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.
Showing posts with label share ownership. Show all posts
Showing posts with label share ownership. Show all posts
Tuesday, 30 July 2013
Friday, 26 July 2013
If you are going to invest, WHY should you think like a business owner?
“An investment in knowledge pays the best interest.” – Benjamin FranklinIt 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/
Sunday, 27 March 2011
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 $$$$ for you.
Just make it simple.
If Mr. Lim start a biz with RM200k, the return is RM5k/month. This biz is not something profitable after RM5k-his own salary = ??!!. Further more, how long it takes to breakeven?
I would like to see net return after minus all his salary. Investing in stock, just like buying a piece of business,which is managed by well-capable management. For some biz, it's very hard for us to start it nowadays due to high initial invested capital. But, with share, we can buy a piece of GREAT biz like Parkson.
If you're a biz, how much capital required to start a business like parkson? Will bank approve your loan?
There're many things to consider when you start a big biz like parkson. They have powerful bargain with bank. For us, it's very hard. So, just buy a piece of business better
by Special Situation
http://www.investlah.com/forum/index.php/topic,18615.msg346266.html#msg346266
Quote:
It's ok. I don't really care people buying follow my advice or not. I would rather think of owning a piece of business, which is managed by capable management + capital. It's very hard to start a biz, which is making enough $$$$ 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
Thursday, 12 February 2009
Why Do Companies Care About Their Stock Prices?
Why Do Companies Care About Their Stock Prices?
by Investopedia Staff, (Investopedia.com) (Contact Author Biography)
Here's the irony of the situation: companies live and die by their stock price, yet for the most part they don't actively participate in trading their stocks within the market. Companies receive money from the securities market only when they first sell a security to the public in the primary market, which is commonly referred to as an initial public offering (IPO). In the subsequent trading of these shares on the secondary market (what most refer to as "the stock market"), it is the regular investors buying and selling the stock who benefit from any appreciation in stock price. Fluctuating prices are translated into gains or losses for these investors as they shift ownership of stock. Individual traders receive the full capital gain or loss after transaction costs.
The original company that issues the stock does not participate in any profits or losses resulting from these transactions because this company has no vested monetary interest. This is what confuses many people.
Why then does a company, or more specifically its management, care about a stock's performance in the secondary market when this company has already received its money in the IPO? Read on to find out.
Those in Management are Often Shareholders Too
The first and most obvious reason why those in management care about the stock market is that they typically have a monetary interest in the company. It's not unusual for the founder of a public company to own a significant number the outstanding shares, and it's also not unusual for the management of a company to have salary incentives or stock options tied to the company's stock prices. For these two reasons, management acts as stockholders and thus pay attention to their stock price.
Wrath of the Shareholders
Too often investors forget that stock means ownership. The job of management is to produce gains for the shareholders. Although a manager has little or no control of share price in the short run, poor stock performance could, over the long run, be attributed to mismanagement of the company. If the stock price consistently underperforms the shareholders' expectations, the shareholders are going to be unhappy with the management and look for changes. In extreme cases shareholders can band together and try to oust current management in a proxy fight. To what extent shareholders can control management is debatable. Nevertheless, executives must always factor in the desires of shareholders since these shareholders are part owners of the company.
Financing
Another main role of the stock market is to act as a barometer for financial health. Analysts are constantly scrutinizing companies and reflecting this information onto its traded securities. Because of this, creditors tend to look favorably upon companies whose shares are performing strongly. This preferential treatment is in part due to the tie between a company's earnings and its share price. Over the long term, strong earnings are a good indication that the company will be able to meet debt requirements. As a result, the company will receive cheaper financing through a lower interest rate, which in turn increases the amount of value returned from a capital project.
Alternatively, favorable market performance is useful for a company seeking additional equity financing. If there is demand, a company can always sell more shares to the public to raise money. Essentially this is like printing money, and it isn't bad for the company as long as it doesn't dilute its existing share base too much, in which case issuing more shares can have horrible consequences for existing shareholders.
The Hunters and the Hunted
Unlike private companies, publicly traded companies stand vulnerable to takeover by another company if they allow their share price to decline substantially. This exposure is a result of the nature of ownership in the company. Private companies are usually managed by the owners themselves, and the shares are closely held. If private owners don't want to sell, the company cannot be taken over. Publicly-traded companies, on the other hand, have shares distributed over a large base of owners who can easily sell at any time. To accumulate shares for the purpose of takeover, potential bidders are better able to make offers to shareholders when they are trading at lower prices.
For this reason, companies would want their stock price to remain relatively stable, so that they remain strong and deter interested corporations from taking them.On the other side of the takeover equation, a company with a hot stock has a great advantage when looking to buy other companies. Instead of having to buy with cash, a company will simply issue more shares to fund the takeover. In strong markets this is extremely common - so much that a strong stock price is a matter of survival in competitive industries.
Ego
Finally, a company may aim to increase share simply to increase their prestige and exposure to the public. Managers are human too, and like anybody they are always thinking ahead to their next job. The larger the market capitalization of a company, the more analyst coverage the company will receive. Essentially, analyst coverage is a form of free publicity advertising and allows both senior managers and the company itself to introduce themselves to a wider audience.
For these reasons, a company's stock price is a matter of concern. If performance of their stock is ignored, the life of the company and its management may be threatened with adverse consequences, such as the unhappiness of individual investors and future difficulties in raising capital.
by Investopedia Staff, (Contact Author Biography)Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.
http://www.investopedia.com/articles/basics/03/020703.asp?partner=NTU2
by Investopedia Staff, (Investopedia.com) (Contact Author Biography)
Here's the irony of the situation: companies live and die by their stock price, yet for the most part they don't actively participate in trading their stocks within the market. Companies receive money from the securities market only when they first sell a security to the public in the primary market, which is commonly referred to as an initial public offering (IPO). In the subsequent trading of these shares on the secondary market (what most refer to as "the stock market"), it is the regular investors buying and selling the stock who benefit from any appreciation in stock price. Fluctuating prices are translated into gains or losses for these investors as they shift ownership of stock. Individual traders receive the full capital gain or loss after transaction costs.
The original company that issues the stock does not participate in any profits or losses resulting from these transactions because this company has no vested monetary interest. This is what confuses many people.
Why then does a company, or more specifically its management, care about a stock's performance in the secondary market when this company has already received its money in the IPO? Read on to find out.
Those in Management are Often Shareholders Too
The first and most obvious reason why those in management care about the stock market is that they typically have a monetary interest in the company. It's not unusual for the founder of a public company to own a significant number the outstanding shares, and it's also not unusual for the management of a company to have salary incentives or stock options tied to the company's stock prices. For these two reasons, management acts as stockholders and thus pay attention to their stock price.
Wrath of the Shareholders
Too often investors forget that stock means ownership. The job of management is to produce gains for the shareholders. Although a manager has little or no control of share price in the short run, poor stock performance could, over the long run, be attributed to mismanagement of the company. If the stock price consistently underperforms the shareholders' expectations, the shareholders are going to be unhappy with the management and look for changes. In extreme cases shareholders can band together and try to oust current management in a proxy fight. To what extent shareholders can control management is debatable. Nevertheless, executives must always factor in the desires of shareholders since these shareholders are part owners of the company.
Financing
Another main role of the stock market is to act as a barometer for financial health. Analysts are constantly scrutinizing companies and reflecting this information onto its traded securities. Because of this, creditors tend to look favorably upon companies whose shares are performing strongly. This preferential treatment is in part due to the tie between a company's earnings and its share price. Over the long term, strong earnings are a good indication that the company will be able to meet debt requirements. As a result, the company will receive cheaper financing through a lower interest rate, which in turn increases the amount of value returned from a capital project.
Alternatively, favorable market performance is useful for a company seeking additional equity financing. If there is demand, a company can always sell more shares to the public to raise money. Essentially this is like printing money, and it isn't bad for the company as long as it doesn't dilute its existing share base too much, in which case issuing more shares can have horrible consequences for existing shareholders.
The Hunters and the Hunted
Unlike private companies, publicly traded companies stand vulnerable to takeover by another company if they allow their share price to decline substantially. This exposure is a result of the nature of ownership in the company. Private companies are usually managed by the owners themselves, and the shares are closely held. If private owners don't want to sell, the company cannot be taken over. Publicly-traded companies, on the other hand, have shares distributed over a large base of owners who can easily sell at any time. To accumulate shares for the purpose of takeover, potential bidders are better able to make offers to shareholders when they are trading at lower prices.
For this reason, companies would want their stock price to remain relatively stable, so that they remain strong and deter interested corporations from taking them.On the other side of the takeover equation, a company with a hot stock has a great advantage when looking to buy other companies. Instead of having to buy with cash, a company will simply issue more shares to fund the takeover. In strong markets this is extremely common - so much that a strong stock price is a matter of survival in competitive industries.
Ego
Finally, a company may aim to increase share simply to increase their prestige and exposure to the public. Managers are human too, and like anybody they are always thinking ahead to their next job. The larger the market capitalization of a company, the more analyst coverage the company will receive. Essentially, analyst coverage is a form of free publicity advertising and allows both senior managers and the company itself to introduce themselves to a wider audience.
For these reasons, a company's stock price is a matter of concern. If performance of their stock is ignored, the life of the company and its management may be threatened with adverse consequences, such as the unhappiness of individual investors and future difficulties in raising capital.
by Investopedia Staff, (Contact Author Biography)Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.
http://www.investopedia.com/articles/basics/03/020703.asp?partner=NTU2
Friday, 2 January 2009
How share ownership has gone out of fashion
From The Times
January 2, 2009
How share ownership has gone out of fashion
Patrick Hosking, Business and Finance Editor
For decades the proportion by value of shares directly owned by private individuals has been shrinking as they come to rely more on occupational pension schemes or pooled investment vehicles such as unit trusts.
Michael Kempe, operations director for Capita, said: “Never in modern times has share owning been less fashionable. The combination of falling share prices and the long-term trend by private investors to reduce their holdings has seen 2008 end with a whimper.”
He said that the booming residential property market had till recently diverted money that might otherwise have gone into the share market: “The lure of getting rich quick in the property market has mopped up a lot of money. Since 2000, at least £150 billion has been piled into the buy-to-let market alone.”
However, Mr Kempe predicted the trend could be reversed in 2009, citing evidence that small shareholders were starting to dip their toes into the stock market again in October and November after being net sellers for most of 2008. In the year just gone, they traded £7.2 billion in shares, compared with more than £14 billion in 2007.
“Normally private investors shun volatile markets and they have been sitting on the sidelines for much of the past year. But it seems the lows of October and November proved irresistible to many.” They bought a net £645 million of shares in those two months, he said.
Mr Kempe expects market conditions to improve in 2009. “But it seems too early to call a bottom just yet,” he said. “The recent upswings have all the characteristics of bear market rallies and have soon petered out.”
http://www.timesonline.co.uk/tol/money/investment/article5430122.ece
January 2, 2009
How share ownership has gone out of fashion
Patrick Hosking, Business and Finance Editor
For decades the proportion by value of shares directly owned by private individuals has been shrinking as they come to rely more on occupational pension schemes or pooled investment vehicles such as unit trusts.
Michael Kempe, operations director for Capita, said: “Never in modern times has share owning been less fashionable. The combination of falling share prices and the long-term trend by private investors to reduce their holdings has seen 2008 end with a whimper.”
He said that the booming residential property market had till recently diverted money that might otherwise have gone into the share market: “The lure of getting rich quick in the property market has mopped up a lot of money. Since 2000, at least £150 billion has been piled into the buy-to-let market alone.”
However, Mr Kempe predicted the trend could be reversed in 2009, citing evidence that small shareholders were starting to dip their toes into the stock market again in October and November after being net sellers for most of 2008. In the year just gone, they traded £7.2 billion in shares, compared with more than £14 billion in 2007.
“Normally private investors shun volatile markets and they have been sitting on the sidelines for much of the past year. But it seems the lows of October and November proved irresistible to many.” They bought a net £645 million of shares in those two months, he said.
Mr Kempe expects market conditions to improve in 2009. “But it seems too early to call a bottom just yet,” he said. “The recent upswings have all the characteristics of bear market rallies and have soon petered out.”
http://www.timesonline.co.uk/tol/money/investment/article5430122.ece
Subscribe to:
Posts (Atom)