomorrow’s sin stocks. We’ll likely see more and more fast food stocks being introduced as sin stocks, while alcohol sin stocks and gambling sin stocks are likely on their way out.

Let’s put these concepts all together for you:

Consider a strip mining company. If it tries to build a mine in the US, developed-world sentiment against this ecology-changing mining company might be defined as a “sin” (and we’re seeing that happening with greater frequency in the western world). But if it goes to Africa, it may be welcomed with open arms because they don’t define the ecological impact to the same degree. They see the income generated from the mined minerals as a way for them to earn more money. And if the company mines in North Korea, we might see yet another layer of “sin stock” at work here, for the minerals it mines might not be accepted on the world stage (assuming they could even leave the country). Furthermore, other non-Korean operations might be boycotted because of the company’s sinful affiliation with North Korea.

Or consider a gun manufacturer. That gun manufacturer might have wide acceptance because it has a contract to supply the military with weapons, and its equipment is visible at the forefront of a global fight for freedom and democracy. But if that company’s guns are used by a gunman in a violent crime on domestic soil, that once-beloved gun manufacturer is now considered a conflict sin stock.

Sin stock companies provide sinful pleasures and necessary goods and services. But the geopolitical angle is complex and always shifting. To invest in sin stocks means committing your time to focus on the larger world and how today’s ideas might change tomorrow.

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.