Legendary investor Peter Lynch is most well-known for his stock picking prowess, while taking the Magellan Fund's assets from $18 million in 1977, to over $14 billion 1990. But investors sometimes forget some of his Buffett-style investing philosophies and mantras. The mantra that most remember is very similar to Buffett's "Never invest in a business you cannot understand" and is simply "Invest in what you know".
While Lynch used the mantra to know which local stocks to invest in, the internet has allowed his mantra to be applicable to a huge array of industries and countries, that investors can now easily access. For now though, we will focus on his original intent, making a first assessment of a local business, based on what you know about it. This could include the impression when shopping in store, the ease of online-based sales or payment flexibility, the overall quality of experience provided by staff, the taste of the product, or even observations about how long customers are happy to wait in line.
Invest in what you know
Food companies are a great example of Lynch's mantra. As an Australian who hasn't spent any time in the US, I would feel much more comfortable investing in Retail Food Group Limited (ASX: RFG) than Chipotle Mexican Grill, Inc. (NYSE: CMG).
My preference is not because it's an Australian-listed company or because I have some irrational fear of Chipotle's, but because I know that Donut King makes great donuts, and the gourmet pizzas from Crust are fantastic. I've never had anything from Chipotle Mexican Grill so how do I know that the product is any good, or that stores are always busy when you go in, or that staff are friendly and courteous? I just simply couldn't feel confident investing in it.
Australian Food Companies
Some of the best Australian food companies available to investors are:
- Retail Food Group – Owner of Donut King, bb's cafe, Brumby's Bakery, Michel's Patisserie, Esquires Coffee Houses, Pizza Capers Gourmet Kitchen, Crust Gourmet Pizza Bar and The Coffee Guy.
- Domino's Pizza Enterprises Ltd (ASX: DMP) – seller of affordable pizzas in Australia, New Zealand, France, Belgium, the Netherlands, the Principality of Monaco and now Japan.
- Collins Foods Ltd (ASX: CKF) – manages over 100 KFC franchises in Queensland and NSW, as well as 30 Sizzler restaurants around Australia.
- Freedom Foods Group Ltd (ASX: FNP) – specialist producer of gluten and dairy free cereals and snacks to Australia and the US, as well as the manufacture of long life milks to the Chinese market.
- Coca-Cola Amatil Ltd (ASX: CCL) – producer and distributor of Coca Cola, Mt Franklin, Red Bull, and various other soft and alcoholic drinks in the Australia, New Zealand Fiji, Indonesia, and PNG.
The great thing about these companies is that they provide products that the majority of Australians know well (perhaps to a lesser extent Freedom Foods).
