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If you can set your ethics aside, here's a profitable investment strategy

by , 11 July 2014

Investors are always looking for an easy-to-apply investment strategy. A way of making money that doesn't mean spending weeks on research.

There is one investment strategy that provides you just that. That is: Investing in habits.

So what is ‘investing in habits'? And how can you do it?

Read on to find out…

What is ‘investing in habits’?

One investment strategy almost guaranteed to yield results is buying shares of companies that sell habit-forming or addictive products. This includes alcohol, cigarettes, fast food, confectionary and fizzy drinks.

But this strategy isn’t a popular one, Brian Hunt in Daily Wealth explains. A lot of investors just aren’t happy with investing in companies like these. Many people apply their ethics when they invest and, in many instances, that means avoiding these companies.

Have a look at the Johannesburg Stock Exchange. What is the largest company listed? It’s British American Tobacco.

If you look at a list of the 20 top performers of the S&P 500 from 1957 to 2003, many of these are companies that produce habit-forming products.

Phillip Morris comes in at number one. Phillip Morris is a cigarette producer. Cigarettes are addictive products.

Other top performers include Coca-Cola. Through producing fizzy drinks, they sell a sugar-laden products that has stood the test of time. Many believe sugar is a habit-forming ingredient.

McDonalds is also there. And these foods can be addictive too. McDonalds has yielded an average of 13% annually for 30 years. That’s quite an impressive performance.

Habit inducing products mean repeat business

Once people use a product as part of a habit, the company is almost ensuring future repeat business. And brands are also very important here too.

When consumers find a brand they’re happy with, they’re less likely to move elsewhere.

That means these companies can increase their prices and their loyal customer base will keep on buying. This results in consistent sales and good profit margins. As an investor, that’s exactly what you want from a company you invest in.

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Once these companies hit on a winning formula, they tend to leave it be. This means more cash in the company to go back to shareholders in the form of dividends.

If the idea of investing in these types of companies doesn’t lie well with your investment ethics, leave alone. But if you can embrace the idea, this investment strategy could stand to pay off for your portfolio over the long-term.

So there you have it, a profitable investment strategy that could bring in gains if you can set your ethics aside.

If you can set your ethics aside, here's a profitable investment strategy
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