So you have made an investment in a company, you think it’s a good investment and you’re optimistic about having bought a great business at an attractive price. The business is either cheap considering it’s what you currently know about the company, or cheap when you take into account what you think the business could achieve. You’ve ticked all the boxes investing in a company – so what next?
It’s at this point that you need to start to think differently about your investment. Rather than leaving your investment to make money, and passively standing on the sidelines, you need to start to consider yourself an owner of the business. You should be treating management like they are your business partners, looking at the decisions they make and assessing the impact of those decisions on the business for the next 5 – 10 years.
You may have heard me discuss the importance of good management, and there is a good reason why. When you invest alongside management who are also owners of the business, and even better when they have significant skin in the game, you know that they are looking at every decision from the perspective of a shareholder.
Understanding what the business does, and where management is taking the business, helps investors to assess the impact of their decisions over the long term.
By thinking of yourself as an owner of the business, not just an investor, it becomes a lot simpler to spot the good businesses from the bad.