Should I Invest In My Company or The Stock Market?
As a young entrepreneur, do you think about the stock market? I began studying the stock market about 3 years ago but ultimately decided that it would be best to invest in myself (my business), before investing in other businesses.
Studying the stock market can be very fun. It’s great learning the ins-and-outs of how a company operates, makes profits, generates revenues, and all those fun margins. This type of financial research can help you run your own company. I’m sure that you’ve thought about investing at one point in your life, yeah?
I won’t go into the details of investing, but let’s just say that its possible to make a lot of cash from the market if you know what you’re doing. However, the majority of investors “lose” money, sadly enough.
Look at the most successful people in the country and you’ll see that they didn’t become successful from investing in the market (unless you’re thinking about Warren Buffet), they became successful from investing in their own businesses.
I used to think that investing in the market would be the answer to prosperity and amassing extreme wealth, but that’s seldom the case. When you’re playing the market, you’ll never have the same level of control as you would with your own business.
The market is extremely volatile and is predominately guided by investors’ emotions such as fear and confidence. Your entire holdings in a company can be wiped out in a matter of seconds if an insider (someone who owns 5% or more of a company) decides to start unloading large blocks of shares, resulting in a sell-off as investors lose confidence in the stock.
When you invest in your own business, you’ll never have to worry about someone affecting your business in such a way (assuming that you’re not a public company).
I’m not saying that you shouldn’t invest in the market, I think that you should. Investing in stocks, bonds, and funds is a great way to build large amounts of capital over the long run. However, as a young entrepreneur, your main investment vehicle should be your own business.
When you’re first starting out every penny counts and you can’t afford to take on additional — unnecessary — risks by investing your profits in the stock market. Heck, you’re already taking a big enough risk by starting and investing in your own company.
A great strategy would be to focus on building up your business to the point where you can realistically afford to start investing in the market. Only you can determine that time — you’ll know when.
At that point, I would suggest YOU spend a few hours a week investigating companies or funds that you’re interested in investing in. The fool.com is a great place to start. In fact, it would be in your best interest to start studying now if you ever see yourself investing in the future and/or hiring a financial advisor to consult with.
Let’s find out if Young Entrepreneurs are investing or not:
What are your thoughts on investing in the stock market.. yes, no, maybe so?
8 Comments
Aaron
January 16th, 2007 at 1:57 pm
David, Good question. I would say invest in your own business. This way you control the ROI. Look at what your typical profit margin is on the money you’ve invested in your business and if it’s better than the SP 500 which is like 6% then invest in your own company.
For example:
Instead of investing 1,000 in stock that increases 10% which means I make $100. not a lot.
or you invest $1,000 into marketing and bring in 10 new customers and each spends $200. You just made %100 percent.
$2,000
Invest in your company and then when you’re established and have extra money play with stocks.
In order to make serious money with stocks you either have to do it all day everyday for a living so that you know what’s going to hit big before it does. Or you have to have tons of money to get a serious return.
David Askaripour
January 16th, 2007 at 3:52 pm
Hey Aaron,
Yeah, that’s pretty much how I feel. The best course of action for a young entrepreneur — especially one just starting out — is to continue to invest in his/her own company.
Investing in the market not only takes money away from your business, but it’s a lot of nitty-gritty homework that is necessary in order to make intelligent stock picks.
Most people don’t know what they’re getting into when investing in the market — trust me, I used to work on Wall Street. LOL
Great point with the ROI.
Aaron
January 16th, 2007 at 4:38 pm
Not only that it ties up your money and you don’t have access to it if you want to make a profit.
Heck if you start a lawn mowing business and you’ve got $1,000.
You can buy a mower, flyers, and pay somebody to mow the lawns and start making a return with days not weeks or months.
Lucas
January 16th, 2007 at 5:18 pm
Funny thing is that even Warren Buffett ran some businesses when he first started to allow himself the security to invest comfortabily.
i would say that this question plagued me for a bit when i start got started. Kind of the story of what came first “Investing in other companies or your business” and the truth is that given enough time and the right venture you’ll far succeed what you could make in the markets. Excellent article David,
Lucas
William
January 16th, 2007 at 5:34 pm
Awesome article David, I think you made some great points that young entrepreneurs definitely need to think about before making investment decisions.
However, as someone who does invest in the market along with other avenues including precious metals, and I’m now working on my own first real estate investment deal, I think it’s also very important for young entrepreneurs to recognize the difference between “Investors” vs. “Traders” or “Speculators.”
Typically investors invest into companies and base their decisions and analysis on the “Long-term” where as Traders are looking for quick profits and returns, so they typically look for opportunities to buy low, and sell high fairly quick.
My strategy relates more to an investor and I think the examples that you and Aaron may be referring to relates more to Traders; also traders typically are very very wealthy and can afford to place funds into risky stocks and take big losses.
Investors stay into stock for the long-term and since they stay put and analyze the stock differently for “growth opportunities,” they’re able to reduce the risk of market volatility because they ride through the up and down cycles, just like real estate investors who buy and hold properties instead of “flipping” them very quickly.
Sticking with the real estate example think about it this way, you can make more money-quicker by flipping properties, but the risk is very high and when the market takes a downturn as it recently did with the bubble, you stand to lose very big. However real estate investors who buy and hold are having a field day right now, by buying up all the land while the prices are so low, and then they will hold them and wait for the prices to shoot back up again in a couple of years, which economical research has proven always happens within the housing market and also the stock market, or typically ANY market for that matter.
At the end of the day, it’s definitely up to the individual and investing is something that a young businessperson should really really investigate before jumping in. Also there is no rule saying you must invest thousands of dollars or be a millionaire to start making investments, sometimes starting slow and getting your feet wet is the best option. Ultimately I view my investments as investing into my future and not just throwing money away to others. Great job David.
David Askaripour
January 16th, 2007 at 6:41 pm
Hey Guys, awesome comments!
Lucas, I agree, the businessman who invests more in his own ventures will always come out ahead.
William, thanks for that awesome insight. Yes, you are absolutely right about their different types of investors.
Traders, Investors, and Speculators are all different types of people who are involved with the market. I wasn’t referring to any particular one in the article, but I guiess I was leaning towards the “traders” or the “wanna-be traders.” You know, the people who blindly dump money into the market without doing their homework; the people who usually end up losing. That’s the type of investor that I warn young entrepreneurs about.
In a perfect world, I would like to see young entrepreneurs become “Value” investors. The type of investor that seeks to gain value over the long-haul — usually sticking to companies that have continued to prove themselves over the years.
But, I have to admit, I think that “Growth” investing is very attractive as well. Thanks for the great comment!
Patrick
January 16th, 2007 at 7:59 pm
You can know what you are doing and lose a lot of money.
In any case, though, I do invest in the market. I’ve been watching the market since I was 10 years old and I’ve owned stock since I was 11 (I’m 22 now).
I invest a lot of money into my business, but I do/am able to keep my expenses at a minimum at this time (domain names and web hosting are the chunks). I don’t really believe in putting every dime that you have into your business, if you can help it, unless that’s all you have.
My money, outside of what I spend on my business, of course, is in the stock market or in a high interest bank account. So, even if it’s not in the market and I’m not spending it on my business, it’s still making me an extra $50+ a month… which is better than nothing at all.
But, a higher percentage of my money is in the market than in the bank. I’m a long term investor. For the most part, I own companies that I like, companies that I give my money and time to as a consumer/business owner and companies that I think will be great in 10 years. I don’t keep a close eye on the day to day trading just because I am in it for the long haul and I believe that in that frame of mind, good companies are going to go up, over time. I’m young and I can afford to do it.
David Askaripour
January 18th, 2007 at 1:20 pm
Well said, Patrick. I would take an index fund or high yield bank account over a regular checking and savings any day. Thanks for the insight
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