FREE KIC - NO. 76 MARCH 12
I recently attended a seminar organised by the wealth management division of NCB stockbrokers. At this seminar three representatives of major financial organisations gave presentations on individual funds available to clients of NCB.
One of the presentations was given by Morgan Stanley Asset Management and there was one particular aspect of the presentation that motivated me to write this opinion piece.
Here is a chart from a recent BATs investor presentation showing volumes of cigarette sold by geography and it suggests that a name change to Brazil Asia Tobacco might not be a joke!
I think of myself as being lucky to have hated cigarettes in my teenage years and to have the personality that enabled me to avoid peer pressure but unfortunately it appears that large numbers of people in Brazil and Asia are succumbing to the smoking habit.
I was recently listening to a speech given at the Ben Graham Centre for Value Investing at the University of Western Ontario by Value Investor Tom Russo (Link) when I realised that he too was a major investor in the same tobacco companies. In his speech he did not mention tobacco stocks (even though 22% of his fund was invested in the sector) and he spent his time talking about Nestle, Berkshire Hathaway and Pernod Ricard but in the question and answer section a student asked about his thinking on the long term prospects for tobacco in developed markets. He answered by saying that he assumed in the long run that revenues would decline to zero but there was enough money to be made between now and then so that in his opinion these were still good investments.
I mentioned my concerns to my friends at the Value Investment Institute (Link) just to see their reaction and it was interesting to hear the various responses. The most challenging response was in relation to the ethical issues involved in companies they know I own. In other words I was challenged on how I could own shares in companies that make alcohol and components for the nuclear power industry. (Some companies I own might even make components for military applications). I responded by saying that drinking in moderation might be beneficial to health but smoking can never be of similar benefit.
Having thought some more about the issue I have to accept that each person has to make up their own mind. I try to weigh up the positives and negatives of things. I can see some positives in alcohol drunk in moderation (I enjoy a glass of wine), I can see some benefits in nuclear power and I can see the need for military equipment but I just cannot see any positives to tobacco and that is why I remain reluctant to try to make money in the sector and as the following chart shows there has been a lot of money made: