☕️ Sunday Coffee: Buying stock is basically buying a slice of a real-world business
In other words, owning stock is like owning a piece of a company
“You’re not just buying a stock; you’re buying a stake in a business. If the business does well, you do well. And, of course, it helps if you didn’t pay through the nose.” – Warren Buffett
Consider these two scenarios, both worth $100,000:
50% stake in a $200,000 small biz
0.005% of the shares in a $2 billion public company
When you buy a real business, it’s almost never smart to flip it right away. It’s kind of hilarious to think about buying and selling actual businesses every day, but that’s pretty much what happens on the stock market all the time.
Thinking like a business owner means you're more likely to buy and hold for the long haul. This mindset is pretty different from what many stock market folks have.
The single greatest edge an investor can have is a long-term orientation. – Seth Klarman
Holding onto stocks for the long run means investing in companies you believe will grow over time. This is all about quality businesses – those with lasting competitive advantages.
Time is the friend of the wonderful company, the enemy of the mediocre. – Warren Buffett
Long-term holds are also tax-smart. You only pay capital gains taxes when you sell, so your cash can keep compounding in your account without Uncle Sam taking his cut.
The business owner mindset also fits perfectly with income investing. Owning a business long-term is about getting the cash flow it generates. Stocks that pay dividends return some of their cash flows to you – just like a private business would.
A business that can keep raising dividends year after year and decade after decade is a “wonderful business” with a solid competitive edge.
Buy it at a fair price, hold on while dividends rise, and you’re golden.
And that’s where MaxDividends really shines.
Predictability in important things is the foundation of peace of mind. Peace of mind is the basis of financial well-being. MaxDividends is all about peace of mind.
Sunday Coffee is a column where I share insights on stock investing and the philosophy of long-term investment, discuss intriguing thoughts and ideas that could benefit you.
All Sunday Coffee posts you can find here
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Most people don't understand dividends. They think a small percentage is meaningless.
However, as a company raises the dividends, it increases the yield on your cost. Eventually you're earning a high rate on your initial investment and it keeps compounding.