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By A-Rod

I once saw a bumper sticker that said something like “The ATF should be a convenience store not a government agency.” I know why alcohol, tobacco and firearms got lumped into one agency but I think in the last decade or two they have strayed from their mission.  About a year ago I got to thinking what if I invested in the stock of alcohol, tobacco, and firearm companies and for diversity in the stock portfolio I would include retailers that sold alcohol, tobacco and/or firearms. I wanted to keep this experiment manageable so I chose four publicly traded companies on the NYSE related to each area of alcohol, tobacco, and firearms (defense industries included) and three retailers . . .

I had 15 stocks to keep track of on an Excel spreadsheet. That should be pretty easy to manage.  I think in any economic recession or downturn people are still going to drink and smoke and as evidenced by firearms sales in the last year people are going to buy up all the guns and ammo they can.

I wanted to keep this easy and manageable so I did not invest in subsidiary business such as mining for metals, processing of metals, and the production of ammo manufacturers for the firearms industry or agriculture industries related to alcohol or tobacco production. Someone else with more time on their hands and more knowledgeable of the stock market can continue this experiment. I will also say up front that I am in no way an expert in the stock market nor have I slept at a Holiday Inn recently. I know someone else could have done a better job on this than me. It is just theoretical and for fun and games.

Alcohol

I spent eight years in the liquor retail business so I know my wine, beer and liquor brands. I chose Diageo (DEO), Beam Inc (BEAM), and Brown- Forman (BFA and BFB) as my four because they each own brands that are very recognizable.

Tobacco

I quit smoking years ago but my stocks picks were for Altria Group, Inc (MO, they also own a few wineries so that is a small bonus on the company diversity of tobacco and alcohol), Reynolds American (RAI), Lorillard Tobacco Company (LO) and Vector Group Ltd. (VGR, this one also has interest in the alcohol industry).

Firearms

Investing in this one was a little more difficult since many firearm companies are privately owned and thus not publicly traded stocks. It is for this reason that I diversified into the defense industry. Ruger (RGR) and Smith & Wesson Holding Corp (SWHG) gave me my firearm companies while Raytheon Co (RTN) and Alliant Techsystems (ATK) were my picks in the defense industry.

Retail

I live in Middle Tennessee so I am most familiar with retail giants like Wal-Mart (WMT, they got the A, T, and F pretty well covered) and Krogers (KR, alcohol and tobacco). We also have K-Mart for the alcohol and tobacco but it seems like they want to get out of the firearm retail business. K-Mart is owned by Sears Holdings Corp (SHLD).

On January 2nd 2013 I hypothetically purchased one share of stock of each company and spent $753.01. Here are the prices on 1/2/2013 and closing price on 11/15/2013.

Stock Price Date Price Date
A DEO

$118.84

1/2/2013

$129.97

11/15/2013

A BEAM

$62.56

1/2/2013

$68.02

11/15/2013

A BFA

$63.20

1/2/2013

$73.85

11/15/2013

A BFB

$63.92

1/2/2013

$75.09

11/15/2013

T MO

$32.54

1/2/2013

$38.00

11/15/2013

T RAI

$42.88

1/2/2013

$52.52

11/15/2013

T LO

$40.24

1/2/2013

$52.65

11/15/2013

T VGR

$14.74

1/2/2013

$16.47

11/15/2013

F/D RTN

$58.62

1/2/2013

$85.28

11/15/2013

F/D ATK

$63.74

1/2/2013

$116.67

11/15/2013

F/D RGR

$45.88

1/2/2013

$68.10

11/15/2013

F/D SWHC

$8.54

1/2/2013

$11.15

11/15/2013

Retail WMT

$69.24

1/2/2013

$79.22

11/15/2013

Retail KR

$26.37

1/2/2013

$42.60

11/15/2013

Retail SHLD

$41.70

1/2/2013

$64.55

11/15/2013

$753.01

$974.14

That’s right ladies and gentleman – I am up 29% in my investment. I freely admit that for me this is just a silly little experiment but it could be used as the basis for a real investment strategy.

There are plenty of investment clubs that would have a field day on this topic. I bet there are private equity firms that are using this as an investment rational. Cerberus Capital Management and their Freedom Group holding company ring any bells? Seriously folks, how about a 401(K) investment portfolio dedicated to the ATF? How about we pool together and start our own investment club? Who wants to throw in $10 out of your blow money account just for ‘shits and giggles’?

I set out to make money off the ATF and I could have done it. Can I make money off the DEA? I think on January 1st 2014 I’ll start a new Excel spreadsheet.

44 Responses to FNS-40 Contest Entry: Cashing In On ATF

    • +1

      Putting money in a total market index over the same time period (see something like VTSMX) would have given a 25% return over the same period. So what you are really talking about is a 4% deviation from baseline. What would be interesting is an accompanying estimation of the underlying volatility in this portfolio over the past 10 years, particularly as the 4% could easily be wiped out over a longer term than 1 year.

    • Well, 29% vs. 23% for the S&P 500, but presumably, given the dividend growth model of stock valuation, the writer’s ATF portfolio would have yielded higher dividends that the index fund. Reinvested into the ATF fund, that would have driven the spread on returns from 600 basis points to maybe a 7% or 8% difference in returns? I don’t know for a fact, since I didn’t go look up each company’s dividend history. Still, quite a nice return over the market.

  1. Good read. It is funny how the more legislators push to have restrictions the more money is made. I would go so far as to assert many of these extremist left wing’s pushing the end of tobacco and firearms, etc, have great investments in place in tobacco and firearms, etc. After all – what do they care about the people right? They are looking out of # 1. This is what “career” politicians do. They are in a position to make a lot of money and the power they hold makes that possible.

    Regarding the BATFE – they are just a money making organization. Nothing more. They are a tax on alcohol, tobacco, firearms, explosives. They were created to make money for the US gov, not to actually eliminate any of these things. In US government, you follow the money to the truth. Money is the basis of all decisions in US government.

    • yea- not to belittle your other points, but thanks for typing in batfE i believe the author forgot the Explosives
      in Bureau of Alcohol, Tobacco, Firearms and Explosives

  2. Since Alcohol and tobacco are two consumer items that have a known demand and have been heavily “sin-taxed” from the beginning of the country they have also been subject to any number of attempts to bootleg and otherwise smuggle them past these taxes. The predictable results are 1) A government enforcement agency to ensure the continued flow of tax dollars into the treasury, and 2) Criminal elements engaged in the production and distribution of such items coming into violent conflict with said agency. Is there any wonder, then, that this agency was also given control of firearms? And then there are the huge tax dollars collected from firearm and ammunition sales as well.

    The only things these three really have in common is that the government wants monopoly control over them and this control results in increased taxation which results in an increased black market which results in ever more draconian enforcement efforts which results in more violence, etc., etc….

  3. While I find all this very interesting, and I’m glad for your investments, it would be a mistake, I think, to overlook the overall, highly-inflated stock market bubble as a cause. I think it can account for most, if not all, of your gains.

    You should probably consider selling every last bit of it, and pretty soon. There is no way on Earth this bubble will not burst to Kingdom Come. And sooner, more than later. The global economy is structured for the purpose of failure, and a very few in-group select are going to become overnight trillionaires.

    The rest of us? It might be a good time to go and stake out a warm, dry cave somewhere. A vast majority of us are about to be tossed to the wolves.

    You should re-invest your money in inexpensive can openers as barter items. People are going to tire quickly of trying to open cans with clubs, rocks and pocket knives.

      • That was educational. However i’d still prefer the quick and easy can opener weighing 2 ounces that don’t leave me with possible jagged cuts on my hands, metal dust and shavings in my food, and a mess everywhere.

        • You got it! A big bag of can openers might be swapped for all manner of goodies, the way I see it. The idea did not originate with me, but with a friend of mine. I immediately saw the good sense in it.

      • Thanks, Salty Bear! I’ve seen someone else do this on YT. I’m betting, in a SHTF situation, 99% of people won’t know that trick. Having a case of cheap can openers to barter for food, seeds or other goods would be great, I think.

        Note to self: finally BUY that case of can openers!

    • Beat me to it. You could see similar gains just purchasing shares of Exchange Traded Funds that track the Dow, Russell, etc.

      • Over the same time frame (1/1/13 to 10/31/13), the Dow Jones is up 18.6% and the S&P 500 is up 23.1%. So this portfolio did beat the market, but not by a whole lot.

        Including defense contractors really dilutes the basic premise of betting against the ATF, though. Raytheon and Alliant can hardly be considered gun manufacturers in the sense we’re talking about here. Taking those two out drops the gains to just 22% – exactly what the market as a whole has done. So if you really just stick to alcohol, tobacco, and firearms makers, it wouldn’t be such a great investment strategy. Take the retailers out, and you’d be behind market performance.

        • Until it’s all gone, leaving a vapor trail pointing to ruin and devastation. I don’t see much chance we can make it through 2014 without total economic collapse. And it’ll make the Black Plague look like a Sunday picnic. The living may envy the dead.

          As for “preparedness”, people who have stockpiled food and supplies will be targeted; some may make it. In cities, faggeddabowdit. Suburbs might have a slightly better chance. The countryside will have the best chance.

          I’m in the suburbs, with high-crime neighborhoods miles away. But these apartments are not defensible against mobs of marauders. Even with lots of ammo. I can’t see any clear path to survival. I’ll just have to do the best I can.

  4. My first instinct was,”sure I’m in”. But then I realized the conflict of interest that would occur when I start rooting for the ATFE to make an ass out of itself so my investment gains. I want this agency to die the hell off, and would rather spend time effort and even money on the chance of making that happen, and not the other way around.

    • No, not with real cash. Related to something that William Burke said above I kinda wish I had looked around at what $753.01 could have bought me on Jan 1st vs what could I have bought now with $974.14.

      • So what are the bad ones? Can we post some bad ones so we know what they look like? Can we post some links to the bad ones? I can write a bad one and you can link to it for the purpose of entertainment.

        • I’ve been reading them as they come in, and I haven’t really seen any bad ones. Some needed a little polish, but that’s really it. And for the record, I knew the “Old soldier gets his 1911” was the winner as soon as I read it. That one came in early and set a high bar. (I did not get a vote.)

  5. ATF came about because the enabling legislation needed someone to collect the taxes. The NFA ’34 was merely a way of controlling guns via taxation. After prohibition, they needed a way to collect and handle tax stamps on booze. The tobacco thing was just thrown in for fun.

    It was in the 70’s I recall the ATF getting “mission creep” when they started showing up on arson and explosive investigations in NJ/NY/CT/etc, sticking their noses into local jurisdictions and events, providing “help” and “expertise.”

    As for being a store: There is such a place, in Fallon, NV, right on US-50 as you’re coming into town from Fernley. On your right hand side, just past the Big R ranch supply store, is a liquor store that deals in good booze, beer, cigars, pipe tobacco, cigs, guns and ammo. They have a drive-up window. You can pull up, get a case of beer, a case of #6 shotshells and some chew, all at once.

        • Look up Nichol’s Drugs & Guns (yes that’s how they advertise it) in Corpus Christi. Corner of Leopard and Mckenzie. They have a full service pharmacy and a gun range in the same building.

    • DG: For decades, I’ve dreamed of a store that sells alcohol, tobacco and firearms! After thinking about the most likely place, I did theorize Nevada would be the most likely place for such a store.

      I’m amazed I was right. That could be a real fun business. I’d sell magazines and t-shirts, also. And it would be the only place around you could buy a decent selection of fine cigars and accessories.

      Thanks for helping me believe that dream was at least a possibility! I’m grinning like a possum.

      In NM in the late 1990s, there was a drive-thru liquor store I went to in Espanols, NM. All you had to do was be able to get out of the driver’s seat and be able to stand!

      I don’t think such places exist in this country anymore, or Canada. Maybe in Mexico.

        • Never has there been such a thing in the quasi-puritan Original Colonies! Even NM got rid of them at least 13 years ago. But NM has the most horrendous problem with, not impaired driving, but blow-your-mind, totally BLOTTO driving, resulting in ghastly fatalities, and often.

          While I was there, there was one involving a guy who plowed – on a HIGHWAY, mind you – into a station wagon filled with Indian girls going home from a basketball game that they played in. He killed FOUR girls in the back. They were keeping speed, and he just ran into them at high speed. The guy had had his licensed for drunk driving suspended FOURTEEN TIMES. Yet he got it back every single time!

          Stuff like that occurs at a breathtaking pace there. Spanish descendants, the established, dominant class. Their parents, almost invariably, treat their kids with wicked indifference, or else treat them as if they could not possibly do anything wrong. It’s a culture of arrogance, born of being the dominant society for up to 400 years. Yet they look down upon Indians and “Anglos”, though the Indians have been there at least a thousand years before them.

          My local electrical had an obvious, but unstated, hiring policy: no Indians or Anglos need apply. They never hired a single person who was not a Spanish descendant.

          Don’t take my word for it; ask anyone who’s ever lived in northern NM. There is no way to get hired, unless your family has been there for 6-10 generations, and you are not an Indian.

          Here is how arrogant they are: shortly after I left, two ex-employees of the Co-op robbed a present employee of about $80,000 in bank deposits, in the Co-op parking lot. Did they lay low with their loot?

          NO. They drove to the Walmart – about 1/4 miles away, and bought TWO giant flat screen TVs. It never occurred to them that they’d get caught, because “our kind” (la Raza) RUNS this place!!

          It goes without saying that this kind of behavior is not conducive to the long-term well being of a place. It’s a criminal culture born out of a notion of infallible privilege.

  6. Look at starting a Motif basically personal ETF funds, I already did a sin tax motif with Alcohol, gambling and cigarettes. Guess we could add guns to it.

  7. Who would better know how to profit from the wages of sin, than a government that extracts taxes from it? Unlike Willie Sutton, who never uttered his famous line, the government does know where the money is. At least Sutton had the honesty to admit he was a thief.

  8. THIS MAKES ME SO PISSED OFF! I bought Ruger when it was in the upper forties and sold when it hit upper fifties thinking the gun craze was over! AHHHHH! Oh well lesson for next time…

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