1/ Owning stocks vs businesses
It is "Investing 101" that when you buy a stock, you are essentially owner of a business. I know this and liberally parrot it to anyone who wants to listen.
I realized a few months ago that I myself never probably walked the talk. Thread.
It is "Investing 101" that when you buy a stock, you are essentially owner of a business. I know this and liberally parrot it to anyone who wants to listen.
I realized a few months ago that I myself never probably walked the talk. Thread.
2/ This finally occurred to me when an interested buyer showed up to take a minority stake (~20-30%) in "MBI Deep Dives".
As I own 100% ownership of MBI Deep Dives, I finally had to think about valuing my own business.
As I own 100% ownership of MBI Deep Dives, I finally had to think about valuing my own business.
3/ The buyer wasn't a random rich person trying to buy a stake, but a strategic one who I believe could unlock value.
But considering I just launched my business in September 2020, I was initially at best lukewarm since it just felt too early to "value" my biz.
But considering I just launched my business in September 2020, I was initially at best lukewarm since it just felt too early to "value" my biz.
4/ My wife was perhaps more intrigued. She has always felt uncomfortable that I have taken a humungous student loan for b-school to come to the US.
She encouraged me to give it a proper thought before saying No to the buyer and reminded this could be my ticket to debt free life
She encouraged me to give it a proper thought before saying No to the buyer and reminded this could be my ticket to debt free life
5/ So I replied I'm open to the idea, and the buyer gave me some initial range of valuation.
I did some number crunching and his suggested range didn't feel terribly unfair, just needed some small tweaks.
I did some number crunching and his suggested range didn't feel terribly unfair, just needed some small tweaks.
5/ I asked 3 of my well-wishers on fintwit. While they did not outright suggest yes/no to the deal, it was clear they were not excited as they alluded it's just too early.
Then one of them was kind enough to connect me to someone who wrote a non-investing newsletter for 10 years
Then one of them was kind enough to connect me to someone who wrote a non-investing newsletter for 10 years
6/ After connecting with this person, I had a good gut check. I realized there is non-negligible probability that I may accidentally massively undervalue my biz.
I convinced my wife that we don't need to worry about my student loan. The deal was off (skipping some details here)
I convinced my wife that we don't need to worry about my student loan. The deal was off (skipping some details here)
7/ The whole process consisted of a few sleepless nights and lots of soul searching, what-ifs, and probable regrets.
I had my eureka moment then: "Ah, so this is how it feels when you own a business, not a stock."
I had my eureka moment then: "Ah, so this is how it feels when you own a business, not a stock."
8/ I thought about the stock I most recently sold: $ISRG.
On one weekend, I read a piece on delta variant which made me uncomfortable with the potential recovery timeline implications for ISRG. The valuation already seemed a bit elevated even without delta variant concerns.
On one weekend, I read a piece on delta variant which made me uncomfortable with the potential recovery timeline implications for ISRG. The valuation already seemed a bit elevated even without delta variant concerns.
9/ I read two more pieces on delta variant during the weekend and my discomfort grew even further.
Then I opened my model and played with my assumptions and felt difficult to generate HSD return. I sold the stock first thing on Monday morning.
Then I opened my model and played with my assumptions and felt difficult to generate HSD return. I sold the stock first thing on Monday morning.
10/ There was no gut wrenching what ifs or sleepless nights involved. It felt very transactional, kinda how you feel if you own "stock", not business.
11/ Now that I know what a visceral feeling it is to think about selling a *business* you own, I doubt whether I can recreate that in public market.
There'll always be an invisible asymptote in terms of what it means to own a biz in a public market vs the one you fully own.
There'll always be an invisible asymptote in terms of what it means to own a biz in a public market vs the one you fully own.
12/ Some may argue it's not warranted since I've zero *control* over my portfolio companies and unlike my biz, my cost basis is not zero.
On the flipside, some of the founders/CEOs are probably operating much better biz at a much better manner than I am.
On the flipside, some of the founders/CEOs are probably operating much better biz at a much better manner than I am.
13/ Whatever it is, I believe even if it's not possible to recreate that feeling, the closer I can get, the better shot I have to become a better long-term investor.
If you feel some pain and a tinge of sadness to part your stocks in public market, you'd realize you own a biz.
If you feel some pain and a tinge of sadness to part your stocks in public market, you'd realize you own a biz.
End/ Owning a business, and not a stock may deceptively seem "Investing 101", but in reality it is the final frontier.
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