There’s No Such Thing As A “Sin Stock”

This post will at first appear like a discussion about morality, but I hope it will end as a post about objective reasons for market cap weighted equity indexing. So hang tight even if your head starts to explode a little.

Here’s a good piece by Felix Salmon on why we should avoid “sin stocks”. In it, he disagrees with a piece by Cliff Asness and Matt Levine. The basic gist of the disagreement is that Matt and Cliff say that avoiding sin stocks could make it more expensive to finance their future operations which will lead to fewer sinful companies and Felix says that not investing in these companies is unlikely to have a meaningful real world impact.¹ I think they’re having the wrong discussion though.

This is going to annoy many of you, but a lot of this strikes me as virtue signaling. Matt, Cliff, and Felix are having this discussion assuming that they know what is and what isn’t virtuous. I would argue none of us really knows a virtuous company from one that isn’t. Yes, you might have a general idea of what is virtuous, but there is no specific way to determine this other than a company that operates illegally and one that operates legally. Aside from that, the idea of a “sin stock” is rather murky. Obviously, since all publicly traded companies are operating legally then the idea of a “sinful” company must be rather opaque.

I know, I know, alcohol, tobacco, firearm and casino companies are obviously bad. They operate distasteful businesses, but they also provide goods and services to many people who find them very valuable. While most of us might find some of these businesses distasteful or even immoral they have a clientele that finds them valuable. And if a company operates legally then who is to say whether a cheeseburger (which is one of the most lethal things Americans consume) is more sinful than an AR-15? There might be degrees of sin in the way these companies produce their goods and services, but this is vague from the start.