Investing from a Business Perspective |

The great investor Warren Buffet once said: “When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever.”

Take a moment to look at your portfolio, and then ask yourself this “Do you know the company well enough? The nature of its business, the company’s management etc. More often than not, the answer is no. My point being, instead of viewing stocks as symbols and graphs, try viewing it from the perspective of a businessman. Assume you want to own company X, would you let the share price determine your buying decision? You might want to look beyond that such as its earnings, debt and management etc. Investing is exactly the same as buying a business because when you invest on a company, you are essentially buying a part of the company, which makes you a shareholder. Of course it is not to say that using technical indicators and support/resistance line is undesirable because clearly these are more suitable for short term investing also known as trading. But if you were a long-term/value investor, then perhaps you might want to do more research before purchasing the stocks.

Many times when the topic on Investment is in a discussion, people always ask “So do you have a fixed set of formulas and ratios to evaluate a company?” Well to a certain extent yes, but not entirely. Reason being, not all businesses are the same! Given the same market capitalisation, different businesses operate differently. Take for instance a property developer versus a coffee distributor, if you look at both of their balance sheet, the property developer company would have a higher long-term debt due to its nature of the business (unless of course the coffee distributor borrows as much then in that case its a badly managed company). Thus, the evaluation on a company’s performance should be done on a case-to-case basis.

Now that you’re sold on using this particular method of investment (assuming you’re interested since you’ve read this far), how should you go about doing it? To begin with, you could start by familiarising the different accounting terms such as P/E ratio, Market cap etc. Yes, there are probably unlimited amount of accounting terms but as you know more of it, you will realise it isn’t hard to understand the business nature of the company while reading it’s annual report. Besides, it doesn’t hurt to have a larger accounting vocabulary base. Apart from the tangible part of a business, the company’s management is a relatively difficult task to evaluate. But then again, if you are going to own a part of the business, do you want a honest governance or do you want a committee governing the company to always over exaggerate the performance of the company and never take responsibility of its poor performance? If I were you, I’d choose the former. Thus, try to avoid companies’ which always blame the economy (something which can’t be controlled) for its poor performance and choose companies’ which accepts the downturn of the economy and propose alternatives to mitigate its poor performance.

While the macro aspects couldn’t be controlled by the company, it is definitely a good pointer if the company perform relatively better than its counterparts when encountering a crisis such as the 2001 dot com crisis or the global financial crisis in 2008/2009. Although companies’ past performance doesn’t guarantee future performance, it is advisable to look through it and compare with the crisis that occurred because it says a lot about a companies’ resilience. Lastly like any businessmen, always have confidence in the company that after much research you’ve decided to invest in.

I wish you all the best in your investing endeavour!