The Case for Investing in Guns

Guns are deeply ingrained into American culture and psyche. Firearms are an integral part of who we are. The national fascination with firearms is obviously not a uniquely American phenomenon. But Americans seem especially loathe to give up their guns. Facing the threat of increased legislation, many citizens respond by ramping up their gun and ammunition purchases. Contrast that to Scotland in the 1990s, where thousands of people voluntarily turned over their guns en masse before a coming gun ban. All politics aside, are guns good investments?

Guns are obviously unique products in that they are primarily designed for hunting animals and killing other human beings. Yes, actively investing in weaponry is pretty much the direct opposite of socially responsibility investing. But keep in mind that “vice” and sin stocks can be profitable. Demand for things related to gambling, alcohol, tobacco, sex, and weapons are are unlikely to abate. Deciding whether or not to invest in weapons comes down to this: do you want to make money, or do you want to pass judgement?

Socially responsible investing sounds good in theory, but why hamstring yourself and hurt your potential returns?

Pros And Cons of Investing in Guns

So what are some of the possible advantages of investing in guns? Human nature doesn’t change. Demand for weapons is unlikely to fall off. Well-made guns can last almost forever when cared for properly. A firearm is an heirloom that can be passed on from generation to generation. With the exception of antique cars, there are very few other products you can buy today that will stay in working order for decades to come.

There are disadvantages to owning physical guns. They can be stolen, and can be dangerous if left unsecured in homes with small children or suicidal people. Buying a safe can be one solution to prevent theft and keep unauthorized users from accessing your collection. Homeowners insurance will sometimes cover your firearms in the event of theft.

Another disadvantage to owning physical guns is regulatory risk. There is always the possibility that they will be made illegal or severely restricted. If that happens, then the value of those guns could drop to almost zero (on the legal market). For example, if you purchase an semi-automatic AR-15 and then they are banned permanently on a Federal level, your options will be limited. No one else would be able to buy the gun from you, so it would be damn near worthless. Of course, it would probably still have black market value, but most law-abiding citizens are not going to take that route.

Investing in Gun Stocks

Perhaps you are not ready to buy actual guns, or live in a country or jurisdiction that prevents it. In that case, you have other options. Consider purchasing stock in firearms manufacturing companies:

• Sturm, Ruger & Company – RGR
• Smith & Wesson Holding Corporation – SWHC

Both of these companies make guns for the civilian, police, and military markets under various brand names. They predict growth as strong demand for guns is expected to continue. I was unable to find any gun ETFs or mutual funds.  The Vice Fund (VICEX) does invest in weapons manufacturers, but the overall allocation is small.

Investing in Bullets

Some advocate hoarding bullets as a form of “currency” in the event of economic collapse. Buying bullets may or may not be a good strategy, but ammunition shortages could make bullets more valuable. If buying and hoarding ammo isn’t your thing, consider buying stock in ammunition manufacturers instead:

• Olin Corporation (owns Winchester) – OLN 

It should be noted that Olin in not a pure ammunition play. This chemical company has three distinct business segments including Winchester ammunition.

Investing in Physical Guns

Buying a gun is still fairly easy to do. You can get them through online gun exchanges, gun shops, gun shows, or through private sales with other gun owners. Waiting periods vary by state. Another option for collectors and investors are antique firearms. Antique guns can also be bought online or through private dealers, but they require more specialized knowledge. This knowledge can pay off, as old guns can potentially sell for hundreds of thousands of dollars at auction.

Investing in 3D Printers

If you decide to invest in guns but don't like to invest directly, then there is one fascinating development well worth watching: the 3D printer.  These printers are used to make a wide variety of different objects, but they can be used to make weapons as well. People can now literally print firearm receivers (the main part of the gun)  and magazines using this readily available technology. The gun specs may be downloaded from the internet. Additional parts to “build out” the gun are freely available online as well.

3D printing technology is still expensive and in its infancy. And it’s possible that lawmakers could prevent people from using it for gun-making. But there are already companies exploring the technology for weapons manufacturing. As 3D printing technology gets better and cheaper, it is easy to imagine every single American household owning a 3D printer – just like an iPad, TV or a laptop. And if making a gun is as simple as hitting “print,” who knows what kind of effect this could have on firearm valuations long-term.

Understand that the purpose of this post is not to get into a moral debate about whether or not guns should be illegal. Guns exist in the real world. People are obsessed with their weapons, and have been since the dawn of civilization. Human nature will never change. And it is possible for prudent investors to take advantage of this fact and profit from guns.

What are your thoughts on investing in guns?  Prices are down with impending legislation, so is it a time to buy?