Owning Your Own Business is easier than You Imagine

When you buy a share in a business, you become part-owner of that business and whether you are aware of it or not, everyone in that business from the most junior staff to the most senior is now working for you.
It is your job to remember this and to exercise your judgement in regard to the quality of the job they are doing.

You should not be silent bystanders in a business.  You have after all, parted with your hard-earned cash and invested in the enterprise and therefore you are now part-owner of all of its assets, profits and its future.  Get involved.  It is your money and your business.

If you are going to invest, WHY should you think like a business owner?

“An investment in knowledge pays the best interest.” – Benjamin Franklin

It is often difficult to explain many of the mechanics which go into the investment process.

Keep at the core of your investment philosophy this fundamental premise, "Know what you own and why you own it."

This provides an investor a level of greater clarity over many investors who do not subscribe to this core premise.


If you are going to invest, WHY should you think like a business owner?

Owners of businesses have great knowledge of what they own and why they own it, including a long-term time horizon - typically three years or longer.

As an investor, this means you should at least have the ability to know what you own and why you own it if you choose a particular company.


Why is it important to know what you own and why you own it?

1.  Business owners are used to the ups and downs of their business.  Economies expand and contract over time.  However, well-run companies with great products and services will continue to grow over time.

2.  When a business owner's business goes through a downturn, do they sell their business and hope to buy it back at a cheaper price down the road?  Of course not!  Rather, in difficult times, they continue to invest in their business for future growth - a tactic of a long-term thinker!


What is commonly observed when markets are in a short-term correction or economies are in a period of contraction?  

Many investors have a tendency to become emotionally connected to the short-term noise. 

1.  Many investors revert to attempting to time the market by selling their investments with the hope of buying them back at cheaper price.

2.  Other investors give up on investing in the stock market indefinitely.

3.  Other investors move their investments to another investment manager who's historical returns give the investor a sense of comfort they will achieve similar success in the future.

All three scenarios are unfortunate. 

1.  As statistics and history have clearly taught us, investors who attempt to "time the market" routinely under-perform "the market."

2.  Investors who pull out of the equities markets risk missing out on great investment opportunities for the longer term, effectively choosing to hold cash instead.

3.  Investors who chase historical returns have been left with the disappointment that the future returns they achieved did not meet the expectations of the investor.


The important message here is, the more you know about what you own and why, the less likely you will be to get emotionally attached to short-term noise or stock market corrections.  Instead, as an investor who knows what you own and why, you will look at the stock market corrections and economic slowdowns as opportunities to buy businesses on sale - to strategically cost average into the companies you want to buy.  This is similar to how a business owner behaves.

Are you going to invest like a business owner (a proven, long-term strategy to wealth creation for many people)?

Or, are you going to be someone who "guesses" at what is going to happen because you do not have the clarity of knowing what you own and why you own it?

Remember, owning a stock is an ownership interest in a business with an underlying value that does not depend on its share price.  If you invest in a stock of a company, you are and should think like a business owner in that company. 

http://investingwithclarity.com/2013/04/03/do-you-know-what-you-own-and-why/

The NINE most important words ever written about investing.

"Investing is most intelligent when it is most businesslike."

The most distinguishing trait of Buffett's investment philosophy is the clear understanding that, by owning shares of stock, he owns businesses, not pieces of paper.  

The idea of buying stock without understanding the company's operating functions - including a company's products and services, labour relations, raw material expenses, plant and equipment, capital reinvestment requirements, inventories, receivables, and working capital needs - is unconscionable, says Buffett.

A person who holds stocks has the choice to become the owner of a business or the bearer of tradable securities.  Owners of common stocks who perceive that they merely own a piece of paper are far removed from the company's financial statements.  These owners behave as if the market's ever-changing price is a more accurate reflection of their stock's value than the businesses' balance sheet and income statement.  They draw or discard stocks like playing cards.

Investor of marketable shares has a double status, with the privilege of taking advantage of either at his choice.

The impact of market fluctuations upon the investor’s true situation may be considered also from the standpoint of the shareholder as the part owner of various businesses.

The holder of marketable shares actually has a double status, and with it the privilege of taking advantage of either at his choice. 

1.  On the one hand his position is analogous to that of a minority shareholder or silent partner in a private business.

• Here his results are entirely dependent on the profits of the enterprise or on a change in the underlying value of its assets. 
• He would usually determine the value of such a private-business interest by calculating his share of the net worth as shown in the most recent balance sheet. 

2.  On the other hand, the common-stock investor holds a piece of paper, an engraved stock certificate.

• This stock certificate can be sold in a matter of minutes at a price which varies from moment to moment—when the market is open, that is—and often is far removed from the balance sheet value.

Ownership Principle: Investment is most intelligent when it is most businesslike.

1. Investment is most intelligent when it is most businesslike.

2. Every corporate security may best be viewed as an ownership interest in, or a claim against a specific business enterprise ... and the investor seeking to make profits from his security purchases and sales, is embarking on a business venture which must be run in accordance with accepted business principles.

3. Principles of business

• know your business -- for the securities investor, this means do not try to make "business profits" out of securities--that is returns in excess of normal interest and dividend income. 
• do not let anyone else run your business unless you can adequately supervise, and you have unusually strong reason to have confidence in the integrity and ability of the person. 
• do not enter upon an operation unless a reliable calculation shows that it has a fair chance to profit-- not based on optimism, but on arithmetic. 
• have the courage of your knowledge and experience.

HOW and WHY to own a piece of a business?

An interesting post by Special Situation on how investing is actually owning a piece of a business. I concur, though I am in business myself. ;-)




Quote:


It's ok. I don't really care people buying follow my advice or not. I would rather think of owning a piece of business, which is managed by capable management + capital. It's very hard to start a biz, which is making enough $$$$ for you.

Just make it simple.

If Mr. Lim start a biz with RM200k, the return is RM5k/month. This biz is not something profitable after RM5k-his own salary = ??!!. Further more, how long it takes to breakeven?

I would like to see net return after minus all his salary. Investing in stock, just like buying a piece of business,which is managed by well-capable management. For some biz, it's very hard for us to start it nowadays due to high initial invested capital. But, with share, we can buy a piece of GREAT biz like Parkson.

If you're a biz, how much capital required to start a business like parkson? Will bank approve your loan?

There're many things to consider when you start a big biz like parkson. They have powerful bargain with bank. For us, it's very hard. So, just buy a piece of business better 




by Special Situation
http://www.investlah.com/forum/index.php/topic,18615.msg346266.html#msg346266

Knowing a Business Leads to Investing Success. Act Like an Owner

Knowing a Business Leads to Investing Success
Written by Greg Speicher on September 29, 2010

Great investing may be simple, but it is not easy. It requires that you master not only a number of analytical skills, but also your own emotions.

One of the mistakes that investors make is spending too much time studying investment philosophy and process, and not enough time studying businesses. Investment philosophy and methodology will never be a substitute for knowing a business inside out.

When you come across a “millionaire next door”, he or she probably made their money by mastering a small corner of the business world, not spending endless hours studying management theory or entrepreneurship.


Think Rose Blumpkin. She had an advantage over her competitors because of her relentless focus on the furniture business.

Read more ...

OWNER PRINCIPLE

OWNER PRINCIPLE

The cumulative effect of these principles is a characterization of the value investor’s role in corporate investing as the owner of not just stock, but a business.

Hence the principles of business analyst, moat, margin of safety, and son-in-law.

It requires appreciating stock selections in the same way the owner of a small business treats decisions concerning his store, farm, or firm.

It requires a long-term view and means avoiding the rapid-fire share turnover characteristic of so many short-sighted market traders.

That’s what value investing is.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE