In my last post entitled “Investment vehicles that yields 15 % return – Part 1” I revealed that there are only two vehicles of investments that I know so far that yield a 15 % or more return compounded per annum.
In that post I talked about the first investment vehicle, which is investing in real estate. I talked about why real estate investments yield more than 15 % per annum. I also discussed the disadvantages of investing in real estate.
Now let’s go to the second vehicle of investment that will give u a return of 15 % per annum compounded – BUSINESS.
2.) Investing in a business – Being in business is the most rewarding. In fact it is more rewarding than investing in real estate as the returns will always be greater. I heard from somebody that for the past 10 years nobody in the top ten billionaire’s list of the world got there by investing in real estate. All of them were engaged in business. Those who got rich by real estate appeared only until after the top 20. (Anyway it seems that way if you look at the list, but I need to check this out)
Anyway, there are several ways of doing business but I will only talk about three most common ways of business investing these are: active, semi-passive and passive business investing.
a.) Active business investing – This simply means you devote not only time, but also effort and money or try to secure money to finance the business. There are advantages and advantages of doing this. Some of the advantages are, since you are running the business, you will do your best to succeed since you have put it in your own time, effort and finances. With this advantage comes the disadvantage of you becoming busier and living a more stressful life as your business grows. Add to this fact as is any other kind of business investing, is the possibility that the business will fail.
b.) Semi-passive business investing – This means that you are just the “Capital investor.” You merely invest your finances. Of course you still have to devote a little bit of time since you will be attending board meetings or meetings of your partnership or your managers.
There are various ways to do this. If you are starting a business from scratch, you get an industrial partner; let him manage the business while you merely provide the capital. Then there’s the franchising possibility. You put in capital by getting a franchise like McDonalds, Kentucky etc. and hire professional managers to run it. Another way of doing this is buying an existing business and let professional managers run it. The advantage of this is of course is lesser headache and stress for you as you are not involved in the day to day operations of the company. However the disadvantage is that since you do not run the business yourself, there is this possibility that your managers or your industrial partners will mismanage it.
c.) Passive business investing – This is similar to semi-passive business investing wherein you are the one who provide the capital, the only difference is that you don’t get to directly choose the management, and you may or may not attend board meetings. There is only one way to do this and that is to buy a small part of a business wherein you are not a majority stock holder.
This type of business investing is where I formally introduce to you the main topic of this blog which is, stock market investing. I believe the only way to do passive business investing is to buy shares of stocks in the stock market.
Stocks are “small pieces” of a business. Remember this fundamental principle in stock market investing. Stocks are not merely blips in the screen or graphs in a chart. A stock is a piece of a business. WHEN YOU BUY A STOCK, YOU ARE BUYING A BUSINESS. This is the most serious error committed by 95 % of stock market investors that is, they buy a stock without considering that such shares of stock are part of a business. They only buy stocks for speculation hoping that the market will push the price up. They don’t care what the underlying business behind a certain stock is. All they care about is the stock price. No wonder a lot of people get burned in the stock market. I don’t blame people for thinking that way because this is what is being taught by the pundits. Anyway, we we’ll do some technical investing bashing later on. For now let’s focus on our topic.
Again there are advantages and disadvantages of investing in the stock market. An advantage is that this is what I personally call as stress free business investing because you invest only as you wish, you don’t have to directly choose management and you don’t even have to attend stock holders meeting if you don’t want to. You can freely choose which company to invest and which company not to invest in. You can even decide to refuse to invest for certain periods and just go fishing and come back when you think the prices are right. If you frequently did your homework and studied the company thoroughly, you can sit at home all day and watch your favorite movie or play with computer games while the company that you invest in grows money for you.
The disadvantage is of course you will have to make sure that you know exactly what you are doing and make sure that you choose wisely which company you are investing in. To do this you have to spend a lot of time reading financial reports and spend a lot of time analyzing if a company is a good investment. Since you don’t get to choose management directly, (Although technically you are entitled to cast your votes in stock holders meeting as to who get elected into the board) you will have to study carefully who good the management of a certain company is before you make your investment. This approach to investing is commonly called as “value investing.” No school of business (At least not in the Philippines) is offering this approach to investment or is at least emphasizing this approach. So initially you will have to do your homework by reading books and materials on value investing. Did I mentioned that you have it also helps to read this blog regularly to learn more about value investing ? hehehehe 🙂
So now that I have formally introduced the topic on the next post, let’s me give you ten reasons on why I love stock market investing.
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