When humans stress, we all have the need to reach for something. For some it’s food, a cigarette, alcohol, coffee, drugs, gambling or anything else that might put us in a different state of mind so we don’t have to deal with our problems. This isn’t an article about psychology because I am not a shrink. I simply want to make the point that the stocks of many of these companies have performed very well (and will most likely continue to perform well) because human behavior never changes.
Here is an excerpt from an article written by Jeremy Siegel on 11/20/05 (Siegel 11-20-05).
“From 1957, when the S&P Index was founded, Philip Morris has yielded nearly 20% per year, outclassing the other 499 members of this venerable index by wide margins. To give you an idea how strong this performance is, if you put $1,000 in an index fund when the S&P 500 Index was founded and reinvested your dividends, you would have about $140,000 today. But if you put $1,000 in Philip Morris stock, you would have over $6 million dollars today — more than 40 times as much!”
Now some people may complain about the ethics of investing in these “sinful” stocks. That’s nonsense to me. I invest in the market for one reason and one reason only…TO MAKE MONEY! If you look at some of the biggest winning stocks throughout history, many of them are a result of human addictive behavior. Go back and look at the longer-term charts of: Coffee stocks $SBUX $GMCR, Alcohol $BUD, Tobacco $MO, Drugs $PFE $MRK, Gaming $WYNN, Sugary drinks $KO $MNST, Fast Food Companies $YUM $MCD, and many, many other examples.
You might think I’m joking, but if cocaine was legal and public, it would probably be my only position. Think about it, Walmart is the largest Fortune 500 company with $470 Billion in revenues. Cocaine has estimated global sales of $700 Billion per year. If they were public, I would love to hear about their “blow” out quarters. They would probably talk really fast on their conference calls and never blame the weather.
I could go on and on with the jokes, but seriously, there are so many companies out there that will continue to perform well because human beings will never change. We all HAVE TO HAVE our coffee fix in the morning (and usually not just 1 cup), we might need a smoke once in a while, we might need a glass of wine to unwind at the end of the day, and we might need prescription drugs to fall asleep. These are simply the facts: Human behavior will never change, so don’t bet against the companies that help fuel our addictions. By the way, you are probably reading this blog post because of a link you found while checking your $FB or $TWTR feed. Possibly the new addiction stocks?
I can be reached at: [email protected].