Smokers’ investment portfolios — to the surprise of researchers — tend to outperform those of non-smokers, according a study published earlier this month.
“In contrast to expectations, investors with lower self-control appear to be impatient, as they trade more frequently, but appear to be better investors when taking all evidence together,” wrote finance researchers Charline Uhr (Goethe University Frankfurt), Steffen Meyer (University of Southern Denmark), and Andreas Hackethal, also of Goethe University.
This is because individuals who smoke cigarettes are also more likely to use financial advisors and hand over their portfolios to professionals, the study found.
Separating out smokers who run their own money changes the picture. These tobacco-fueled DIY investors held less diversified portfolios, posted significantly lower net Sharpe ratios, and underperformed both nonsmokers and tobacco users who had hired professionals, according to the paper.
For their investor sample, Uhr, Meyer, and Hackethal used client data from a discount German brokerage. To find the smokers, they examined clients’ credit and debit card transactions from January 2016 through June 2018.
German law dictates that a single packet of cigarettes costs the same regardless of the retailer or how many packs someone purchases. The study defined “smokers” as anyone who’d made at least two transactions for the exact price of one or more boxes of cigarettes during the sample period. Having started with data on more than 100,000 brokerage clients, the researchers winnowed down their sample to 19,371 retail investors, including 5,370 they deemed smokers.
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“Smokers identified in our sample are younger, wealthier, and more likely to be male, married, and more risk-averse,” wrote Uhr, Hackethals, and Meyer.
They were also significantly more likely to use advisory services offered by the bank, much to their benefit.
“Rather than acting on their own,” the authors explained, “they tie themselves closely to a professional advisor or fund manager and therefore participate in financial markets without taking the risk of jumping into a wild sea of investment mistakes.”