Thursday, October 22, 2009

Investing in Guns

The Daily Finance site has a fascinating report about investing in the gun industry.

Cerberus, the private equity fund that nearly ruined itself by making bad bets in Detroit, particularly on Chrysler, is considering taking its gun company interests public. According to a report in The Wall Street Journal, the firm "is in advanced preparations for an initial public offering of Freedom Group Inc." The company has about $900 million in sales.

The move may be a profitable one for Cerberus. Gun company Smith & Wesson (SWHC) trades at just above $5, near the high end of its 52-week range. That gives the company a market cap of $300 million on sales of about $345 million. On a ratio-and-proportion basis, that would make Freedom worth close to $800 million.

It seems clear that the gun industry is a much steadier money-maker than the auto business. "Last quarter Smith & Wesson made an operating profit of $17 million on revenue of $102 million, an impressive margin. The company has $35 million in cash and modest long-term debt of $83 million."

There are probably as many guns in the U.S. are there are cars. Gun sales to law enforcement and military interests are always going to offer a steady flow of sales.

Cerberus will probably be able to do with guns what it could not do with its auto interests -- make money.

Is that true? Are there as many guns as cars? This is bad news for those of us who hate comparisons. If this get out, I'll be bombarded with the old substitution game again.

What's your opinion? Are guns a good investment? Besides law enforcement and military, America is certainly a sellers market as far as firearms are concerned.

Please leave a comment.


  1. Actually, there is anywhere between 2-4 times as many guns in the US as cars.

    DOT says there are around 62 million registered cars. If you include unregistered and non-functioning cars, that puts the number around 150 million.

    As for guns being a good investment, if a Republican wins the next presidential election or there is a major red shift in congress after the 2010 elections, the firearms bubble may burst. Or if there is news of a new ban of some sort on the horizon, the bubble will grow.

    Guns are too closely tied to politics to be reliable long term investments.

  2. Well seeing as I only one one car, and I have 5 mosin nagants alone...

    Tho my next door neighbor only owns a few guns, but has like 5 cars, and 3 motorcycles...

  3. We have more guns than cars, yes.

    Also consider that as soon as you drive a new car off the lot, it loses value instantly and continues to lose value except in very rare cases.

    Guns may not appreciate dramatically over time, but they will virtually always retain their original value.

    Those who stocked up on ammo 18 months ago are sitting pretty though.

  4. I wanted to invest in Ruger, Smith and Wesson and Cabelas last November but I didn't have anything extra to invest. I kept track though and would have made about 300% on my investment.

  5. I think investors in this country are too focused on short-term profits. Since President Obama was elected, the anticipation of firearms control laws generated a huge rush of demand, resulting in many production facilities working 24 hour shifts and running massive backlogs.

    That demand is starting to lessen, prices are coming back to 'normal', and new products are starting to trickle out (a sign that the focus is forward-looking again rather than just pumping out current products...why make something new if you can't make enough of the old stuff to satisfy demand?).

    Assuming no new legislation (which I don't expect for at least until after the next presidential election), I expect profits to drop back towards normal making year-to-year profits look horrible, followed by a massive sell-off and drop in stock values. Buying on that dip would probably net some more profits, otherwise I'd guess that this bubble was missed.

    My personal investment is in ammunition. It doesn't go bad so you can always use it as needed, its value has been going up fairly well so you can sell or trade it, and if the economy ever fails, it will probably be more negotiable than gold bars...right up there with alcohol and tobacco :)

  6. What's your opinion? Are guns a good investment?

    In what way? Buying stock in gun companies? probably not.

    Appreciation in value of actual firearms? Absolutely. I wish I'd picked up a few excellent condition Makarov's and Swiss K-31s a few years ago.

  7. Investing in guns is something that made sense when it was clear the democrats had a great chance at winning lots of power, and had a mean streak from their reactions to Bush. Both would lead to an environment where people were hording guns, ammo, magazines.

    When it's clear that the GOP is going to regain power it will then be time to start selling your guns.

    Gun manufacturers, however, will be a solid investment for quite a while. The world sucks right now. The economy has been ruined in the past few months (though it was unhealthy for the past 3 years), and crime, insecurity, unrest are all going to be worries that lead to gun sales.

    Also, people will buy guns just to make a political statement about individual rights.

    The smart investor moved on this when Mccain was nominated or earlier.


    Very good article here.

  9. Also, people will buy guns just to make a political statement about individual rights.

    Yup. I bought my AR-15 specifically as a big "F**K YOU" to Obama and good old Joe "I don't think he's mentally qualified to own that gun" Biden.

    I'm constantly ashamed the VP is from my state.

  10. I did some searching and I figure my gun and ammo collection has, on average, increased in value by about 250% in the last 2 years.

    Name another investment that can produce results like that which doesn't have a Bernie Madoff connection.

  11. Have I bought guns/ammo as an investment?


    Are all of my guns going to yield a positive return if I decide to sell some(something I have never done before), no.

    I'm a bit jealous of W'eerd as I only own 3 Mosin Nagants to his 5. But each one was purcashed for $75 and I don't really expect them to appreciate in value like my multiple AK's and AR's since the russians manufactured Mosins by the millions and started exporting every commodity they had(Mosin Nagants would never qualify as a banned arm for import) in an attempt to ward off the economic collapse they experienced in our little cold war game thingie. The bolt action Mosins are my "give away guns" if the shit ever hits the fan. Import bans won't ever touch bolt actions if I have anything to say about it, but they are very effective weapons to anyone who has read history.

    I don't think MikeB truly appreciates the "gun Market" in the U.S.

    It's not just guns.

    It's the ammo, the magazines, the scopes, the night vision, the kevlar, the ceramic plates, the camo, the guilla(sp?) suits, the CCW holsters, the gun safes, the bayonets, the dehumidifiers, the cleaning products, the face paint, the scent guards, the hunter's permits, the display cases and so many more that the lowly etc. doesn't even do it justice.

    When a pseudo "grass-roots org" with 50,000 contributing members goes against a true grass-roots collection of people generating BILLIONS of dollars each year, the politicos rightly stand up and take notice.

    "We vote with our wallets" is a popular mantra.

    So when the the Brady Campaign posts their legally mandated tax liabilty of $3.5 million contrasted with the reality of BILLIONS upon BILLIONS of sales related to the 2A, smart politicians take notice and modify their photo ops accordingly.

    If your goal is to "defeat the gun lobby" then you have failed before you even started.

    We're too big, we're too strong, we're too patriotic.

    You're only feasible goal is to adopt our suggestions for reducing "gun violence" and then wait and see if they produce positive results.

    The NRA is not powerful in the Halls of Congress because we're a violent bunch.

    We influence Congress because we vote we vote we vote.

    As long as the ballot box remains free and unobstructed, we won't have to break out the ammo box.

    But in the mean time, we are stocking up on ammo on a level not seen since the Civil War.

    Preparation does not equal paranoia.

  12. "I'm a bit jealous of W'eerd as I only own 3 Mosin Nagants to his 5. But each one was purcashed for $75 and I don't really expect them to appreciate in value like my multiple AK's and AR's since the russians manufactured Mosins by the millions and started exporting every commodity they had"

    Well there's the crux! 3 of my Mosins are pretty standard fare $75 C&R specials. Tho I own a pair of M1891s that are considerably older and commanded a much higher price.

    Hard to say what will appreciate more. Mosins are relegated to the shooter and collector market, but they don't make them anymore (tho they are hardly scarce like the CZ-52 I picked up a few years ago have become) meanwhile barring some idiotic law, you'll always be able to walk into a gun shop and pick up an AK or an AR because SOMEBODY is going to still be cranking them out, and generally speaking the AKs and ARs are better quality today than most older manufacture.

    Of course you state properly, Mosins will likely never face a ban, while Congress was forced to invent definitions to keep AKs and ARs from being sold (and they failed). Of course that is if they don't pass an "Armor Piercing Ammunition" ban, given that the 7.62x54R can punch through even some of the most heavy police and military ballistic armor...despite that stuff not even being invented in 1891....