Pointsofinterest
Wealth in sin
The night started at 2: 45 on a Thursday afternoon. I arrived for Off-Track Betting in midtown
Manhattan, eager to learn what made gambling
stocks a necessary part of the Texas-based Vice Fund
(VICEX). It was apparent as soon as I approached—
men in wrinkled suits ready for a hiatus from their
workday, retirees, others who had lost their jobs
in need of a quick thrill. The dark room was quiet
and smelled of body odor. People stared at bright
monitors in a zombie-like daze, longing for a miracle.
It was soon obvious The Inside Track was a breeding
ground for addiction. Flipping through one of the
OTB magazines, the first page featured a large ad. In
all bold, capitalized letters: “GAMBLING PROBLEM?”
The question mark was emphasized. Thirty minutes
after entering, Grey Heart’s Girl and Hidden Value
had lost me $20, yet won me my first insight into
investing in vice.
According to Ahrens—who is no longer associated
with the fund—nearly everyone wants to be
socially responsible. They believe in recycling
and good corporate governance, but a majority of
adult Americans also consume alcohol. On average,
Americans are not for banning alcohol. “Hopefully,
they support a glass of wine,” he says.
From shooting a rifle to drinking at McSorley’s,
ai5000’s Senior Editor Paula Vasan interweaves the
performances of “sin stocks” as investments to report
on the $77 million Vice Fund. See a photo gallery of
ai5000’s night of vice.
While stock markets fluctuate, people worldwide
continue to drink, smoke, and gamble as their nations
defend themselves. Thus, the genesis of the Vice
Fund: Dan Ahrens, its founder and former manager,
says that, after the market’s severe dip in early 2000,
he found alcohol, tobacco, and gaming ranked among
the top industries for 1-, 3-, and 5-year performance.
What began as a joke turned into the creation of the
now $77 million investment vehicle, a mutual fund
targeting about 30 “sin stocks”—in contrast with
socially responsible investing (SRI).
It hasn’t been a smooth ride in recent years, however:
While alcohol and tobacco are often old-line, large-cap
stocks with high dividends and profit margins,
non-dividend-paying gaming stocks have had much
faster growth and have been consequently susceptible
to greater volatility. Overexpansion, the real-estate
bubble, and other simultaneous forces led to gaming’s
fall starting in late 2007 and, in 2008, gaming stocks
lost half their value. Yet, after plunging more than 41%
during the anomalous year of 2008—fueled by this
especially big hit to gaming—VICEX recouped some
of its losses in 2009, gaining 12.7% and adding about
7.8% in the 2010 period ended April 30, versus 6.4%
for the S&P 500. During the same period, tobacco
and alcohol each inched up 1.4%, with defense up
14.2% and gaming up 29.9%, according to the fund’s
Chief Investment Officer, Jeff Middleswart.
Rifle & Pistol Range. I sat in a classroom to complete
a waiver of liability and receive a 20-minute lesson
from John, a short, toothless, bald man with colorful
tattoo sleeves, before being free to fire 5-round rotary
magazines. I took a 6-pound Ruger 10/22 semiautomatic rifle in my hands, and immediately, even
without ammunition, found my heart pounding. “Put
your cheek down to the stock…maintain your front
sight-rear sight alignment!” John barked about a half-dozen times.
Gradually, I became increasingly numb to holding
this weapon, hearing its clicks and the powerful
explosion of the cartridge. After a few bulls-eyes—
and, admittedly, a few wayward shots—I was ready to
knock back a few drinks to calm my pent-up nerves.
at first, reminding me why I avoid this nasty and
expensive habit. Nevertheless, I enjoyed the social
atmosphere. The intense smell brought back fond
memories of my uncle’s house during Christmas and
I felt warmed up inside. I quickly put the cigarette out
before I found myself craving a next drag.
I awoke the next morning, my left arm sore from
holding a rifle, my head throbbing from the effects
of alcohol, my voice scratchy from that cigarette, and
I was $20 short from gambling. Would I do it again?
Probably, yes. The steady success of these “sin stocks”
lies partly in the nature of inevitable human weakness.
To better understand all sectors of the Vice Fund
portfolio, my night of vice progressed to the West Side
The next logical stop was McSorley’s Old Ale House,
New York City’s oldest continuously operated saloon,
where waiters effortlessly carry 20 pints of beer in
their gargantuan grips. Asked whether the recession
has affected business, 16-year McSorley veteran
bartender Teresa De La Haba replied she’s seen no
real change. “Service has always been pretty good,”
she said. “People keep coming back.”
“Alcohol and tobacco are consumer-staple products
like toothpaste and toilet paper,” according to Ahrens.
“Some things are going to be purchased no matter
what the economy.” Exactly my problem—and, maybe,
investors’ solution.
I’m not a fan of smoking but, before heading to the
next bar, I squeezed in a few puffs of a Marlboro Red
for the sake of the story. The smoke made me cough
