Funny places to find stocks

I was reading this article in Wired earlier purely out of curiosity and/or the hope that I could give up investing and just beat the lottery every day. There are plenty of nice tidbits to sprinkle into intellectual conversation such as "Lotteries were used to fund the American colonies and helped bankroll the young nation. In the 18th and 19th centuries, lotteries funded the expansion of Harvard and Yale and allowed the construction of railroads across the continent." The part of the article which yielded a payout for my investing side was:

In North America, the vast majority of lottery tickets—everything from daily draw Pick 4-style games to small-stakes tic-tac-toe and bingo scratchers—are produced by a handful of companies like Scientific Games, Gtech Printing, and Pollard Banknote. These publicly traded firms oversee much of the development, algorithm design, and production of the different gambling games, and the state lotteries are largely dependent on their expertise. Ross Dalton is president of Gtech Printing, and he acknowledges that the “breakability” of tickets is a constant concern. (Several other printing companies declined to comment.) “Every lottery knows that it’s one scandal away from being shut down,” Dalton says. “It’s a constant race to stay ahead of the bad guys.” In recent years, Dalton says, the printers have become increasingly worried about forensic breaking, the possibility of criminals using sophisticated imaging technology to see underneath the latex. (Previous forensic hacks have included vodka, which swelled the hidden ink, and the careful use of X-Acto knives.) The printers have also become concerned about the barcodes on the tickets, since the data often contains information about payouts. “We’re always looking at new methods of encryption and protection,” Dalton says. “There’s a lot of money at stake in these games.”

As a side note, GTech is part of Lottomatica, an Italian company that is much larger than the rest of the competition.

The article gives a good overview of the lottery business in general. This is a niche market, an oligopoly, requires investment in security technology, an entrenched part of government revenue, has strong recurring revenues, and a strong psychological pull. Lottomatica, Scientific Games, and Pollard Banknote make for a good place to start looking for stocks. Scientific Games has a market cap of $965m, not exactly a big fish, although it might look big compared to Pollard's market cap of $54m.

There is the general maxim in investing that finding the best stocks requires one to look where nobody else is looking. I find this to be especially true with my investing approach, which entails combining my general curiosity and willingness to read anything combined with a value investing philosophy. There is plenty of insight on investing that is not printed in traditional investing or financial publications. Articles written more for the nerd factor of a guy spending his time figuring out the patterns of lottery tickets offer a completely different level of insight into an industry.

Talk to Andrew about funny places to find stocks