As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

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Value Investing
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Saturday, 15 August 2009

Are you buying into business or just buying stock?

Some people are thinking that they are buying into a firm's business, when they are just buying a stock.

When you are buying x% or xx% of the firm's share, you are buying into the firm's business as you become a major shareholder of the firm. The firm's management will have to warm up to your presence and you may even have a board seat.

With a board seat, your interest in the firm is represented. You will have access to the Management to understand their immediate and long term prospects, assess the real ability of the management team, cognitive of the goals of the board members, their future products in the pipeline, the expected acquisitions, the competitive landscape and many more ..

If you buying x or xx or even xxx lots of the firm's shares, you are just buying stocks and don't have the falsehood of thinking that you are buying into the firm's business. Is your interest in the firm in anyway represented? Do you have access to the management team?

You are likely at your disposal for detailed analysis of the company's business and its future earning prospects through quarterly and annual reports, and probably attending AGM and asking a few questions; and most of the time the Management is very careful not to mention any undisclosed information; otherwise, they will have to rush out a press release.

Warren Buffet and the likes of Warren are buying into firm's business and even home-grown Warren-like, Dr Michael Leong like to buy 3-5% of the firm's share. These people are buying into business and not buying stocks. They buy a good business at good discount and hold for forever if the business continues to be good.

But, buying a stock is different because the primary reason to buy a stock is to sell it.

Even you are a long term value investor, you should at least look at chart for a 200 days EMA, if the stock price ever falls below the 200 EMA, at least do a partial sale.
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