Rae is onto something when he says most of us are unable to understand why someone would want to pay for cigarettes. In 2020, when I was first looking into tobacco stocks, I asked myself what edge I had, why the market might be offering an opportunity. I wrote down: “Financial professionals and investors are mostly top 20%/1%; few smoke.” I work in technology and almost no one around me (most of whom hold graduate degrees) smoke. It’s difficult to put ourselves into the shoes of people who are more likely smoke, like service industry workers such as cooks and estheticians.
Spot on, Tian. When it comes to tobacco, the industry is very much the opposite of Peter Lynch's "Buy what you know" and other renowned philosophies about observational idea sourcing. But as Rae said, if you don't see it around you, all you have to do is travel a bit more!
Coincidentally, on Friday Nikkei published an interview with Japan Tobacco, which has recently acquired Vector Group (who only sells cigarettes):
Q: Over 90% of JT's tobacco revenue comes from cigarettes. Do you see sales continuing to grow?
A: We expect 60% or more of revenue to come from cigarettes even in 2035.
It's certainly telling. Same can be said of deals other majors have made for JVs and minority stakes in specific geographies over the years.
Rae is onto something when he says most of us are unable to understand why someone would want to pay for cigarettes. In 2020, when I was first looking into tobacco stocks, I asked myself what edge I had, why the market might be offering an opportunity. I wrote down: “Financial professionals and investors are mostly top 20%/1%; few smoke.” I work in technology and almost no one around me (most of whom hold graduate degrees) smoke. It’s difficult to put ourselves into the shoes of people who are more likely smoke, like service industry workers such as cooks and estheticians.
Spot on, Tian. When it comes to tobacco, the industry is very much the opposite of Peter Lynch's "Buy what you know" and other renowned philosophies about observational idea sourcing. But as Rae said, if you don't see it around you, all you have to do is travel a bit more!
bingo
Enjoyed the podcast
Thanks, Patrick. The podcast is a fun project, and the interview episodes are something we look forward to especially.