Wednesday, November 21, 2007

be an owner

I've often heard so called financial gurus, stock traders, and alike talk about the way in which one should think about the shares they own in a company. They say one should think of these shares as simple pieces of paper, that can be bought and sold on a whim. I believe they feel this way because they believe that one should not fall in love with his/her stocks, and one should have the courage to sell and the conviction to trade when times get tough. While I believe this is a good message on the whole, I disagree with the mentality that stocks are just 'paper'.

I believe that when you own shares of a company you are an anonymous partner in that business. Your goals should be aligned with the goals of the management of that company. If management's goals differ from yours, you should turn and run in the opposite direction. Management's primary job is to grow the value of the business, and to provide the fruit of that growth with shareholders for the long term. Technically every person working for that company is working for you. When you buy shares in a company, you are literally buying a chunk of the business, no matter how small.

For example I might own:
5,000 tubes of Crest Whitening toothpaste sitting on a pallet inside a 40 foot shipping container aboard a ship in the Pacific...

A piece of a small charitable donation made to Sick Kids Hospital in Toronto, Ontario by Johnson & Johnson..

A couple red neon signs at a Walgreens on the corner of a busy intersection in Orlando, Florida...

A 1 foot length of a pipeline owned by Inter carrying some petro chemical running through a cold field in rural Alberta...

A weeks salary for some high paid executive at Royal Bank of Canada or Bank of Nova Scotia in Toronto, Ontario....

A portion of a GE manufactured ultrasound machine being used inside a Lisbon, Portugal hospital...

I believe it is important to have an ownership mindset when making a long term investment in a company. Why else would I want to buy shares in a company unless I wanted to participate in the future success of that company, and reap the benefits? I'm using that company as a vehicle to grow my hard-earned capital, and at the same time I'm trusting them with it.

3 comments:

augustabound said...

So I take it you were watching Paul Thornton on Market Call this afternoon too? lol
He said basically to treat an investment in a stock as just that, a stock and not "owning the business".

MG said...

Actually no I wasn't. What made me think of this concept lately was the book 'The Single Best Investment' by Miller.

I'll elaborate on holding...later.

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