Are Cottage Industrial Companies Better For Shareholders?

Image by: 401(K)2013
By Michael Sterling

It’s easy to be misconstrued by the size of a company. When one looks at a giant company like GE, the average person would think that it’s the go-to company to put your money in. Well recent processes have shown that it isn’t always the case. Smaller companies can have much more returns for their share holders.

Owning pieces of a smaller company that prides itself in quality over quantity will go a long way. You can own a company that is driven to achieve excellence and is putting the money in important places, instead of throwing it away on the expensive image of the “monopoly man.”

What Is A Cottage Industrial Company? 

The term literally came from cottages. In the old days, when farmers were running low on money, they would start doing side jobs like sewing or clay making to make ends meet. They would have minimal employees (usually the family), one or two central bases of operation (the house or farmhouse), and could produce a vast amount of quality products.

This same idea applies today with companies like Infinity Property & Casualty and Contango Oil & Gas. Even though these companies have a small number of employees and spend very little in advertising, they have outperformed giant companies for years since they offer lower prices than their competitors, they spend less money on marketing, and they have no debt because of it.

Cottage Industrial Companies Can Make More Value Per Share

Contango Oil & Gas is a great example of this. They made themselves to be the cheapest producers of natural gas in North America. Since they began in 1999, company investors are up 2000%! To compare how astronomical this is with other companies, within the same time frame, Dow Jones – the grouping of the biggest American companies – made just 26%.

Contango has 12 wells, 10 employees, 0 hedges, and NO DEBT! Even before the price of natural gas collapsed, investors have made it up to 4,000%.

Kenneth Peak, the founder of Contango, was not an Agent Manager. He owned it. He had the largest share of the company until recently, when he gave it up. Not only that, but he stopped issuing options to employees as well. The smaller the number of shares, the bigger the wealth. The point here is to get rich. Peak’s method of management has been put into three points: Lowest cost, value creation, and shareholder wealth – per share.

Their number of shares went down 2 and half million in recent years, and if you would have owned any part of Contango a few years ago, you would now own fifteen percent more today.

Consumer Loyalty

Inifinity Property & Casualty is a national provider of car insurance and has outperformed the largest insurance companies in the country for the last ten years. Despite the many attempts at competitors to widen their brand on a national scale by spending millions of dollars on commercials, advertisements, and all that’s in between, most consumers will not leave their loyalty with Infinity. 

Since Infinity doesn’t need to spend as much on marketing, they can offer the lowest prices – plus they have more money to put into their services.  Their shareholder returns have been higher than most of the major car insurance companies. It makes sense that if a company is trying to get bigger and bigger, they would obviously have to charge more to their customers. But does that mean that the product is any better? No. 

In 2013, the trend of owning smaller cottage companies is getting higher in popularity. Companies are going public with fewer and fewer shares, which means that the value will only increase.

Cottage Industry Is Weakening The Giants

According to a research study by Chris Mayer, managing editor of the Capital and Crisis, the reason why these giant corporations like Wal-Mart, JP Morgan, and Microsoft are huge is because they’ve always had governmental policy giving them a leap forward. Wal-Mart’s products wouldn’t have been able to go everywhere in the country had it not been for the tax payer’s money to create unnecessary highways, JP Morgan would be nowhere without the Federal Reserve, and Microsoft wouldn’t be anywhere without copyright or patents.

State privileges help grow these giant companies, however now the state is getting weaker in this financial trouble. Roads aren’t getting paid attention to, intellectual property is difficult to detect on the internet, and new technology and websites are making small companies thrive which is more appreciated by consumers.

According to IBISWorld, an industry research resource, returns for most individual cottage companies will see a growth of 5% – 8% before 2017. Businesses like alternative health care, insurance companies, psychologists, counselors, waxing and nail salons, etc will see growing returns. The internet has made it so easy to create your own business and with the technology available to us, it is impossible to argue that giant corporations are in safe water.