To Own a Cow
Though there are many choices for your investment dollars, only one typically leads to wealth. You should seek to own a cow . . . What, a cow? Yes . . . a cow! While you’re at it, you should seek to own a whole bunch of cattle. What am I talking about? I’m talking about a cash cow–a business that will generate income for years to come. The real way to wealth typically occurs one way: owning a business. If you look at the wealthiest people in the world, they share one thing in common–they own businesses. You can either start your own business or invest in someone else’s business.
Why Invest in Other People’s Businesses?
There are many ways to invest in other people’s businesses. The two main ways are privately and publicly traded companies. While private equity can be rewarding, this book will focus on purchasing publicly traded companies otherwise known as stocks.
A stock represents a share of ownership in a business. When you hold one or more shares of stock in a company, you actually own a piece of that company. Your percentage of ownership will depend on how many shares you hold in relation to the total number of shares issued by the company.
Investors who purchase stock are known as the company’s stockholders or shareholders. The price of shares reflects the public’s level of interest in owning the shares. If a lot of investors want to buy shares, they bid against one another, driving up the market price of the stock. If interest is low, competing bids are few and far between, and the price of shares is likely to fall.
You may hold the stock in the form of a stock certificate, which identifies you as the owner of the stock and the number of shares you own. Alternatively, shares may be held in an account with a brokerage firm. Stock ownership can give you a share of profits and other perks
Your percentage of ownership in a company represents your share of the risks taken and profits generated by the company. If the company does well, your share of the total earnings will be proportionate to how much of the company’s stock you own. The flip side, of course, is that your share of any loss will be similarly proportionate to your percentage of ownership, though you are not personally financially responsible for any share of the liabilities of the company in which you hold an equity interest.
Many investors never venture beyond the world of cash equivalents–bank accounts, CDs, money market accounts, and Treasury bills. They take comfort in knowing that these investment vehicles provide maximum safety coupled with liquidity that allows them to access their money easily if they need it. However, while these investments are relatively low risk, they generally yield minimal returns, and some may not even keep pace with inflation. Most investors want the potential for greater returns, which is where stocks enter the picture.
A variety of factors motivate people to invest in stocks. Many view equity investments as an opportunity to accumulate wealth or to prevent inflation from eventually reducing the purchasing power of their money. They generally take a long-term view, hoping their stocks will appreciate in value over time. They may also be interested in the dividends that some stocks pay, which shareholders accept in cash or (in some cases) reinvest in additional shares of the company.
Why Start Your Own Business?
Many 9-to-5 workers have dreams of starting their own business one day. Do you dream of someday owning a business? Starting your own business allows you to be your own boss and choose your own hours. However, the best part is knowing what you are capable of and knowing you gave it a shot, even if you fail. There is nothing worse than looking back on your life and thinking, What if I had succeeded back then? I could be in a better place now.
When you were young you were advised to go to school, get good grades, get into a good college, and get a good job. If you followed this formula you were supposed to land a high-paying job, become wealthy, and ride off into the sunset. Two words for that plan: Yeah, right!
What, you didn’t get that six-figure-a-year job right out of school, or not at all? If you work for someone else, imagine how much money your employer is making to be able to afford you and your coworkers’ wages and still remain profitable. While you are working for someone else you are helping them build their own dream. The employer doesn’t start a business so they can employ you, they do so to fulfill their own dreams and you are a part of their vision.