December 20, 2012
Short Sale of Firearms Stocks
In the awake of the tragedy that unfolded in Newtown, Connecticut, a national debate has resurfaced about gun control laws in this country. These talks have placed the firearms industry directly in the regulatory cross-hairs of lawmakers in this country, which could have an effect on the price of stocks from these companies. The private sector is already experiencing these effects. According to The Trust Advisor, "Smith & Wesson has lost 28% of its market capitalization since Friday's tragic events. Sturm Ruger is down 16%." This situation is likely to get worse before it gets better, considering that both "New York and California city and state pension funds [are] 'aggressively' dumping their firearms holdings."
At this time, it is more critical for advisors to begin asking questions about whether their clients have invested in gun stocks. The good news here that any present clients are probably not at risk because of their limited exposure to the companies that are experiencing the greatest effects. Both Smith and Sturm Ruger only account for 0.1% of the entire holdings "in [most] typical small-cap equity index fund[s]." An advisor probably needs to be more concerned if their client has primarily invested with these companies or is part of the Bushmaster Rifle equity fund. Regardless, it is probably still a good idea for an advisor to tell his or her clients about the risks associated with their investment plans.
See Scott Martin, Short Sale: Is It Time To Suggest Dumping Your Clients' Firearms Stocks?, The Trust Advisor, Dec. 18, 2012.
Special thanks to Scott Martin (Contributor, The Trust Advisor) for bringing this article to my attention.
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