On March 22, 1933, President Franklin Roosevelt signed into law the Cullen–Harrison Act, legalizing beer with an alcohol content of 3.2% (by weight) and wine of a similarly low alcohol content. On December 5, 1933, ratification of the Twenty-first Amendment repealed the Eighteenth Amendment. Strongest Market Sectors Since 1933: Smoking Wins, Steel Rusts Away
A new review sorts the performance of 30 sectors over the past 82 years.
So-called 'sin stocks' such as tobacco and beer run away with the best returns.
Cyclical sectors and basic materials tended to fare poorest.
The article specifically considers the implications of these data for DG investors. This idea was discussed in more depth with members of my private investing community, Ian's Insider Corner.
Philosophical Economics, one of my must-read financial blogs, recently put up a fascinating post showing the returns of the US market by industry with dividends reinvested since 1933. If you're wondering about the methodology used to create the results, check the linked post, it's too complicated to explain here briefly. The winning sectors showed a truly shocking degree of outperformance. The #2 performing sector, beer turned $1,000 in 1933 into $26 million today! By contrast, the worst sector, steel, turned that same $1,000 into just $57,000 today. $57,000 isn't bad, but over an 82 year investment period, it certainly isn't great. $57,000 pales in comparison to $26 million for sure.
Here's some key takeaways for dividend growth investors.
The Worst Investment Sin? Socially Responsible Investing
For long-term investors, the message is clear, you need to own the so-called sin stocks. Hold your nose and donate profits to charity if you must, but these stocks can't be passed up if you want market-beating performance.
The top 3 sectors over the past 82 years were cigarettes at 8.34% real annualized return, beer at 7.51%, and oil at 6.84%. Investors in "ethical" funds that avoid these sectors are virtually guaranteeing drastic underperformance.
I heard recently, and I'd love to attribute it but I can't remember the source, that socially responsible investing suffers from two primary flaws. That is, by choosing not to invest in these sorts of companies, you're actually rewarding both the sinful investors and giving the sinful companies an easier ride.
Stock prices, on a day to day basis are set by supply and demand. If you convince a large portion of the investing public not to back an alcohol, tobacco, or oil company, for example, you lower that company's share price.
QBL Price at posting:
4.9¢ Sentiment: Buy Disclosure: Held
