Monday, March 31, 2014

How would an investor and a businessman fight a war?

Investing is business and business is investing. They are synonymous to one another. They are related in terms of the characteristics they have. Let me explain further.

From employee to employer

Many people would say that doing business is the way to get rich since being an employee and a slave to your company will only make the company richer but not yourself. I would say there is some truths in this but of course we know only a few businesses succeed in the end. You either make it or lose it. Older people would say doing business is risky. Young people who have got nothing much to lose are willing to take that risk. If they succeed, the rewards are extremely great.

From employee to shareholder

Some other people would say invest in the stock market and you can get rich. Being a shareholder in a company makes you effectively higher than the managers, the vice president, the managing director and even the CEO in the company. No? Try going to a company's AGM and ask the CEO questions. In fact, the company's top management knows they are working for the shareholders.

Investing in the stock market is risky too. You may have heard your grandparents or your parents caution you to avoid the stock market. They are right in a way. Invest in the right company and you will make money but invest in the wrong one and you can potentially lose all your money. So which is more risky? Doing business or investing in the stock market?

Putting business and investing together

Many people separate business and investing which in my opinion is a wrong way to look at it. How do people separate it?

Firstly, some businessman say investing is risky and they are afraid to invest now as the market looks like its going to crash. But at the same time, they are still doing their business. Won't their business be affected when the market crashes? Yes it would affect but they have backup plans and they are prepared for it.

Secondly, some investors say doing business is risky and we shouldn't start a business now because the economy doesn't look too good. But at the same time, they are still invested in the stock market. Won't their investments be affected when the economy declines? Again, the answer is yes but they too have backup plans and they are prepared for it.

The mystery of the backup plan

To eliminate risk, we need to have proper risk management. The backup plans are part of the risk management procedures which successful business owner and investors have. The 2 different backup plans are actually similar in concept.

Business people still do business even though they may expect the economy to deteriorate next year. They just reduce their exposure of risk by managing their expenses. As profits can hurt badly during an economic crisis, businessman can hold more cash and moderate expansion plans in anticipation of the crisis. When crisis hits, they will be able to tide it out and even find opportunities for expansion at much cheaper prices.

Similarly, investors still invest even though they may expect the economy or market to deteriorate next year. Investors reduce their risk by moderating their purchase of stocks and hold more cash in anticipation of the crisis. When crisis hits, they will still be able to live normally and also find opportunities to buy good companies at much cheaper prices.

Timing the market

It is impossible to time the market. No one can be certain of what will happen in the future. Even the best economist or the best financial/business analyst can have their predictions wrong. If we are always waiting for the right time to start a business or start investing, most likely we'll never even start at all. In 10 years time, you'll still be waiting.

The correct way is to start now but always have a backup plan in case a crisis hits. Don't throw all your money in to start a business or invest in stocks. Always have a stash of cash ready to deploy when crisis comes. Even in wars, generals do not send all their soldiers all out at once. If all get killed, they have nothing left. They send out troops assigned to do different task in different batches. This way, their chances of winning will be much higher. This is the art of war.

The art of doing business and investing lies in asset allocation. Your cash is like the soldiers which you can deploy. Break them down into different troops and deploy in batches. No matter what, always have one reserve troop on standby. This will only be used when the enemy is at its weakest point and the battle is a sure win. This is like a war chest which we keep to deploy when the market crashes and there are lots of opportunities to buy good companies at extremely cheap prices.

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Related Posts:
1. The benefits of investing when you're young
2. Buying the company on the streets (Part 1) - Discovery stage


  1. Hi SGYI

    Do you think there is a difference between a shareholder who holds loads of cash to take advantage of the crash and company that is cash rich which serves the very same purpose? I like to invest the latter with my money knowing that they could take advantage of a crisis in such situation.

    1. Hi B,

      Low debt and huge cash company is definitely good in times of crisis. Firstly they can weather through a crisis better and secondly like you said they can take advantage of the crisis. Many big companies buy over small companies in times of crisis too. That's where they get value for money opportunities.

  2. Running a business is tough job but we can be armchair investor.

    1. Hi Uncle CW,

      That's true. Another thing is, the businessman works for the investor, the employee works for the businessman. Middleman toughest?

  3. As employees we may have little choice but to work hard for our money in the 1st half of our working life; but in the 2nd half we must learn enough investing skills to let our money works harder for us.

    This may be the winning strategy for most employees as few employees can climb corporate ladder to reach the level of Top Management to earn multimillion dollars salary.

    Million dollars portfolio is possible for many of us

    1. Hi Uncle CW,

      I believe million dollars portfolio is possible for many of us too. Many have done it and many more will continue to achieve it.