No. of Recommendations: 36
First of a series...

Invest like an owner

That sure sounds grand. As an owner you not only put up your money, you also put up your expertise, your Rolodex, your club memberships, your Alma Matter connections, even your church and your political party.

Now, let's see, I'm buying 200 shares of Coca Cola. How can I contribute to the company as an owner? The other day I saw something that was bothering me and I fire off an email to investor relations. Nine out of ten times I'm ignored and the tenth time I'm brushed off with some inconsequential reply. So much for my expertise, Rolodex, club memberships, Alma Matter connections, church and political party.

Very often management is accused of ignoring the long term and focusing on the most recent quarter under pressure from the market for the stock to perform. Clearly, if the market would just not focus on the near term but in ten years out, management would be able to do a better job of managing. Maybe so and in the mean while the stock languishes and I'm happy contemplating the future that might never arrive. Sure! Not even employees who get stock options think as owners. They see the options as a reimbursement for services rendered, otherwise they would not flip them on receipt.

There is a fundamental difference between a hands-on owner and a provider of capital. Capital is just one more input like coal, labor, or real estate. Each provider wants to get paid for the product or service rendered and capital is no different in that respect. The one difference is that most providers submit an invoice for the product or service rendered but shareholders cannot except at IPO. At all other times, the shares are just playing musical chairs and the trades have no effect on the company the exception being when a shareholder accumulates sufficient shares to make the BOD uncomfortable because he is now becoming a "real" owner as opposed to just a provider of capital. For this audacious fellow there are poison pills, golden parachutes and other gimmicks to keep this barbarian from storming the gates.

Odd as it may seem, when you buy a few hundred shares of a company, you are not affecting the company in any direct way. All that you are doing is building up a reservoir of capital that any company can drink from at the right price. And the BMW Method says it implicitly, as soon as the shares get to the right level, flip them! What you are interested in is your personal CAGR, nothing more, nothing less. Leave "ownership" to the fellows with sufficient money to get a seat on the BOD.

Denny Schlesinger
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