Investors often hear the advice "invest in what you know". When an investor is familiar with a company, he or she has an understanding of the company's products, market, strengths and weaknesses. This knowledge is power when it comes to investing. Warren Buffett, the Chairman of Berkshire Hathaway (NYSE:BRK.A) and one of the most well-known and admired investors of all time, teaches what he calls the "circle of competence", an investment strategy that focuses efforts on those companies that the investor best understands and has the most familiarity. (Check out The Greatest Investors: Warren Buffett.)
Many well-known companies that are on the Fortune 500 list manufacture the goods that we use every day, from toothpaste and mouthwash to bandages and baby care products. While this article does not seek to provide any investment recommendations, it can be used as a starting point to discovering those companies that you may already be familiar with and have an interest in learning more about.
IN PICTURES: 10 Timeless Market Rules
Yum! Brands, Inc (NYSE:YUM)
Yum! Brands, based in Louisville, Kentucky, has more than 37,000 restaurants in over 110 countries, making it the world's largest restaurant company in terms of system restaurants. Yum! is ranked number 216 on the 2010 Fortune 500 list, an annual list published by Fortune magazine that ranks the top 500 corporations based on gross revenues. Yum! ranked second in the food services category behind McDonald's. Yum! is the company behind KFC, Pizza Hut, Taco Bell and Long John Silver's. According to Yum!, 2009 marked the eighth consecutive year of experiencing at least 13% growth and exceeding its 10% Earnings Per Share (EPS) growth target.
McDonald's Corporation (NYSE:MCD)
McDonald's was founded by Richard and Maurice McDonald in 1940. The first restaurant was called McDonald's Bar-B-Que and was located in San Bernardino, California. Headquartered in Oak Brook, Illinois, McDonald's has more than 32,000 locations worldwide, serving more than 60 million customers in 117 countries each day. McDonald's ranked number 108 in the 2010 Fortune 500, and number one in the food services category.
McDonald's is famous for its Big Mac, Quarter Pounder, Chicken McNuggets and Egg McMuffin. Recently, McDonald's has entered the coffee wars, and its coffee was rated as better tasting than Starbucks, Dunkin' Donuts and Burger King in the March 2007 issue of Consumer Reports. McDonald's customers drink more than 400 million cups of its Gavina coffee each year.
Johnson & Johnson (NYSE:JNJ)
Johnson & Johnson was founded in 1886 and is headquartered in New Brunswick, New Jersey. The company manufactures medical devices and diagnostic equipment, prescription pharmaceuticals and a wide variety of consumer packaged goods. Johnson & Johnson came in at 33 in the 2010 Fortune 500 list, and number one in the pharmaceuticals category. Consumers know Johnson & Johnson for its Band-Aid brand adhesive bandages; the baby care products Johnson's Baby Wash, Johnson's Baby Powder and Desitin diaper cream; the adult skin and hair care products Neutrogena, Aveeno, Lubriderm and Clean & Clear; the vision care products Visine and Acuvue brand contact lenses; over-the-counter medicines like Tylenol, Sudafed, Mylanta and Benadryl; and oral health care products including Listerine and Reach.
Proctor & Gamble (NYSE:PG)
Established in 1837 and headquartered in Cincinnati, Ohio, Proctor & Gamble manufactures a wide variety of consumer goods. Sitting at the number 22 spot on the 2010 Fortune 500 list, and the number one spot for the household and personal products category, Proctor & Gamble boasts billions of consumers worldwide and a portfolio of some of the world's best known brands, including Aussie, Braun, Camay, CoverGirl, Gillette, Head & Shoulders, Herbal Essences, Ivory, Olay, Old Spice, Pantene, Secret, Venus, Vidal Sassoon, Zest, Crest, Metamucil, Oral-B, Pepto Bismol, Prilosec OTC, Pringles, Scope, Tampax, Vicks, Bounce, Bounty, Cascade, Charmin, Febreze, Tide, Duracell and Pampers. (For more info on these types of companies, check out A Guide To Consumer Staples.)
General Mills (NYSE:GIS)
General Mills, founded in 1866, is headquartered in Golden Valley, Minnesota and ranked 155 on the 2010 Fortune 500 list. It ranked number three in the food consumer products industry category, following PepsiCo and Kraft Foods. Every morning, General Mills provides 60 million servings of ready-to-eat cereals like Cheerios, Chex, Cinnamon Toast Crunch, fiber One, Kix, Lucky Charms and Wheaties. In addition to breakfast cereals, General Mills supplies five million cups of its Yoplait yogurt products each day.
Kellogg was founded in 1906 by Will Keith Kellogg and is headquartered in Battle Creek, Michigan. It sits at 184 on the Fortune 500, and at number six for the food consumer products category. Kellogg manufactures in 18 countries and sells its products in more than 180 countries worldwide. Kellogg is well-known for its breakfast cereals, including Rice Krispies, Corn Flakes, Frosted Flakes, Special K, All-Bran, Raisin Bran, Apple Jacks, Froot Loops, Cocoa Krispies and Frosted Mini Wheats. Other Kellogg breakfast foods include Kellogg's Eggo Waffles, Kellogg's Eggo Syrups and Pop-Tarts toaster pastries. (These companies may not be flashy but they offer investors structure and diversification, read A Guide To Investing In Consumer Staples.)
IN PICTURES: 8 Steps To An Organized Financial Life
Invest In What You Know
Warren Buffett's circle of competence theory encourages investors to invest in what they know. The more one understands a company, from its products to its market, the better informed your choices will be. Many products that each person uses in a day can be traced back to a few parent companies. This list of companies might spark an interest in researching those companies whose products you are most familiar with, making it possible to invest in everyday products.
For the latest financial news, see Water Cooler Finance: The Beginning Of A Foreclosure Crisis?
Mutual Funds & ETFsDiscover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
Mutual Funds & ETFsLearn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
TaxesLearn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
Mutual Funds & ETFsLearn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
ProfessionalsAs the retirement boom continues, retirement co-ops are growing in popularity. Here's how to set one up in your community.
Stock AnalysisUnderstand the growth and challenges of the renewable energy market and its success in 2015. Learn about the top three energy stocks to add to a portfolio.
ProfessionalsLearn about the various talking points you should cover when discussing mutual funds with clients and how explaining their benefits can help you close the sale.
Mutual Funds & ETFsThese three transportation funds attract the majority of sector volume.
Investing BasicsLearn about how the data suggests that the buy-and-hold investment strategy still works, even after the huge declines of the Great Recession.
Investing BasicsChoosing a financial advisor isn't an easy task. Here's a list of the most important things to consider when planning for your financial future.
There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
Financial advisors engage in a wide variety of financial areas, including tax return preparation and tax planning for their ... Read Full Answer >>
Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>