Invest from a Company’s Point of View

Two high school friends, Steve Jobs and Steve Wozniak, began building home computers in a garage in the mid-1970s and less than 40 years later the company they started, Apple Inc., became the largest in the world.

An athlete named Kevin Plank started making originally designed, moisture wicking T-shirts in his grandmother’s basement in 1996 and selling them out of the trunk of his car.  He named his company Under Armour.

Whatever the stories of the most successful companies in the world today, however humble or exciting their beginnings, the one common factor is that their founders’ efforts had to play out over a long period of time.  During that time there were all sorts of factors that they could have used as excuses to give up but they persisted in believing that their company – and their broader vision – was worth whatever they were investing into it.

The blog The Small Investor had a very interesting take (exact post unknown) on the time required for an investment in the stock of company by outsiders to come to fruition (emphasis added):

The way to manage the risk that the stock price may not increase over short periods of time is to simply only buy stocks if you are planning to invest for a long period of time.  For mutual funds I’d be reluctant to invest unless I was planning to invest for at least five years and maybe ten years or longer.  For individual stocks I’d probably be looking at ten years or more.  This gives time for the company to grow and people to realize that it is a great company and bid up their stock price.  I don’t have to guess what will happen with the economy, people’s emotions, or understand what trading strategies people are employing will do to the price over any given period.  I just know that if I wait long enough, things should work out and I should get the return needed to justify the risk I am taking.

In other words, the same long-term mindset of a company needs to be shared by an investor in the stock of that company for the greatest chance of success, for the bumps in the road to get smoothed out.

How many people who invest in a company that’s up-and-coming, and who aren’t a part of that company, try to have the same mindset as the company?  That is, how many investors attempt to see things from the company’s point of view?  It would appear that many investors do not because at the first sign of trouble they sell their position in that company’s stock often quicker than they got in.

This most often occurs when they don’t understand the company they’ve invested in.  Before they got in, they would have been wise to research and find solid reasons why they felt that company was a good place to park some of their money.  Yet even some investors who have extensively researched their choice have panicked and sold their shares at the first sign of trouble instead of re-visiting the long-term picture.

The time frame involved in any company executing its strategy to success is often very long-term, not immediate or short-term, yet how many people invest based upon an immediate or short-term mindset?

Before you invest in a company, try to envision the time frame involved in that company executing its strategy to success.  For a company that produces a product or products, try to envision how long it takes to plan and research, gather resources, make prototypes, test market a product, then ramp up full-scale production only if the test marketing is successful.  For a company that provides a service, try to envision how long it takes to plan and research, find out what works best, work out the kinks, and then grow a satisfied customer base.  In both cases, also think about the number of meetings involved at each step.

Also, try to not assume a story is over when it might be that only a chapter in the story is closing and there’s an interlude before the next chapter begins.  There can be no more of a classic case of this than Apple Inc.

When the Apple Macintosh computer reached the peak of its success during the 1980s and then went on the decline, who could have possibly envisioned that this was only the first successful chapter of many to come?  How many people sold their position in Apple when Steve Jobs was fired following a power struggle in 1985?  When Microsoft released the Windows 95 operating system, effectively relegating the Macintosh to a tiny share of the home computing market?  When Apple was nearly dead in the water by the time Steve Jobs was re-hired in 1996?  Again, who could have imagined at this point that Apple’s best years were ahead of it aside from perhaps a supremely over-confident Steve Jobs?

Likely the only people who never sold their Apple shares after buying them in the 1980s are those who forgot or who didn’t know that they owned them in the first place.  There have been stories of people finding stock certificates in an attic or tucked away in a safety deposit box only to find that the value of that stock had multiplied hundreds and even thousands of times over by the time they were discovered.

In the case of an investor who bought Apple shares on January 1, 1981 – the day the company went public on the stock exchange – and didn’t sell a single share, he would have had a return of over 23,000% (or a 230-times return) as of December 31, 2016, adjusted for dividends and splits.  That means an investment of $1,000 at the start of 1981 would have been worth over $230,000 at the end of 2016.

Investors like this illustrate the essence of what was implied in the above quote, namely about how time is the great compounding machine of investing, plus the great leveler of any bumps in the road.  It would be hard to imagine any investor apart from Warren Buffett or the Gardner brothers (David and Tom) who would have had the patience to hold Apple stock from the beginning until now, but this is beside the point.  The great lesson to take home is that time seems to be the eliminator of risk.

One might argue that the opposite would be true of a poorly run company, that a $1,000 investment could eventually be worth $0.  In many cases, time has proven this to be true.  But if, in 1981, a person invested $1,000 each into the ten most popular and/or promising companies of the time – Apple, Coca Cola, McDonald’s, etc. – is it not likely that those companies that survived into the 2010s would have produced far greater returns than losses for that investor, even if some of the companies ceased to exist?  A stock’s price can only go down to zero – i.e. lose 100% – but it has the potential to multiply many times over and not just in the case of Apple Inc.

Subscribers to any of The Motley Fool services, to state one example of a great resource, regularly get articles telling stories about both famous and completely unknown people who turned thousands into millions simply by taking their time.  In other words, by ignoring political and market turmoil and holding on at all costs to those companies that they believed in.  There are also many articles describing how a tiny handful of winning stock picks will far outweigh the losses of many more losers over the course of many years.

There are all sorts of factors that investors could use as excuses to give up, but those who focus on the long term persist in believing that the companies they are invested in are worth whatever they have invested into them.  They have the point of view of a successful company.  Many of these people, like the founders/owners of a successful company, become the millionaires next door that you hear about but often never know about.

How about you?

If you’re a brand-new stock investor – or still thinking about it – then I highly recommend the free e-book, Should You Consider Stock Investing?  It could become one of the most beneficial 30-minute reads of your life.

One last thing:  be sure to click the Follow button near the top of this page on desktop or after this post on mobile.  (I don’t post regularly because I believe in quality over quantity, so keep an eye on your Inbox.)

To new beginnings!

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