When you think of public companies, what immediately comes to mind? Sure, there are the big, bad conglomerates, the brands that everyone knows, the big technology firms, the retailers large and small, industrial and transportation companies, and so on and so forth. But with 6,000 companies listed on the three major exchanges, you have the potential for an incredibly diverse array of businesses, models, and services provided -- any of which could be a potential investment.
The idea for this article came from two places: one is a total prejudice; the second, a fascination. The prejudice is this: I have an innate distrust of companies that do not produce or market something tangible. The banks, investment banks, consulting firms, and the like -- I have an extraordinarily difficult time trusting them. It's a prejudice, pure and simple, but two concepts keep me cautious.
The first is Warren Buffett's simple exhortation that you should look for businesses that can be run by monkeys, because eventually they will be. The second is a story from John Train's The Money Masters, in which legendary investor Paul Cabot noted with contempt that a bank had lowered its dividend while raising its salaries. He told the bank president that the company shouldn't be rewarding its "boys" while making shareholders suffer for poor performance -- to which the president responded, "We haven't got anything except our boys."
Like I said, it's a prejudice. But I see what can happen with a BearingPoint
The task for investors of determining what is sustainable for these companies is difficult, and there are minimal fixed assets to fall back on. Of course, in some cases, like Jacobs Engineering
I also have a fascination with the bizarre. Sure, we all know that Tiffany
I call these companies "freaks" in the classic carnival sense -- there isn't necessarily anything negative about it -- they're just way off the beaten path, and some of them are interesting companies. Think of it this way -- if General Electric
Here, then, is the gallery.
Here comes Santa's super sleigh
In the movie About a Boy, Hugh Grant's character doesn't have to work because he lives off the royalties of an annoying holiday carol his dad had penned 50 years before. Royalty companies are like that -- Qualcomm
These companies have an installed portfolio, and anyone who wants to use their technologies pays a toll. Some have described these companies as the closest thing we have to publicly traded law firms. Were it not for the need and desire to develop new technology patents, these guys could be sitting on a beach somewhere waiting for their checks to show up. (Of course, none of these companies really qualifies as being off the beaten path.)
Frankencompany
There are some corporations that have such bizarre combinations of business that you just can't believe that it happened this way on purpose. There is, of course, insurance/furniture/candy/framing/manufactured housing/shoe/brick/paint/vacuum cleaner/cutlery-selling Berkshire Hathaway
There are also plenty of other brand-management companies like Brown-Forman
Pizza in a cup
These are firms that are in the mold of one of Peter Lynch's favorite investments: a company that made sausage casings. These are businesses that most people never think of at all, much less as potential investments. Several years ago, I profiled a few companies with businesses that sit well outside public consciousness, including Stepan
There are plenty more obscure businesses out there, though. How about M&F Worldwide
All of this goes to say that if there is something -- anything -- out there that you're interested in, there is more than likely a company that you can invest in that's doing it. Moreover, there are other companies that are running businesses in areas that most people simply don't think about. And while some of them are well-deserving in their obscurity, among them -- like an Aldila -- are some gems in places where most people don't think to look. So the next time you see a freak, don't scream or run away. It might offer you the chance at some outsized returns.
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Fool contributor Bill Mann holds shares in Berkshire Hathaway and McDonald's. He's owned a few strange companies, too. None mentioned here. The Motley Fool is investors writing for investors.