Let’s talk about investing.
Investing is one of Stebi’s three core themes; the other two being — the Economy, and Business strategy.
In the past, I’ve written about different investing styles, the process of investing, and presented in-depth company analysis… but I’ve never addressed the why behind it all. Why do we invest? How does it benefit society? Are we doing it right?
My opinion has formed over years of reading and soul-searching. My purpose with this article is to leave you deep in thought. :)
Here’s a soundtrack to set the mood.
Our savings compel us to invest; typically into — gold, real estate, fixed deposits, and stocks & mutual funds.
We see the first three, as avenues of protecting our savings. And hence, when we own that piece of jewellery, that plot of land, or that flat number 405 — we care for it as our own. We check our bank locker from time to time. Visit our real estate to ensure all is well. Keep an eye on government policy that affects our property. We even tell our kids about it. We have proper-ties, with our proper-ty.
Such behaviour comes from knowing that, these, belong to us. Their preservation is not just in our best interest, but it’s what you do, when you care. How else would it meet the purpose for which it was bought? … an asset for a rainy day, or a valuable to pass-on to the next generation.
This owner’s behaviour, however, doesn’t carry over when we buy a stock.
A good stock, by today’s definition, is one whose price appreciates, right after we buy it. And investing success is catching that stock at the opportune time. We only care about the money-making-opportunity, without bothering for the business itself.
In the real world, if offered an opportunity to invest in a bakery, we ask questions like:
- Who’s the head baker?
- Is the team qualified and experienced?
- Are their recipes any good?
- What are the sales and profits in the last 4-5 years?
- How competitive is the market?
- Are their leases on favourable rates?
… it’s a long, long list.
We ask these questions because we earned our savings. They can’t be put at stake without due diligence.
But with stocks, we buy cos we believe it will go up.
Can this be called investing? Or is it casino-ing?
Our expectation of a quick profit, the desire for reward without effort; the decisions based on fortune-telling. Are unnatural. This isn’t how anyone, achieved anything, worth achieving.
On the business side, say, you own and run a factory. You would have no time or interest in knowing what it sells for. And you surely don’t need that information every minute of every day. You spend your time, actually caring for it. Protecting it against competition and atrophy.
Now, say, that your production machinery has become obsolete. You know that replacement, though expensive, is the only way forward. You make that decision with conviction! This hurts your cash reserves, or if you borrow money, the interest payments reduce your cash flows. Short-term pain for long-term success! This, however, doesn’t sit well with today’s investors. Reduced earnings make them flee. As a result, the stock price tanks.
By doing right by your business, you’ve hurt your stock price! So for you, as a manager, what’s more important? The business or the stock price?
A business that prioritises shareholder wealth over customer satisfaction, destroys both.
An investor who cares only about the stock price, is akin to a husband that cares only about his wife’s looks.
This unfortunate marriage cannot last.
The asset management industry has this monthly, quarterly, and yearly popularity contest of who made the most returns. Does such micro-tracking, really, serve society?
Long-term returns are the outcome of good investment management, not the month-to-month barometer of it.
And no one knows how well their business would be doing three months ahead. Then how can anyone, predict future stock price?
It’s one thing to say — “This business has a monopoly in X market segment, and customer demand is growing at 20% year-on-year. Chances are, the company’s business will grow.”
But a whole other to say that — “This stock will double in two years.”
Further, how do fresh college graduates identify good businesses, from several industries, just from a few financial numbers?
Doesn’t it take more, to actually understand a business and an industry?
Steve Jobs once compared consulting to seeing a picture of a banana. One can have a very accurate picture. But only by actually owning that business, by living and breathing that story, for a decent period of time, do they truly know the taste of that banana.
So investing, in its true sense, is about depth. Sure, we ply opportunistically. Just like a batsman does on a loose ball. But these decisions come from in-depth understanding. What’s the business we’re getting into. How does it serve society? What long-term economic value does it provide? Can we trust the people who run it?
In my opinion, our careers are our life’s work. And we mustn’t strive for one that leaves us so poor, that we have nothing left, except money. The means, as well as the ends, ought to have meaning.
Holding equity with an owner’s mindset. Being a sentinel of hard-earned generational savings. Protecting value for a rainy day. Providing for future generations. And most importantly, doing it with honest intentions, humility, and discipline. That seems like an honourable way to live.
I pray that with all your investments, and in your conversations with investment mangers, you find an ownership direction that’s aligned with your life’s values… far, far from casino-ing.
From me, I’ll keep providing you a calm, high-road-ish perspective to finance. Stebi is my labour of love. A gym where I train my understanding of how the world works. I truly hope that you get some good from it too.
Until next time. :)
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