Shuffle master automatic card shufflers used casinos

STOCKING UP ON
SIN

How to Crush the Market

John Wiley & Sons, Inc.

Copyright © 2004 by Caroline Waxler. All rights reserved.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books.

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Published simultaneously in Canada.

Includes bibliographical references and index.

I can’t express enough thanks to my agents, Greg Dinkin and Frank Scatoni of Venture Literary, for all their incredible hard work, thoughtfulness, example, care, and yenta-ing. They did prac­tically everything but write the book.

Greg teamed me up with the perfect editor, Debra Englander of Wiley, to make this book happen. She had the vision to see the po­tential in this project and the patience to guide me through the process. I was lucky to collaborate with someone who has such a rare combination of perseverance, diligence, and talent. I am in­debted also to her colleague Greg Friedman for all his hard work.

vi Acknowledgments

Brian Lerner was an enormous help. He was a great partner in making this book possible and a first-rate researcher. And to the fabulous Pan sisters, Amelia and Esther, thanks for being a godsend in times of crunch.

Chapter 2 The Ethical Dilemma and Asset Allocation 19

Chapter 3 This Is Research? 49

Chapter 8 Sex 133

Chapter 9 Drugs 151

Appendix I Returns of Socially Responsible Mutual Funds

vs. All Other Mutual Funds as Well as the S&P 209

vii

C H A P T E R1

It turns out that these common impulses mean a lot, according to Tom Galvin, who commissioned a report on vice stocks when he was the chief investment officer of banking powerhouse Credit Su­isse First Boston in 2001. What’s vice? It can be loosely defined as all those things you’re not supposed to do: drink, smoke, and make weapons for the military—what Galvin called the “Vice Squad.” This is a longstanding trend, not just a fly-by-night flirtation with sin.

During the past recessions, according to Galvin’s research, par­ticularly during the ones in 1982 and 1990–1991, sectors like alco­hol, tobacco, and food consumption outperformed the market. At these times industry pricing in all these areas, with the exception of food, rises above the national average. This ability to raise prices is

“It was 2001 and the economy was entering a recession. It was a report on counter-cyclical stocks, defensive plays,” says Galvin. “I labeled it Vice Squad because I thought it would be a bit more fo­cused than a defensive oriented fund.”

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As of this writing, the fund’s top five holdings were Altria Group (makers of Philip Morris cigarettes), Shuffle Master (automatic card shufflers used in casinos), Anheuser-Busch (Budweiser and other beers), British American Tobacco (Benson & Hedges and other ciga­rettes), and defense contractor L-3 Communications. About 95% of the holdings are in companies like these—big blue chip defensive players. The remaining 5% is in companies such as Electronic Arts Inc. and THQ Inc., both video game makers. If you’re talking sloth, video games are up there. Besides, have you played video games lately? They are pretty much sin central: violence and sex, or at least sex appeal. One of the most popular games is called Vice City.

Ahrens says that the sectors chosen to represent the Vice Fund are easy for the public to understand and largely recession-proof. He expects the fund to adhere to its straightforward sinful mantra. The only categories that really diverge from the obvious sin places are video games and one other big tech company that you might have heard of—Microsoft, which makes up about 2% of the fund’s investments. “With everything else we have,” Ahrens said, “we had to throw in a little antitrust.”1
In the short history of the Vice Fund, it has reported some im­pressive numbers for the sin side of things: three of its four sectors have outperformed the S&P 500 Index in 1- 3-, and 5-year periods (see Figures 1.1–1.12). Using June 30, 2003 as the starting point, the S&P was down 1.55% for 12 months prior, down 33.01% for 3 years prior, and down 14.05% for 5 years prior. In the same period, gam­ing and casinos returned 24.65%, 66.36%, and 145.13%, respectively.

The Index is a market capitalization-weighted index representing approximately two-thirds of the total market value of all domestic stocks. It is compared to a smaller group of stocks from particular industries.

Data is based on a study of all alcohol, tobacco, defense, gaming, and casino industries with the exception of those companies with a market capitalization of less than $50 million, conducted by MUTUALS.com. The historical sector data was provided by Commodity Systems, Inc. (CSI) and screened by MUTUALS. com to eliminate companies with a market capitalization less than $50 million. The sectors are then capitalization-weighted by their individual components. All data is adjusted for splits and dividends. Data and information is provided for informational purposes only and is not intended for trading purposes or to imply any future performance.

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68.36%

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