We are obviously in a period of concern, fear and confusion in terms of our investments. One thing is true, people want their vices and will continue to engage in them, no matter what economic conditions exist. Companies that are engaged in alcohol, gaming, tobacco and assorted sin seem to profit no matter what other segments of the market are doing.

During the recent market downturn in 2000-02, the S&P 500 plunged 47%. At the same time, the S&P casinos and Gaming Index was up 115%. The largest tobacco stock more than doubled during this period, and the largest U.S. brewer gained 87%.

The so called sin stocks are engaged in businesses that are difficult to enter. Gambling and alcohol are heavily regulated businesses, while tobacco faces enormous litigation threats and marketing restrictions. The incumbents have little to fear from new competitors.

Newly developing middle classes in countries like India and China are boosting demand for gambling, cigarettes and alcohol. While tobacco consumption in the United States has been steadily declining, it is growing elsewhere. Asia in particular has shown a real interest in opulent vegas-like gambling destinations. Macao is in the process of developing mega-casinos and hotels. Alcohol manufactures are buying up foreign distillers and brewers.

Most of the companies in this segment of the market are large and have global reach. They can finance their own acquisitions, so they are not forced to use the sensitive credit markets. The best way to participate in the investment opportunities of sin stocks is through mutual funds that provide a diversified portfolio of equities and limit the research necessary to select individual issues. We are happy to provide our readers with recommended investment options.