Over the past three years or so, I have written about 200,000 words or so on the topic of investing. As I cross into year four of this little site, I have noticed a disconnect that I believe causes investors to make more poor decisions than just about anything else. That is, the language we use.
Maybe you have noticed that I almost never use the word “stocks” when I write? That has been a calculated decision on my part because, to many investors, “stocks” are irrational assets. People often refer to buying stocks as a form of gambling as if the probability of making a positive return is similar to that of a Las Vegas casino slot machine.
Regardless of how unbelievably incorrect that perspective is, it’s not what’s important at the moment. What is important to me is helping people make better long-term decisions with their portfolios. A critical piece of that mission has to include a change in the language we use.
To this point, my chosen alternative word for “stocks” has been equities. But that’s not a word that instills confidence in the minds of investors since it falls far outside of the typical investor’s lexicon.
So, while I will continue to use the word equities – out of sheer avoidance of the word stocks – my goal is to replace the word equities with the phrase “investing in businesses” or something of that nature whenever possible. Because, quite literally, that’s what we are doing when we purchase equity in a company. We are using our hard-earned money to purchase a portion of a business with the expectation that it will offer a satisfactory long-term return.
We inherently know that most of the people in our local community who have made real money are typically business owners. The types of businesses may vary widely, but most people realize that these folks took a calculated risk and have been rewarded for their efforts.
If you were given the opportunity to invest in some of the best businesses in your town, would you do it? I imagine many of us would.
Investing in businesses in the public markets is no different. Except, of course, for the fact that they offer:
- More accountability.
- More transparency.
- And have more capital at their disposal.
There are also more available options than one could ever possibly have when investing in private markets. Beyond that, you can find an unbelievable amount of company analysis online for free.
Is there a lower potential of return? Maybe or maybe not. But, at least historically to this point, there has been zero potential for complete loss of capital in the public markets which is a major positive.
My point here is that when we are purchasing or holding onto our investments, we should talk about them for what they are. They are ownership stakes in some of the best-run businesses in the entire world. We are acquiring legitimate real assets that are freely available for purchase for our personal balance sheet. This is not monopoly money.
Last point. If we were given the choice to go back in time, almost any rational person who can look at a chart of market returns would have chosen to invest 100% of their available funds in these businesses as a whole. It almost doesn’t matter the time frame.
Yet, when we look into the future, everything feels so unsure. But are they?
As we consider the future, it’s worth remembering that these businesses will continue to be run by hyper-intelligent management groups with the sole goal of enhancing the long-term value of the business for its ownership. That’s you.
And they’ll do this while accounting for all of the unknowns that exist at any given moment, be they political, economic or any other scenario you can think up.
How could that not be of interest to every investor? You literally have people working for you while you sleep which is a core tenet of wealth accumulation.
When you make your next monthly purchase of equities or make the decision to keep holding on for dear life, remember that you are a business owner. If you treat your capital as such, you may be more likely to make better long-term investment decisions. It doesn’t get much simpler than that.
Stay the course,
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This post is not advice. Please see additional disclaimers.