Robert Kiyosaki’s rich dad
said, “Just because you invest… does not mean you are an investor…”
I totally agree with this statement.
What Most Investors Fail To Understand
Most people fail to understand one very important thing when they are buying stocks. To them, it’s purely some numbers that move up and down. If it goes up, they make money. And if it goes down, they lose money.
These people fail to understand that when they buy a stock, they are in essence buying a business behind the stock. That means you’re buying the stocks to become a part owner/shareholder of the company running the business.
In fact, I suspect most people consciously choose to ignore the fundamentals of stock investment because human beings are inherently lazy and impatient. They find it a chore to study a business and they are too lazy to learn how to do it properly.
And learning takes too long, which is not most people’s cup of tea because they want to see immediate results. They just want to make a quick buck. Therefore, they go the easy way of seeking “advice” from friends, family members, colleagues and/or financial advisors.
The problem with that is, most of these people are equally ignorant, if not more! It’s just like the blind leading the blind! And these people simply give opinions, not facts. You’ll find yourself brutally whip-lashed if you make investment decisions based solely on other people’s opinions.
If you invest like most people who don’t even understand the most basic of the investment concept, then you’re not an investor. You’re simply a gambler. And gamblers depend on only one thing to win money. That is called luck.
If you have bad luck, then good luck to you. And if you have good luck, then bad luck is always bound to follow.
How I Came To Realise A Stock Is A Business
I came to realise a stock is a business not when I was thinking about how to be a smart and savvy stock investor. I came to realise this when I was thinking, “How do I buy a business with very little money?”
I’ve always been very fascinated about businesses. Becoming an entrepreneur has been my lifelong dream. And as a budding entrepreneur, I was always asking myself two questions, “How do I start a business with very little money?” and “How do I buy a business with very little money?”
Being just a regular bloke who doesn’t have a hundred or a few tens of thousand of dollars to spare in his bank account, I was determined to find the way to start a business or buy a business with very little money.
It took me a long time to figure out I must say. I had the idea that if I were to buy a business, I have to have a controlling stake, or at least a substantial stake in the company. But the problem with that is if I didn’t even have a few tens of thousand of dollars to begin with, how am I going to achieve that?
One day, it suddenly just dawned on me that there’s no reason I should only consider a substantial stake in the business that I’m buying. What’s important is that it’s got to be a good business managed by great people and that it can help me make money.
With that in mind, I looked at things differently. I looked at all possibilities and that was how the idea of buying stocks came about.
I realised that, if I were to buy a business, the first thing I need to do is to find a place where there are a lot of businesses for sale. Just like if I were to buy some groceries, I’d need to go to a supermarket.
But where can I find a business supermarket?
“Stock Exchange!”
Think about it. Don’t you think a stock exchange is just like a giant supermarket with hundreds or thousands of businesses for sale? As a matter of fact, it is!
To buy a small part of any business in the stock exchange, all you require to start with is just a couple of hundreds or a thousand dollars. Now that’s indeed buying a business with very little money!
Looking At Stock Investing From a Business Point of View
From then on, I set out to learn more about buying and selling stocks. But mind you, I didn’t set out to learn how to invest. I set out to learn how to STUDY A BUSINESS.
Since you’re essentially buying into a business when you buy a stock, it is only common sense that you learn how to study and evaluate a business.
At that time, I already had a pretty good idea what to look out for in buying a business. In my opinion, you should look out for a business that has:
1. Strong brand name (within the business’ market)
2. Great products
3. Strong growth potential
4. Strong competitive edge
5. Great management team
6. Low debt to equity ratio
7. Good cashflow management
8. Strong balance sheet
9. Good history of consistently increasing sales and profits
10. A fair valuation that reflects the true value of the business (Now I learnt that it’s called the intrinsic value)
The list above is not exhaustive. You may add to it what you find important in a good business. I’d appreciate if you’d share your ideas in the comments.
Although I had a good idea what to look out for, I didn’t know how to read them, especially the financial statements. Therefore, I didn’t know how to analyse and exercise a sound judgment on a business.
I’d urge anyone investing in the stock market to master the ability to study and evaluate a business if he/she were to have any chance of making money from his/her investment. That was what I did and am still doing.
Ultimately, it’s not the stock that makes you money. It’s the business behind the stock that makes you money.
If you genuinely care about your money, then spend a little time to read The Little Book of Value Investing
Cheers~
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