I sold a stock: Ownership mentality and morals
I want to talk about a tricky topic today. Generally, I preach a long-term investment approach where we want to partner with a company's management and stay along for the ride to see it grow and prosper. That’s how we ultimately can compound money as long-term investors and business owners. There are several reasons why this should be the best strategy for the long term:
by sticking to investments, we minimize the effect of taxes on frequent turnover
we much better understand our businesses after owning it for a few years
we aren’t as susceptible to hypes and try to chase returns
exponential growth needs time
Now, the question arises of how to stay along for the ride and enjoy the benefits of compounding returns. First, we must understand the business model. How does the company earn money? What are the competitive advantages, and how fierce is competition? We need to understand its industry, what growth we can expect, and how likely it is to be disrupted. Furthermore, management needs to be evaluated.
After we’ve considered all of this and more, we need to ask ourselves if we want to own this business. This is where our moral compass comes into play and there are no right or wrong answers. Some people don’t have a problem owning sin stocks, like tobacco companies or private prisons, while others won’t invest in a company without a good ESG score. While it is very personal, answering the question for oneself is vital. As long-term business partners, we want to be able to hold onto the company, and that is a lot easier if we like the business or at least not feel disgusted.