Sunday Investment Thread: Business Owners' Mindset
thethinkinginvestor24.substack.com
When you buy a business, do you think of buying it like you would buy the entire business? Do you find this mental model helpful for making better decisions?
I think it makes more sense to think about it as if you were buying a part of a stream of FCF of a company (without controlling rights) or minority ownership of a company.
This approach acknowledges that even though you have a stake in the business, management can still behave poorly and make foolish decisions regarding your share of the enterprise.
But a big problem with the general idea of thinking about investing in public equities as if you were the owner of a company is that one starts to identify oneself too strongly with a company wich can lead to a lower amount of objectivity. Especially if you followed a company for long. Which then takes away one of the biggest benefits of a public market which is that you can easily and with relatively small cost change your mind.
Absolutely. I even set my stock's Limit order based on Market Cap value...
Let say I wish to buy a stock of a company at Market Cap value: $700M. So I divide Market cap (ex. 700) by Outstanding shares (ex. 310) and getting my Limit order: 700/310=2.26 per share.
I think this is a very good framework suggested by Mr Buffett. It helps us to understand our core competence of the business and built in our own conviction. I have found this exercise helpful.
I think it makes more sense to think about it as if you were buying a part of a stream of FCF of a company (without controlling rights) or minority ownership of a company.
This approach acknowledges that even though you have a stake in the business, management can still behave poorly and make foolish decisions regarding your share of the enterprise.
But a big problem with the general idea of thinking about investing in public equities as if you were the owner of a company is that one starts to identify oneself too strongly with a company wich can lead to a lower amount of objectivity. Especially if you followed a company for long. Which then takes away one of the biggest benefits of a public market which is that you can easily and with relatively small cost change your mind.
Absolutely. I even set my stock's Limit order based on Market Cap value...
Let say I wish to buy a stock of a company at Market Cap value: $700M. So I divide Market cap (ex. 700) by Outstanding shares (ex. 310) and getting my Limit order: 700/310=2.26 per share.
Yes 100%. I typically buy companies whose products or services I use on a regular basis.
Moreover, If I was a billionaire, I would buy each whole company.
I think this is a very good framework suggested by Mr Buffett. It helps us to understand our core competence of the business and built in our own conviction. I have found this exercise helpful.