Alcohol Stocks, Tobacco Stocks and Firearms Stocks, Really

Update on the Three Imaginary Mutual Funds

A few years ago, I wrote an April Fool’s Day post about three imaginary mutual funds that pushed the envelope a bit. One of them offered to find the best lotteries in the world and look for winning strategies. Another was essentially a money-laundering operation for the Mafia.

But the other mutual fund, which was still supposed to be a joke, has turned out to be a pretty good idea. I’ll give you the results in a minute (think alcohol stocks, tobacco stocks and firearms stocks). Here is the original text.

Futurian ATF Fund

In anticipating how investors will react during an economic downturn, we are relying on the truism that when times get tough, life is reduced to its essentials. This fund recognizes that for many people the essentials include alcoholic beverages, tobacco products and firearms. We see this combination of investment in America’s central nervous system depressant of choice, America’s central nervous system stimulant of choice, and America’s paranoid lifestyle accessory of choice as a perfect diversifier for uncertain times.

The fund will invest primarily in brewers and distillers, tobacco products companies and gun manufacturers, and we must be prepared to depart somewhat from the conservative tone of our usual marketing materials. Tentative tag lines for this fund include: “Futurian ATF Fund: A double shot of performance,” “Futurian ATF: Smokin’!” and “Futurian ATF: Number one with a bullet!”

Ha, ha.

But I recently noted that a couple of stocks were showing up in Cabot Top Ten Trader screens that made me wonder if the “ATF Fund” was such a bad idea after all.

I did a little research and a little calculating, and found that an investment portfolio with three alcohol stocks, three tobacco stocks and three firearm stocks would actually have enjoyed some great returns over the year since April Fool’s Day 2015.

Here’s the setup. I took the opening prices for three alcohol stocks, three tobacco stocks and three firearms stocks as of April 1, 2015. Then I grabbed their prices as of April 1, 2016 and I figured out the average appreciation of all six for the year. (I also noted the annual dividend yields for the seven stocks that pay them, but I didn’t add that into the final performance calculations, because my Excel skills aren’t that good.)

Here’s the result.

Stocks Price 4/1/15 Price 4/1/16 % Change Div. Yield
Brown Forman (BF/A) 90 107 15.89% 1.40%
Constellation Brands (STZ) 115 151 23.84% 0.80%
Molson Coors (TAP) 73 96 23.96% 1.70%
Altria (MO) 48 62 22.58% 3.60%
Philip Morris (PM) 72 98 26.53% 4.10%
Reynolds American (RAI) 33 50 34.00% 3.30%
Smith & Wesson (SWHC) 12.7 27 52.96%  
Strum Ruger (RGR) 48 69 30.43% 1.80%
Vista Outdoor (VSTO) 43 52 17.31%  

Full disclosure: Since I was trying to make a point, I was very careful in selecting my alcohol stocks, avoiding Boston Beer (SAM) and Ambev (ABEV), both of which lost value during the period (with SAM tanking almost 31%). But I’m trying to prove a point here.

Here’s the point: It’s always possible to construct a fabulous portfolio in the rear-view mirror. If I ever learn how to buy or sell a stock yesterday, I will quickly become a rich man.

The ATF portfolio worked for this one period of time only. You could have held Philip Morris (PM) from April 2012 through August 2015 and not gotten a dime from price appreciation. The same applies to Smith & Wesson (SWHC) from July 2012 through the end of 2014 and Molson Coors (TAP) from June 2014 through September 2015.

Sometimes joke portfolios work. Usually they don’t. Try putting together a portfolio using your family’s initials as stock symbols and see how well that works out for you. I’m lucky, because PG (for Paul Goodwin) gives me Procter & Gamble, a company that pays a nice 3.2% annual. But PG is still recovering from a correction that began in late 2014 that dropped the stock from 90 to 64 in just under eight months. Timing is everything.

Lasting success in the stock market comes from finding a system that makes sense to you and following its rules. You may be a value investor, a growth investor, an options investor, an income investor, a trader or a small-cap specialist. Or, especially if you’re pretty new to handling your own investing, you may not know yourself.

I can’t give you the kind of exposure to the various investing styles that you will need to find your own preferences. But I can give you a question that will get you started: Which would cause you more distress, being in an aggressive portfolio and watching it go down, or being in a defensive portfolio and watching the market go up without you?

Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.

fortune cookie
“What I want to happen to religion in the future is this: I want it to be like bowling. It’s a hobby, something some people will enjoy, that has some virtues to it, that will have its own institutions and its traditions and its own television programming, and that families will enjoy together. It’s not something I want to ban or that should affect hiring and firing decisions, or that interferes with public policy. It will be perfectly harmless as long as we don’t elect our politicians on the basis of their bowling score, or go to war with people who play nine-pin instead of ten-pin, or use folklore about backspin to make decrees about how biology works.”—PZ Myers, biology professor, University of Minnesota

Tim’s comment: In an era when Islamic conflicts are fueled by religious beliefs, the prospect of a world without religion is attractive, but only if it is replaced by rationalism, which I assume will be the case when intelligent machines make most of our decisions. Until then, when you are making investment decisions, please take care to make them rationally.

Paul’s comment: PZ Myers, a “cantankerous evolutionary biologist” who has been a prominent blogger and speaker in the skeptic movement, loves to step on as many toes at a time as possible. I’d say he has trodden upon several here. But his longing for a world in which religion is no longer a divisive force is attractive. I agree with Tim that a rational investor is a better investor.