Businessman Investor

Touching base with the rational business psyche of stock market investors

Saturday, August 6, 2011

Paradigm Crossover between Stock Investing and Owning Businesses

The Philippine Stock Exchange Makati trading floor. Most are still mysticized by the inner workings of the stock market when its basic underpinnings can be rooted to ownership of real, alive businesses.
While one may initially perceive stock investing as a totally different matter from the idea of owning ordinary, real businesses, the truth is, they are, fundamentally and economically, the same thing. Of course, a sophisticated investor, arbitrageur, or short-term trader may immediately espouse that there are certain special considerations (e.g. legal qualities or market factors) inherent to stock ownership or trading that makes them quite different. But these things usually distract or confuse stock market investors from what should really matter most—that is, that stocks are, first and foremost, real businesses. This is what, I believe, the single, most essential paradigm to cause an investor to execute sound, long-lasting investments which consistently create wealth and compound value.

If an investor starts to think in terms of a businessman’s economic view of an equity investment, his concern and interest gravitates towards the enterprises’ internal wealth-generating capacity as a real, going-concern business as opposed to its immediate, marketable value as dictated by the forces of supply and demand in the stock exchange. This business-minded mentality frees up and enables the investor to be independently confident towards the listed firm regardless what the prevailing emotions and madness of the crowd be. After all, the natural interest of a rational businessman is buying into a consistently, profitable situation, stay there indefinitely, and be richer, which is in stark contrast to selling back into a dead-end, inflation-prone, cash position.

SM North Edsa. Everyone seems to intuitively know that Henry Sy's chain of malls is a well oiled money-making machine. Yet most Filipinos are still hesitant to invest in stocks which may represent a quality business such as this.
Businesses, by their very nature, are long-term. Evaluating them, as real businessmen do, takes into consideration the years it commonly takes to recoup initial outlay, conservatively vouching on the cash-generating economics of the enterprise. Thus, stocks, by their very nature are long-term. Businessmen, therefore, are innately strategic, long-term investors, because they respect and subscribe to the idea that the economic rise of a successful company does not happen overnight. Rather than chase quick, one-time, big-time gains, they’d anticipate decent but consistent, down-to-earth, and economically-grounded returns.

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The information presented here is for educational purposes only. Under no circumstances should it be construed as a recommendation to buy, sell, or hold any stocks. If you choose to use this information, you do so at your own risk.

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