Share Ownership

stocks are shares

At Canny Capital, I provide a business-like investment program for clients.  You could say I am in the business of owning (parts of) businesses.

I acquire the shares of various businesses in the public, secondary market to build client portfolios.  As treacherous as the public, secondary market for shares can be, it provides opportunities to succeed with a disciplined, contrarian, value-focused investing approach. 

The strategy works if you seek and expect investment gains mainly from the businesses themselves, rather than from price movements in the secondary market.  While easy to state, many investors find a share ownership approach and mindset difficult to put into practice.

Why own shares of businesses?  Why think of them as 'shares' instead of 'stocks?' 

A stock, to most people, is a piece a paper, or a ticker on a screen, for which someone will pay a different price minute by minute during each business day.  A share denotes ownership and its attendant privileges.  You buy a stock to speculate, but you own a share to participate.  Stock buyers trading with other stock buyers foster volatility, seek volatility, but also fear volatility. 

Shareholders participating in business activity, especially in the United States, reaped enormous financial rewards over the 20th century, in spite of several disastrous world events.  Twenty-odd years into this century, that record has continued, in spite of a few disastrous market events.  If you are looking for the best place to grow your capital, participating in American business remains the top choice.

Just as a business negotiates on price with suppliers, employees, customers, and even the tax man, share owners must negotiate on price for parts of the business itself. Businesses acquire materials, labor and property on terms that allow them to earn a profit margin on their sales. A business-like investment program aspires to the same success in negotiations for shares. The market serves me in executing this program and negotiating on share price; I do not serve the market by following the crowd.

My pedantic description here has a purpose. Volatility, for stock traders, is to be avoided and mitigated. Share owners, committed to the boring, rote process of evaluating the worth of a business, anticipate and take advantage of volatility. Value accumulation by a business happens much more slowly than the movement of its stock, and thus inspires less attention than daily price fluctuations. When value is present, the return on well-bought shares accrues to share owners with certainty and predictability. Price is what you pay, but value is what you get. The three main ways businesses build value for the benefit of share owners are by increasing dividends, growing net worth per share, and repurchasing shares wisely.

Clients succeed by this sequence - own shares, accrue value, and control reinvestment. In an essay on Portfolio Management, I describe why and how reinvestment is controlled in client portfolios.