Diversification doesn’t mean stocks and bonds, it means owning and operating several or many different businesses
I don't see why you can't have it both ways - run several businesses and use the profits to invest. A small-scale entrepreneur (like me) with a handful of businesses earning a few thousand a month can use the supplemental income to build up savings and a healthy investment portfolio without having to liquidate the business. If you focus on long term investments and use strategies like dollar cost averaging, the ups and downs of the market should be on par with the risks of running several businesses.
This is great advice if you have a profitable company. But if your company is not yet profitable and there is a risk it could be boom or bust, and someone is offering you guaranteed money buying it out, sometimes you have to make the sale.
I don't understand this advice at all: how is holding large stakes in a small number of businesses less risky than holding small stakes in a large number of businesses (i.e. stocks & shares)? When the economy tanks, surely there's a serious risk that revenue and profits in your businesses will fall. Moreover, if you're living off profits (dividends) the stock price is irrelevant anyway? Spreading your stakes in companies should reduce the risk, not increase it.
OK, if you built these businesses yourself, you might stand a better chance of accurately estimating the risk, but at the same time you'll have to stay involved with day-to-day operations, which has a cost too.
Yes, you have to build the shelf life of the company into this. One model I have seen a Seattle investor use is to assume a shelf life of 12-15 years at best. But if you can return invested capital every 2-4 years, you have a good run. And if someone offers to take you out, you can measure your opportunity cost against the offer, i.e. you can determine whether the buyout makes more sense than running the company through its natural life cycle.
Yes, you'd have a better chance of accurately estimating the risk, and you would be in a position (control) to do something about it, trim the sails, fire the management, retain the management, whatever. Staying involved day to day has costs for sure, but Carnegie and others in the 19th Century seemed to model a way where they spent a half day on weekdays at best managing many, many businesses. It probably has a lot to do with whether you can motivate and retain good management to work for you.
Uurghh, not a very sensible article. High on principle but low on practicality.
Think what you like about owning a company versus share investing as a good way to build a nest-egg, this is not the crux.
Shares and cash are exchangeable to other parties.
A stake in your company is not exchangable
So that's the main difference, unless your pet company has lots of cash-at-bank which you can draw on, you cannot easily liquidate a portion of your company for cold hard assets.
I think a healthy industry eco system requires life long investing from insiders. People starting and creating the business. The people shaping the landscape are the insiders creating and investing in ideas they believe in. This model was the way that was done in the past so why can't it be done again. Especially when the alternatives don't look that good or aren't available like they were.
I interpret the article saying if you don't have a profitable business then you don't have a business. Work on getting real sustainable profits together then apply this model.
I've recently decided that I want sell my company in two years' time if I can get to the point where it is worth £x,xxx,xxx. Whether I will or not is another matter. However, what I've found is that since making this commitment in my mind, I've started working a lot harder. I have a figure and a deadline looming over me. In order to hit that figure I'm going to need 10 times the amount of traffic and a 50% increase in conversions. Now that I have a figure to shoot I'm hacking together systems to pull all my data together so I can quickly see when I'm straying from the path.
Napoleon Hill's Think & Grow Rich has a slightly suspect title - but the content on this area is fantastic.
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[ 383 ms ] story [ 909 ms ] threadI don't see why you can't have it both ways - run several businesses and use the profits to invest. A small-scale entrepreneur (like me) with a handful of businesses earning a few thousand a month can use the supplemental income to build up savings and a healthy investment portfolio without having to liquidate the business. If you focus on long term investments and use strategies like dollar cost averaging, the ups and downs of the market should be on par with the risks of running several businesses.
OK, if you built these businesses yourself, you might stand a better chance of accurately estimating the risk, but at the same time you'll have to stay involved with day-to-day operations, which has a cost too.
Good point, especially if your small businesses have a limited shelf life (e.g. web based startup that can be replaced by the "next big thing").
Think what you like about owning a company versus share investing as a good way to build a nest-egg, this is not the crux.
So that's the main difference, unless your pet company has lots of cash-at-bank which you can draw on, you cannot easily liquidate a portion of your company for cold hard assets.I interpret the article saying if you don't have a profitable business then you don't have a business. Work on getting real sustainable profits together then apply this model.
Napoleon Hill's Think & Grow Rich has a slightly suspect title - but the content on this area is fantastic.