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Thinking about a stock as buying into a business

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May 30, 2009 – Comments (1)

TMF, Buffet, and other great investors have suggested putting your money into a stock as you would put it into any business.  Meaning, you wouldn't buy into a business based only on it's name, what it does and a quick look at the financial statement.  You'd want to know about the owner, the business it's in, its competition,  its growth prospects, its debt load, its realtionship with its suppliers, how its customers feel about it, and all kind of other things.  For me, the number 1 biggest thing to consider is who's running the show.  Do you like them? More importantly do you trust them; and do you think they'll do a good job running the company?  Buffett has said, "buy a company that an idiot can run because one day they probably will".  I believe there is a lot of sage wisdom in that statement, but if I consider the stock as a business, that means I'd be in business with an idiot.  If that happens, I think I'd want out of the relationship; I'd sell my stock and look for a company not run by an idiot.  Idiots can torpedo a company in so many ways.  A lot of these ways can't be predicted or observed by reading the annual report.  They could be involved in a criminal act that tarnishes the company's reputation, they could steal from the company, they could make up revenue and profit numbers.  We've seen all of these just in the past couple years.  That's why I really like CEO interviews.  I think you can really tell when someone is laying it all out there and when they're just repeating what their PR person told them to say.  You can also tell which people really think a lot about the company and which are just going through the motions.

1 Comments – Post Your Own

#1) On May 30, 2009 at 9:09 PM, alexxlea (44.74) wrote:

Did you see the interview with the new Yahoo CEO? Hilarious stuff. She said she wasn't even aware that they had talks to do a search deal with Microsoft after the buyout offer fell through. Incredibly amazing how stupid the people running this country prove themselves to be time and time again.

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