Have you ever dreamed of owning a business? I’m not sure it’s the fantasy of little Johnny or Susie swinging on the tire in the backyard. “Firefighter? Doctor? Professional wrestler? Naahh… I wanna own a company that produces widgets and sells them to knickknack factories!” Unlikely, unless you were the kind of kid that got pushed around at dodgeball time.
As an adult, have your dreams changed? Mine have – the one with the Muppets flinging knives in my direction haven’t been back in years. And I don’t dream of being a professional wrestler anymore (more or less). But I do dream of owning businesses. Lots of them. I am a part owner, for example, of one of the largest banks in the world. By part owner, I mean fractions of a smidgeon of a percent, but I am an owner of the business. They send me a nice little check for my share of the profits four times a year, too.
You may hear people say they buy Apple because of its great products. That makes no sense to me. Atari made a pretty cool product when I was in 4th grade. In fact, with the exception of the Intellivision I would argue Atari was the perfect kids’ toy (at the time). However, the company couldn’t KEEP producing fantastic products and managed to disappear off the face of the earth until some new company bought their logo to slap on their videogames.
Great products mean nothing to me as an owner. I want Benjamins in my chubby little fist. If my company sells a doodad that Gisele Bundchen sports as an accessory, great – but if I sell each one at a loss and have no plan to create the next cool doodad when she moves on to sporting a rabbit foot or whatever, I’m not happy. I would rather sell widgets at a profit than iDoohickeys at a loss.
And that, of course, is what makes Apple such an interesting company. They sell cool junk AND make a nice little bit of dosh doing it. Don’t forget that about 10 years ago Apple was practically dead. But like John Travolta, they reinvented themselves and became the hot new guy on the block…again. Great products had a lot to do with that, but making good money off those great products was what saved the company.
So when you think about buying a stock, don’t look at the products they sell, or how they are priced compared to competitors. You have to look at boring, detailed facts: do they have growth plans? Will they be made irrelevant by changes in the market? If you owned this company, would you be happy seeing your product everywhere but making nothing off of it (in which case I would call you a Bad Owner)? Find a company that has a long track record of growth – of returning excess cash to its owners or investing it in new product development. Do you want your CEO to be making $400 million a year if the company is tanking? Hm. Are you happy owning a company with more debt than assets? Hm.
If you take a step back and think about owning a company – as opposed to owning an abstract idea like a “stock share” or an “investment” – then you’re ready to buy stocks. If you are still thinking of buying eWhangaDoodle at 34 and getting out at 42 – then you’re still better off buying chips at Bellagio.
(all props to foundphotoslj on the image)