If you read any investment advice from the world greatest investor (Warren Buffett, Peter Lynch, Philip Arthur Fisher, John Templeton, Benjamin Graham, David Dreman etc), you will find one common advice: “Buy A Business, Not A stock”
When you buy a stock, you have to understand what does it really mean to you. If you didn’t, you might be a stock market gambler.
Peter Lynch
Peter Lynch’s famous investment quotation (Excerpt from his famous books – One Up on Wall Street, Beating The Street, Learn To Earn):
“Stocks aren’t lottery tickets. There’s a company attached to every share.”
“Behind every stock is a company. Find out what it’s doing.”
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.”
Warren Buffett once said (1998): “I buy businesses, not stocks, businesses I would be willing to own forever.”
If you buy a stock with the mind of set of owning a business, you will change your mindset against what majority of stock investors in the market. Most of them think that stock market is a form of casino (though they may not realize it). They just buy and sell almost everyday without knowing the true meaning of buying a stock nor own a business. To them, it is just buy and sell a piece of paper.
If you wanted to own a business, what comes to your mind should be the following:
- Business that you really understand well
- Business that can be very profitable for a very long time
You do not want to buy a business that can only sustain 6 months and shut down for another year. Don’t buy a company that you are unable to understand its business model (what a company does, what a company produces, how a company makes money, what are the business risks etc).
Point to ponder: “All we want is to be in businesses that we understand, run by people whom we like, and priced attractively relative to their future prospects” -Warren Buffett 1994
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