O.K., so the world is going to hell in a handbasket.
The impending disaster raises a delicate question: Can we make a buck on it? This may be a good time to invest in a well-positioned handbasket maker, preferably one with a strong market position, high margins and the kind of “deep moat” that security analysts love.
Dark thoughts like this come when I wander from the Hallmark Channel. It’s also when I wonder, “If this is the way it is, how do we make the best of it?”
Having a bit of noir-vision isn’t entirely bad. For one thing, there is no evidence to support the idea that investing in goodness produces morally superior or profitable results. Indeed, in his book “Investing in Vice: The Recession Proof Portfolio of Booze, Bets, Bombs and Butts” (St. Martin’s Press, 2004) Vice Fund (ticker: VICEX) former fund manager Dan Ahrens points out that the long established Domini Social Equity fund (ticker: DSEFX) trailed the S&P 500 index in the five years ending just before his book was published. One reason, he suggests, is that Domini, the Goody Two-Shoes of mutual funds, was over-invested in technology stocks and light on “sin” stocks like tobacco, liquor and gaming.
That wasn’t a fluke. Since then, two academic studies and another book (“Stocking up on Sin: How to Crush the Market with Vice-Based Investing,” by Caroline Waxler) pursue the same idea. More important, the underperformance of goodness has continued. At the end of 2010, the Vanguard 500 Index fund had provided a five-year annualized return of 2.2 percent while the Domini Social Equity fund had returned only 1.8 percent.
