Tobacco Going Up in Smoke?

juul 2

October 1, 2018

Tobacco has been an important product in United States since before the signing of the Declaration of Independence. Now, nearly 250 years later, tobacco products can be found in every shape and size across the entire planet. According to Credit Suisse’s 2015 Yearbook Report, from 1900 to 2010 the US tobacco industry returned an amazing 14.6% annually, outperforming the market over the same time-period by nearly 5%. These numbers demonstrate the massive staying power of tobacco companies, despite the headwinds that the industry has faced over the last 50 years.

Since the CDC published reports on the health implications of smoking cigarettes in the 1960s, the number of smokers in the US has fallen drastically. Public schools now have mandatory curricula on the dangers of smoking, advertisements have been greatly restricted, and nicotine gum and patches have entered the market as healthy alternatives to smoking cigarettes. However, the newest competitor for big tobacco, the electronic cigarette, may be the most formidable challenge yet.

E-cigarettes are being pushed as the cool, clean, and safe new way for people to kick a cigarette habit. The company at the forefront of the industry is Juul Labs Inc, a San Francisco based company, that launched an e-cigarette product in 2015. Since the launch the product has been adopted at an exponential rate, especially amongst millennials. A recent Wells Fargo equity research report focused on tobacco noted that Juul has seen an astonishing increase in its share of the retail e-cigarette market, and now approaches 50% of all dollars spent.

Coinciding with this growth, equity in traditional tobacco companies Phillip Morris & Altria is trading down significantly year to date, at -21.8% and -14.7% respectively. There are many other factors to which this loss can be attributed, but it appears that the trend towards e-cigarettes may be the straw that breaks Camel’s back.

Instead of viewing the recent trend towards e-cigarettes as a major threat to their portfolios, investors are beginning to take the opportunity to fund the rising new companies in the smoking space. This has produced remarkable increases in the values of some e-cigarette companies. However, recent growth trends will need to continue for quite some time to justify the current prices. Juul Labs for instance raised $650 million at a $15 billion valuation this summer to continue its rapid expansion.

An investment in this trendy industry seems full of promise, but not without headwinds of its own. Recently Juul’s sleekly designed e-cigarette, which resembles a USB drive and comes in flavors such as mango or cotton candy, has come under fire for being too easily accessible to underage users. Moreover, these newer companies are going head to head against tobacco companies that have survived for 250 years, and are armed with a total annual lobbying budget of $20 million plus. Only time will tell whether old tobacco or the new e-cigarette sector will go up in smoke.

Corey Erdoes


Will We Live Long Enough to Live a Long Time?

old water skier

September 24, 2018

We have grown used to the idea that life expectancy for Americans will increase over time. Advances in medical diagnosis and treatment, better understanding of the impact of diet, and a relentless media focus on the benefits of exercise, seem bound to produce a lot more people in their 90s, and even centenarians. Recent trends in life expectancy tell a different story. In fact, once all the data has been analyzed for 2017, it is highly likely that we will have three straight years where American life expectancy declined. The last time a three-year decline occurred was in 1916-19, a period which included the end of WWI and a terrible flu pandemic.

Why has life expectancy begun to fall? There is no single answer. There are several diseases and factors which are proving deadlier including diabetes, drug overdoses, pneumonia, and Alzheimer’s disease. One of the main areas of improvement over the last few decades was the decline in fatalities from heart disease, but that has now begun to stabilize. Among the few positive areas are lower numbers of deaths caused by cancer, HIV, and blood infections.

The increasing attention being paid to income inequality has led to more analysis of the impact of wealth. The evidence clearly identifies that people with lower standards of living have higher death rates. This is an area beset with politics, so care is needed when looking at the available information and analysis. One area of contention is whether longer life expectancy for the wealthy is due to purchase of better treatments as opposed to simply living a healthier lifestyle. For example, obesity cares little about wealth, but levels of obesity, and associated health issues, tend to be higher among the less wealthy.

Do the negative overall trends in life expectancy mean that we should change our approach to financial planning for the future? After all, if we are not going to live as long, we will have less need to provide for our retirement. The answer to this question is clear. While overall life expectancy might be declining, people in the wealthier socio-economic groups are still likely to have long lives. Moreover, this group is also the one that takes most advantage of current knowledge to have some influence on how long they live.

So, do not be misled by any news stories about shorter lives. Planning for a long period of retirement remains a vital part of managing our finances. This is especially true for those who follow the advice of our medical profession by staying trim, exercising regularly, getting regular checkups, and avoiding alcohol and drug abuse.

Of course, we all carry the benefit or curse of the genes we are given, and some diseases and accidents are completely out of our control. There is no guarantee that we will need the funds we have set aside for living into our 90s, but we should make some provision. We might just live long enough to live a long time.

Richard Rushton