The Wall Street Journal reports (subscription required) that "Over 41 years ended 2006, alcohol, tobacco and gambling shares returned about 3.5 percentage points a year more than other stocks, according to a new study slated for publication in the Journal of Financial Economics. Ironically, scrupulous investors might have created the outperformance by shunning such stocks, thereby leaving them available to other investors at bargain prices."

So there you have it: It might be possible to do well by doing good but it's easier to get rich investing in companies that do evil.

Vice stocks generally outperform the broader market during difficult economic times: Demand for cigarettes tends not to be affected by recessions and at least right now, the bad economy is driving gun sales .

However the performance of vice stocks doesn't appear to have held up particularly well over the past year. The Vice Fund recently reported (PDF File) that it was down 42.83% for the year ended March 31st, 2009 -- measurably worse than the category average of 38.13%.

If you believe the pundits who say we are close to emerging from a recession, this is the absolutely worst time to buy sin stocks: Their sales and earnings have been relatively flat during the recession and they're unlikely to get much of a boost from a macroeconomic turnaound.

Plus: You just sleep better owning shares in companies that don't kill people.

Blogger Paul Kedrosky posted a fascinating Bloomberg chart showing that alcohol consumption in the U.S. has started to decline. He opines people feel so poor that they have cut back on booze -- which casts aspersions on the defensive status of booze stocks. Piqqem Sentiment on Molson (NYSE: TAP), considered the best of the brewery companies, is modestly positive with rising sentiment.

The traditional definition of sin stocks has been simple: booze, cigs, scantily-clad women, and gamblin'.

But now some traditionally socially responsible companies are backtracking. According to The Wall Street Journal, KLD Research & Analytics, a socially conscious indexing firm, has launched a new Global Sustainability Index (subscription required) that uses a point system of sorts to include or exclude companies based on environmental impact, corporate governance, and the nature of their products. Some companies that sell liquor or operate casinos have made the list. Even Pax World recently dropped its zero-tolerance policy for alcohol and tobacco stocks.

The shift is a result in the shift in the definitions of morality and social responsibility. Originally, many of these funds targeted social conservatives who found gambling and pornography distasteful. The target market now seems to be the environmentally and socially conscious.

Of course, there are different funds for people with different ideologies. There's even a special fund for Democrats! For my profiles of a few off-beat funds investing based on SRI criteria, check out Invest with Your Politics.

Saturday's New York Times has an interesting piece on socially responsible investing, and investors who are successfully integrating their values into their investing without sacrificing their returns. While everyone is familiar with standard SRI funds like Paxworld and Parnassus Investments, there are a few really interesting ones that you probably haven't heard of:

Amana Mutual Funds: I'm Jewish, but I'm tempted to convert after taking a look at the jaw-dropping returns achieved by this fund, which screens out stocks that are not consistent with the principles of Islam. For the past 10 years, the Amana Growth Fund has earned an average annual return of 13.13%, compared to 8.42% for the S&P 500. This handily beats the vast majority of mutual funds, earning the company a coveted five-star rating from Morningstar, the leading evaluator of mutual fund performance. So what does Islamic investing mean? Amana won't invest in any company involved with liquor, pornography, gambling, or banks. Why banks? Under Islamic law, the lending or borrowing of money with interest is forbidden. Amana also avoids companies with heavy debt loads because of this. That practice helped the fund get out of Enron stock before the company imploded.

The Vice Fund: This one is the antisocial responsibility fund. They've invested, with tremendous success, in gambling, tobacco, pornography, and guns.

The Ave Maria Catholic Values Fund: This is another very successful fund which invests based on Catholic principles. They don't touch the traditional sin stocks, but also avoid companies that grant marriage benefits to same-sex couples.

So as you can see, values-based investing isn't just about labor practices or the environment. Whatever your values happen to be, there is probably a mutual fund to match them!