Health vs. Wealth: Drinking, Eating, Smoking, and Gambling Stocks

Over the past 17 years, investing in vice stocks (the S&P 500 stocks within the following GICS sub-industries) delivered almost triple the annual return than SPY (S&P 500 index fund):

  • Brewers – 30201010
  • Distillers & Vintners – 30201020
  • Soft Drinks – 30201030
  • Tobacco – 30203010
  • Casinos & Gaming – 25301010
  • Restaurants – 25301040

For this time period, the number of stocks in these sub-industries in the S&P 500 ranged between 14 and 20. I’ve abbreviated these as BeSToGaR (Beer, Spirits/Soft Drinks, Tobacco, Gaming, Restaurants).

Only investing in the top 3 of these stocks (as ranked by the 2 factors from a famous formula) and rebalancing every 3 months pushes the CAGR a few percentage points higher, though at the expense of a larger drawdown.

Widening the net to include stocks within the Russell 3000 (also top 3 with a 3 month rebalance) also improves performance.

Adding the drug retail (GICS 30101010) and food retail (GICS 30101030) is another iteration to consider. (BeSToGaRR; extra R for Retail).

Investing in vice stocks; Performance chart of the BeSToGaR/R quantitative investing strategy.
Performance chart of the BeSToGaR/R strategy.
Investing in vice stocks; Performance statistics of the BeSToGaR/R strategy.
Performance statistics of the BeSToGaR/R strategy

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2 Replies to “Health vs. Wealth: Drinking, Eating, Smoking, and Gambling Stocks”

  1. What do you mean, exactly? For the ones not labeled “Top 3”, it just invests in all of the stocks within those GICS subindustries.

    For the ones labeled “Top 3”, the portfolio is balanced every 3 months based on the 3 highest ranked stocks (still within those GICS subindustries) according to the factors from Greenblatt's magic formula.

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