Cigar Tobacco As a Troubled Investor’s Favor By Garson Smart At Isnare.com Ezine Articles

If cigar magazines such as Cigar Aficionado and Smoke can be believed--and demographic studies indicate that, on this issue, they can--premium cigar smokers tend to be the types of folks who also make savvy investments.

But even the most dedicated cigar aficionado and premium cigar smoker may not realize the unique and interesting role that premium cigars play in the stock market, especially during recessions like the one we are all currently lamenting.

When the stock market crashes, or when stocks undergo a longer-term, severe price contraction, investors seek safe stocks to place their money in. Their reasoning makes sense enough: after all, in a shaky economy, even a company with great profits in its future may present a fairly bad short-term investment. In troubled times, then, it makes sense to put money in something that has a tendency to remain profitable even when the economy's bad. And, given that demand for tobacco is fairly inelastic--meaning that the demand doesn't change even as households and companies seek to shrink their budgets and tighten their belts--tobacco represents one of those fairly durable investments.
All this makes tobacco look like a good investment when times are bad. Investors even have a word for this kind of stock (the fairly sure bet that you turn to when nothing's a sure bet): they call it a defensive stock. As in, self-defensive. Self-defense of the monetary kind, that is.

So, for example, during the recent recession, a number of tobacco companies have found their stocks immensely saleable--and immensely successful. Investors have enjoyed the extra security these stocks offer. And tobacco companies, including the premium cigar tobacco giant Altadis S.A., which was recently acquired by a still larger tobacco company, have appreciated the vote of confidence, especially given the other challenges roiling the dedicated cigar aficionado and the cigar industry in recent months. Among other things, a new increase in the SCHIP children's insurance program has been paid for in part by increased tobacco taxes, including a closing of the federal tax loophole that a premium cigar aficionado had secretly appreciated for decades. This loophole meant that cigars, cigar tobacco and premium cigars were taxed at a much lower rate than were cigarettes. It has been closed at the federal level with a ten-time increase in taxes on cigars, and more and more states are moving to close similar loopholes in state tax policies in order to make up budget shortfalls. Also, with United States policy toward Cuba easing slightly--signaling, just possibly, that the longtime United States trade embargo against Cuba may not last forever, or even through the four to eight years of the Obama administration--premium cigar manufacturers are sweating somewhat the prospect of having to compete, for American dollars, against one of the finest cigar companies in the world, the government-owned Cuban cigar monopolists at Habanos S.A.

So, it's a good time for cigar tobacco companies to be enjoying their new allure as defensive stocks. But not everyone agrees. A New York City Council member has recently argued, on ethical grounds, that his city should divest itself of the more than five million shares, valued at over a hundred million, that its various pension boards owns. Those stocks, if relinquished now, could end up a windfall for those pensioners.

On the other hand, maybe not. With the economic signals still mixed, but many forecasters foreseeing an end to the recession in late 2009 or early 2010, some investors have already switched over to recovery stocks--stocks that tend to do well during periods of economic recovery. A premium cigar aficionado, in any case, might want to consider going beyond mere fandom to investment, the next time (let it be many, many years from now!) the economy goes into decline.

Published At: Isnare Free Articles Directory http://www.isnare.com
Permanent Link: http://www.isnare.com/?aid=383864&ca=Advice

Important Notice DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.