Why We Don’t Invest in Tobacco Companies

Cassandra Laymon, CFP®, MBA  When I first learned about Biblically Responsible Investing, it made sense to me that we would not invest in tobacco companies. But I didn’t really understand why we don’t invest in tobacco companies. I know smoking is harmful. There are many statistics the prove that sm

Cassandra Laymon, CFP®, MBA

 When I first learned about Biblically Responsible Investing, it made sense to me that we would not invest in tobacco companies. But I didn’t really understand why we don’t invest in tobacco companies. I know smoking is harmful. There are many statistics the prove that smoking tobacco is a cause of lung cancer and can take years off your life. That, in and of itself, was enough to convince me that we should not be investing in tobacco companies. But that is not the reason that we choose not to invest in these companies.

Before I go any further, it’s important that you understand what it means to be an owner of the company. When you invest in a company, you are doing so because you believe in what they do and you want them to do more of it. If the primary business activity is selling tobacco, you want to sell more and more cigarettes. How do you sell more cigarettes? Either you get a larger number of people to start smoking, or you get your current base of smokers to smoke even more. Because tobacco is such a highly addictive substance, it is very easy to get your current base of smokers to smoke more.

I have met plenty of good intentioned people who say, “I don’t mind investing in tobacco companies because people can freely choose whether to start smoking or not. I might as well profit from their poor decision-making.” Let me share with you a part of the story that you might not know. Over the last few decades the US laws against marketing cigarettes, particularly to underage consumers, have become more and more strict. What does this mean for the tobacco industry? It means that their current base of customers is shrinking. The real way to make money is to get their customers addicted as early as possible, so they can be a steady and profitable customer for life. These stricter smoking laws in America are preventing tobacco companies from getting teenagers addicted to cigarettes, which causes their revenues to shrink.

If you were the CEO of a tobacco company and you needed to make more money, what would you do? The obvious answer is to sell your products somewhere that does not have such strict laws. In the case of tobacco companies, they have targeted Third World countries such as Indonesia to heavily market their products. If you were charged with marketing this new initiative in a country that had no smoking restrictions, what would you do? You would devise a plan to get people addicted to cigarettes as early in life as possible, so they could become customers for life. And that is, in fact, what the tobacco companies have done. They target women and children in Third World countries by going to concerts and sporting events and giving out free cigarettes to children as young as seven and eight years in the hopes that they will become addicted.1 Brilliant marketing plan don’t you think?

If you are investing in tobacco companies, you have partnered with them in the hopes that they will get as many kids in third world countries addicted to cigarettes as possible. That’s how they and you are making money. You are, in essence, praying with your investment dollars that this tobacco company will be wildly successful with this strategy so the that the value of the company will grow, and you will share in that success. You are quite literally making money from this business practice that I would guess most people oppose.

Of course, there is the challenge that tobacco stocks generally perform well and therefore pay a handsome dividend. Can you be at peace knowing that you are making money from exploiting human addiction? Do you think this is how God would want us to steward the money he has given us? If this brief blog has made you think twice about your investments, I encourage you to take a close look at your portfolio or to talk to your financial advisor to find out if you are investing in tobacco companies and profiting from these unethical business tactics.

If you want to know more about the kinds of companies that you are investing in in your portfolio, don’t hesitate to contact us at info@beaconwealth.com and we would be happy to provide a complimentary screening report of your portfolio that lists all the business activities that you are currently investing in.

1 For a more in depth discussion of this issue, see “The Smoking Gun of Mutual Funds” on the Eventide Funds blog: http://www.eventidefunds.com/blog/the-smoking-gun-of-mutual-funds/

 

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