Buying Stocks = Buying Businesses

Investing in stocks is actually buying over a piece of business. We become owners of a business by being shareholders, albeit purchasing just a tiny iota of the business. Starting up a new business requires money, effort and time and the risk is high as there is a possibility of losing our entire capital. Investing in equities has lesser risk compared to venturing into a new business ourselves. We only lose all of our money if a company goes broke, unable to repay its debtors or gets delisted. Buying a share of a public-listed company also allows us to save on various aspects, such as startup costs, creating marketable products or services, searching for employees, attracting and retaining customers, brand building, etc. Where entrepreneurs take years to actively build up their business, we instantly obtain a business in a much shorter time span without the hassle. This is done passively by investing a sum of money through the purchase of a company's shares.

Although we may lack the technical know-how of that particular business, we have people to do it for us, and these people are employees of the company which we own a fraction of it. In other words, the people working for these public-listed companies are working for us! We have an opportunity to earn profits without even lifting a finger. How cool is that?! (Alright, I take back my words about lifting a finger because we still need to use our fingers to click "BUY" at the stock market online)

The fundamental idea of doing business is to make a profit. How do we profit from being a business owner of a public-listed company? 2 ways, capital appreciation and/or dividends. The former is when the eventual price of the share becomes higher than our initial purchase price and the latter is where the company gives out profit to all shareholders, usually on a per annum basis after making a profit. So, the biggest winners are those whose companies have provided increasing dividends in tandem with increasing profits and whose shares have risen significantly in price.

However simple the concept may be, I dare say 99% of investors or speculators don't buy or sell shares using the "buying a share is buying a piece of a business" concept. Most of our transactions, whether buy or sell is largely dictated after seeing the last done price of that share. (Myself included at times.) I will try to follow successful investors like the famous Malaysian investor - Fong Siling in treating stocks as individual businesses instead of fluctuating price movements. To quote Benjamin Graham, "Investment is most intelligent when it is most businesslike."