Friday, September 14, 2007

Pawnshops and the Vice Fund

Would you pawn your jewelry to send your kids to Disneyland?

Cash to Get By Is Still Pawnshop’s Stock in Trade

One rainy afternoon in April, she decided to give up the earrings to get something back, and took them to Jay Rosado. He examined them for a moment, then set them on a scale. Minutes later, Ms. Maynard was handed $80.

Mr. Rosado runs a pawnshop in the South Bronx. It is easy to think the worst about someone who walks into a New York City pawnshop, long supposed to be a den of thieves, addicts and the downtrodden, and the swindlers who take advantage of them. But the New Yorkers who frequent pawnshops often want something as legitimate as it is simple: quick cash to help get by.

Ms. Maynard, 44, used the $80 to buy groceries, a MetroCard to get to and from work on the subway, and a dinner of pizza for her three sons. She needed the money because she had given her father all she had — she makes $19 an hour as a social worker — to let him take the boys to Walt Disney World. She covered some of the expenses; her father paid the rest.

The boys — 13, 11 and 9 — had no idea that they would soon be headed to Disney World. They also had no idea that their mother had pawned some of her favorite jewelry to enable them to go.

The shelves and safes in Mr. Rosado’s pawnshop are stocked with such secrets: Ms. Maynard’s hoop earrings, the diamond-studded watch that Danny Bautista turned in to pay parking tickets on his truck, the two gold bracelets Martin Baez gave up to pay his cable bill.

I personally hope I'm never in the position to have to pawn anything to get by. But here's a question more relative to my life: Would you invest in a mutual fund that specifically invests in "vices," such as tobacco, alcohol, and gambling?

At Least on Wall Street, Wages of Sin Beat Those of Virtue

The Vice Fund, based in Dallas, has invested substantially in “sin stocks”: companies involved with drinking and gambling as well as military contractors and tobacco companies.

“We’re not advocating these behaviors at all. We’re just looking at this through the eyes of an investor,” said the portfolio manager, Charles L. Norton, who says he does not smoke, drinks “on occasion” and gambles a couple of times a year. The fund’s goal, he said, is simple: “to just make money.”

As the article points out, there are plenty of mutual funds that strive to offer socially responsible investing, by avoiding these vices and by only investing in companies whose practices are compatible with a certain set of values. But are these funds always successful? My gut reaction is to think a "vice fund" would probably always make more money than a "goody two-shoes fund" just because there is so much money being spent on vices! There is a reason people feel compelled to blow their hard-earned dollars on pornography, gambling and mood-altering substances. They are addictive and people can't get enough of them. There is going to be a trade in this stuff no matter what, so why shouldn't someone make money off of it? And indeed, the Vice Fund has been beating the S&P 500 consistently for 5 years.
But here's an argument on the flip side: I don't know if I'd want to give my money to a fund whose managers don't even make any pretense of having scruples about these things. If their mandate is to make as much money as possible while remaining morally neutral about things that may actually be hurting people, how can I expect them to be honest and trustworthy? Sure enough,
The record of the Vice Fund has not been without blemishes. Its founder, Richard A. Sapio, and two other executives at the fund’s advisory firm,, were accused in 2003 of securities-related fraud and in 2004 of conspiracy to commit securities fraud, wire fraud and mail fraud.


Anonymous said...

Re: the vice fund.

I think that investing in something like that is really a question of personal morality. Assuming the "vice fund" is equally reliable as the socially responsible one, I'd have no problem investing in liquor or cigarette companies. I feel that drinking and smoking are matters of personal choice, and if someone decides to ruin their lungs or liver, why should I not profit off of it? On the other hand, I'd have an issue with investing in a military contractor would be a problem for me, as they are the ones who facilite such atrocities as the Iraq war. At the same time, someone who's more pro-war would probably be okay investing in Lockheed Martin or a similar company. It's all relative - I don't think there's a right or wrong; it's all subject to personal values.

Mrs. Micah said...

Re: vice fund...

I think anonymous may have forgotten that a lot of these "vices" agressively market children and youth. One would have to take that into consideration too, and maybe s/he did.

It's definitely about personal values. I plan to get index funds which probably will have some companies I don't like. But I see that as different from setting out to invest in people who profit from other people's addiction and self-destruction. My values at play. Some people might not care.

Anonymous said...

maximizing one's profit should be one's primary goal in investing. sure the world is tough but few ever got "forced" into tabacco, gambling, arms, etc so it's really one's own responsibility to decide whether to indulge in those vices. the fund managers should be able to invest in whatever they please as long as they do abide by the law.

Mrs. Micah said...

People don't get forced "into" arms?

Arms is all about making OTHER people victims. Ask people in Liberia or Sudan. Maybe you can say that people choose to drink, smoke, etc. But unless the person shot is a burglar or a soldier, they probably didn't have a choice.

You can invest in whatever you want, but do realize that if arms are involved they're not a self-destructive thing, they're other-destructive.