dspp wrote:If I am reading this correctly peak tobacco was 2009 and the trend is down now despite global population continuing to increase. This has the same implications for tobacco as I pose for oil in my watching out for effects of peak oil, and likely over similar decadal timescales. However I am seeing much less discussion about tobacco (global revenues $500bn) vs oil (global revenues $760bn - 1.2trn). It seems to me that the larger brands/companies are pursuing declining market strategies which implies they recognise this. Food for thought in my mind.
If this is correct there will be a optimal moment to exit tobacco stocks. I do not know when that is, but I am paying attention. It is both a matter of capital growth/risk and of dividend (though any purist HYPers will only be looking at half of the available information). I would be very happy to listen to anyone with better facts than I have been able to unearth.
The old maxim comes to mind that forecasting is hard, especially when it's about the future! And add to that pyad's "strategic ignorance" concept, which basically says "... and
impossibly difficult when it's about the decades-long future of companies!"
I should qualify that by saying that the decades-long future of particular
businesses can sometimes be forecastable, at least in broad outline - things like the horse & buggy business or more recently mechanical typewriters clearly went into near-terminal decline and weren't going to recover from it. But that's not the same issue as forecasting the decades-long future of the companies in those businesses, or what those companies will become - for example, look at what businesses the company that was eventually renamed IBM was in during its early years, in
https://en.wikipedia.org/wiki/Computing ... ng_Company. One can see how they evolved into the computer business the company is in today, but it's definitely not the same business as it had back then...
I'm fairly certain 'peak oil' will arrive sometime. When is very hard to tell, but I don't think it matters all that much from the point of view of the value of oil company shares, because (a) it won't arrive clearly, abruptly and unexpectedly; (b) the big oil companies are already starting to reposition themselves to be able to switch to renewable alternatives. When it gets going properly, that switchover will doubtless involve some turmoil, with some of the companies competing better in a fairly new market than others, and some will probably succumb to that competition - though I think far more likely by being taken over by the competition than by going bust - they'll have considerable valuable assets even if it requires a competitor's expertise to run them profitably. So I do see the big oil companies becoming gambles at some time in the future, but not outright losers (*).
When that will happen I don't know and don't think anyone else does - it's too dependent on technical innovation about exploiting other oil sources. And if one feels the need to safeguard the big oil part of one's portfolio from those gambles when they arrive, a far simpler way that also involves far less effort is just to diversify between multiple big oil companies.
'Peak tobacco' I'm less certain about, basically because tobacco is renewable. Certainly there has been a long-lasting trend for governments to discourage tobacco use and it may well continue indefinitely - but it is basically a political fashion. Fashions can change, and with regard to tobacco have done so a fair number of times in the past... The current fashion is of course firmly based on scientific research in a way that previous fashions haven't been (**) and so I'm not saying it definitely will change - just that I'm by no means certain it won't.
But again, the big tobacco companies are already getting into the alternative of vaping, and they're well-positioned to do so: they have the brands, the distribution networks, the financial muscle to develop their own vaping products or if necessary buy out the competition before it gets too large, etc. Again, I think there will be a period of upheaval in the industry at some point, and some big tobacco companies will probably lose out. But when and which companies seems to me to be a similar issue to the one for the big oil companies: far simpler and easier to deal with by diversifying between multiple big tobacco companies than by trying to forecast the winners in that upheaval.
As the subject has come up, a brief comment about the ethics: the above does
not mean that I've changed my principles about refusing to live off dividends earned in the tobacco business. As Dod indicates, there's a price I pay for those principles in terms of my HYP (***) and I pay it gladly. But as far as I'm concerned, such principles and their associated payments are personal decisions for people to decide upon for themselves, not something for me or anyone else to try to impose on their investment considerations.
(*) Not from peak oil, that is. A sufficiently bigger version of something like BP's 2010 Gulf of Mexico problem could wipe out any company, and that's one of the risks that comes with the territory of investing in big oil.
(**) Though people may well have believed they were at the time...
(***) The main one, that is. My demo HYPs are a different matter: I basically 'ring-fence' their small amounts of dividend income from my living expenses, as I consider that the principle that they should fairly represent the HYP shares on offer very important and 'ring-fencing' allows me to reconcile the two principles.
Gengulphus
