| dc.description.abstract | The goal of this thesis is to analyze the performance, risk-adjusted performance and valuation multiples of "Sin" stocks relative to that of the S&P index, and use this data to determine if investing in this industry has proven successful over the years. A commonly shared difficulty in analyzing sin stocks that I found through my research was how broad or narrow the sources definition of what constituted a "sin" stock was when defining their sin portfolios. Alcohol, firearms, gambling and tobacco appeared to be the four industries that were widely agreed upon and classified as sin stocks. Because of these findings, the Sin Portfolio that I put together included a market-weighted portfolio of 33 stocks trading in the alcohol, firearms, gambling and tobacco industries. It is worth noting that I also illustrated a more granular perspective that assisted in my understanding of what industries might have served as headwinds and tailwinds for the overall Sin Portfolio's performance by more specifically analyzing each sub-industry, as I did with the entire portfolio. Qualitative analysis included using the TCU database to search for different sources that addressed sin stocks, and I then used this information to help mold my understanding of the industry, including where it has been and where people believe it is going. From a quantitative perspective, I analyzed public companies that are participants in the Sin Industry using both Bloomberg and the Wharton Database (WRDS). By using these resources, I was able to pull current and historical numbers related to my portfolio for analyzing ratio performance, as well as regress the returns of my unified portfolio verse that of the S&P index for different periods of time. The time periods included 5-years, 10-years and 20-years, as well as the Dot.Com era and the Great Recession. Based on my findings, investing in a sin stock portfolio proved to be an effective means of outperforming the broader market, besides the most recent 5-year period. The out/under-performance of each sub-sector (alcohol, firearms, gambling and tobacco) varied based on the time period being used. Specifically, it is clear that investing in gambling does not act as a defensive play during the economic downturn when compared to the other three Sin industries. The lack of following that sin stocks have received due to moral principles proved to be a tailwind for my Sin Portfolio. Law and regulation play a substantial role for companies operating within these industries, which, in turn, plays a large role in their success because this sin industries receive a risk-premium. In the end, my findings prove that a Sin Portfolio of 33 stocks was near resilient during the different assessed time periods compared to a morally conscious investor. | |
