The Misfits: Credit Acceptance Corporation (CACC)

Some of the less savory businesses can generate spectacular returns if you are willing to look the other way.

Portrait of Lorenzo de Medici, artist unknown (after Raphael), 16th century, oil on canvas (Fabre Museum)

The stock market is a school of hard knocks. It can teach many lessons, but you usually learn them the hard way. We often get caught up in a business's story because it offers a more optimistic view of the world. Sometimes, those kinds of businesses work splendidly. Others fail spectacularly.

Then, there are the businesses that play to our vices and shortcomings. Rarely are they the kinds of companies people want to talk about at cocktail parties, but they can certainly buy several rounds of drinks. These scrutinous businesses are the businesses few of us want to discuss or think about. Often, these scrutinous businesses can be incredibly lucrative.

Case and point: Credit Acceptance Corporation (NASDAQ: CACC). A subprime auto lender that has lapped the market almost 20 times since its IPO.

Credit Acceptance sits at the intersection of two investing themes that often get overlooked: Companies with a bad image and high-performing companies on the periphery of a well-known industry that tends to not do well for shareholders.

Let’s dig into the company and explore these two themes through the lens of Credit Acceptance.

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