There's a lot to be said for Peter Lynch's "buy what you know" investing philosophy. For instance, if you're a regular at Gap
Let's face it: This doesn't work for everything. What about obscure companies, like those in the mining or freight delivery industries? You can't exactly walk into one of their stores, check out the merchandise, and ask questions of the salesperson. Because it's much tougher to get a handle on how well these companies are executing, it's all too easy to disregard them and concentrate on stocks you've heard of.
Yet by doing so, you would have missed out on some of the market's best performers of the past few years. Ever heard of Expeditors International of Washington
Another example is First Data
Juice your investing performance
So, studying little-known businesses can give you a leg up by getting you into quality companies ahead of many other investors. And if you want to get in before mutual funds and other institutional buyers do, it pays to look in the world of small-cap stocks. By doing so, you give yourself a real chance to nab a 10-bagger (as Peter Lynch called stocks that rise 10 times in value), a difficult feat to achieve when buying larger companies.
At our Motley Fool Hidden Gems small-cap service, we're always on the lookout for obscure companies that dominate a profitable niche. Look down our online scorecard and you'll see it's chock-full of names such as Sadia
Such businesses can help you achieve superior returns in uncommon industries. In the three years since the service began, they've helped Tom Gardner and the Hidden Gems team roll up 27% average total returns with their recommendations, versus 12% for equal amounts invested in the S&P 500.
For a little help finding obscure winners, give Hidden Gems a try. It's free for 30 days, and there's no obligation.
Rex Moore has discovered that obscure players don't do well in fantasy football. He owns a few obscure stocks, but none mentioned in this article. Gap and First Data are Inside Value recommendations. Gap and American Eagle are Stock Advisor recommendations. This information is brought to you by the Fool's disclosure policy.