It’s incredible how a simple shift in mindset can significantly change the way you think about an investment.
Most new investors have the mindset when evaluating a stock that they’re buying stock of a company in some far off, distant land. It’s easy to do. After all, our stock investment likely only amounts to ownership in the company of about .000001%.
The problem with this mindset is that it personally separates you from investing decisions. You’ll think and act as if you merely own a virtual piece of paper with a dollar amount on it, and in a month you hope to check back to see that the dollar amount has become bigger. You’re not thinking like an owner of the business, even though technically you are, albeit a very small part.
To become a more successful investor, you must think like a billionaire investor.
What does that mean?
It means you you must shift your mindset to place more emphasis on the fact that you literally own a piece of the company.
In fact, what if you evaluated a company as if you were buying the whole thing?
This is the mindset investors like Warren Buffet have, not because he’s got billions of dollars at his fingertips, but because he recognizes this is the mindset investors should have in order to find quality companies. This is how you’ll find companies with the potential to yield long term profits, which is Buffett’s main focus.
You’ll find this shift in mindset will completely change the way you evaluate a company. If you’re the sole owner of a business, do you think you’ll act differently than if you’re an obscure stockholder? Of course you will because you’ll feel personally vested in the business.
This is the mindset you must have when when evaluating companies. It’ll propel you to evaluate a company much more thoroughly. You’ll find yourself looking much deeper into the finances of the company, leadership team, industry trends, and more. Then, when you do make an investment you’ll find yourself regularly checking in to make sure the company continues to be in good shape. You won’t just check in on the price of the stock because stock price is only surface level. You’ll check in on all of the critical factors impacting the company’s ability to turn a profit.
After all, what business owner would buy a company, then take a 6 month vacation? This level of research is why it’s important not to diversify yourself too thin.
To help you understand the different between these two mindsets, let’s take a look at a few of the traits of each.
Traits of someone buying a stock
- Evaluates only the basic fundamentals of the stock
- May invest in stocks based solely on analysis published in investment publications and from analysts on T.V.
- Makes investments decisions quickly
- Checks on stock prices regularly, but rarely on financial health of company after investment has been made
Traits of someone buying the company
- Completes a thorough financial analysis of the company
- Makes stock purchases based on their own research and analysis
- Takes their time to make investing decisions
- Regularly checks in on the company to see how the company is performing (not just the stock price, but key performance indicators, company news, and industry trends that could impact the financial success of the company)
- Evaluates the industry/environment the company operates in as an indicator of long term success
- Asks themselves whether they feel the company has strong leadership, and believes in the capabilities of the management team
When evaluating your next investment don’t think as if you’re only buying a piece of virtual paper, think as if you’re buying the whole company!