After 50 years of buying businesses I have become a huge proponent of buying manufacturing businesses over any and every other kind of business out there -- especially service businesses. The main reason is because they are safe (from an investment point of view), have little overhead and need almost no attention, since they basically "run themselves."

But many times I am asked if there are certain industries or types of manufacturing businesses which I would stay away from. The answer is yes. I would definitely urge anyone to stay clear of buying anything in the automobile industry.

Why?

Well, mainly because the automobile industry has exessive peaks and valleys.

What these auto companies do is they give you as thin a margin as possible and as soon as you get used to it, maybe make a slim profit one year, theyre back the next year trying to cut your price down.

So, it is very tough to make a good profit in a business like that. Plus, if you bring investors in, youre going to have years where you dont make enough money to get beyond the investors. In other words, therell be enough cash flow maybe there to pay a return to the investors...but you and your family are going to be out on welfare or something because there won't be enough to pay yourself.

So you have to stay away from not only the automobile industry...but any industry with peaks and valleys that are continually working on you. Just like if you were buying a company that was selling to Wal Mart. I mean you have to be crazy. Yes, your volume would be good. But, at the same time, they'll drive you nuts with their price cuts and gimmicks.

Bottom line: If youre going to go after a business thats making over $1 million (and that's the best way to go, in my opinion), my suggestion is to find one with proprietary products you can control. That way youre not going to have the peaks and valleys...you're not going to have to guess what the newest gimmick is going to be...and youre not going to have to spend all your time in there nervously trying to get this thing to make money.