Peter Lynch, one of the 20th century’s greatest money managers, had a very simple piece of advice for retail investors. He told them to “buy what you know.”
This piece of advice has been followed by millions of individual investors over the years, usually with good success.
Take the iPhone as an example. It didn’t take a tech genius to know the iPhone was going to be a hit for Apple Inc. (NASDAQ:AAPL). Anybody with a decent understanding of the business could see the huge demand for such devices, the profit potential in selling a high-end electronic brand, and the easy scalability of downloading software apps.
The first iPhone came out on June 29th, 2007. Apple shares are up 566% since that date, excluding dividends.
Not every example is a sexy tech gadget. Saputo Inc. (TSX:SAP) has a dominant market share in dairy in Canada, making much of the milk, yogurt, and cheese we consume daily.
Saputo has leveraged its success in Canada into other markets, including the United States, Argentina, Europe, and most recently, Australia.
Most importantly for investors, the stock has done fantastically well. Shares are up 397% over the last decade, excluding dividends. That’s terrific performance for something as boring as cheese and yogurt.
The ultimate point is simple. Everyday products can make terrific investments because they’re enjoyed by millions. It’s easy for a company to make money if they have a huge base of customers, success that will translate into a higher share price of the manufacturer over time.
