Being A Co-Owner of GLP
It is often said that buying shares in a company means becoming a co-owner of the company. However, what does it really mean to be a co-owner? After my large investment in Global Logistic Properties (GLP), I finally understood what it means. Usually, for any investment, if the company is not doing well, I could simply sell and walk away. But when I initiated the 15% to 20% concentration in GLP, I told myself that there shall be no exits. If GLP sinks, I sink as well. Hence, I have to understand the business very well and monitor the prevailing risks to protect my investment. Such a mentality requires very different actions from the usual mentality in stock investments. In fact, I differentiate GLP as a business investment as opposed to other stocks which are financial investments.
The first difference between a business and a financial investment is the duration of the holding period. After I had overcome my initial jittery over the stock price fluctuations for such a large concentration in GLP (see My Roller Coaster Ride with GLP), I am prepared to hold GLP for 15 to 20 years or more instead of taking profit in the short term. Having understood the business model of GLP, even a 50% gain in the short term will not be sufficient. GLP has the potential to be a multi-bagger if it is given enough time to develop to its full potential according to its business model. It does not matter if the stock market were to close for the next 10 years. Financial investors make money from the markets, but business investors make money from owning and growing the business.
The second difference is in how financial statements, especially quarterly ones, are viewed. For financial investments, I would read the financial statements, possibly discover some concerns, and sell off the investment the next morning. I once sold off a growth stock (Riverstone) after it reported weaker-than-expected quarterly results, only to see the stock doubled in price. But with GLP, the quarterly results are reviewed to monitor how well the company is executing its business model and plans and what are the potential risks. A set of poor quarterly results does not lead to the stock being sold.
An analogy would be the quarterly exam results of your children. If the child only scored 60 marks for one particular quarterly exam, would you quickly give up on the child, or would you look past the score and delve deeper into the exam questions to understand how well the child has mastered the subject syllabus (i.e. followed the business plans) and which areas has the child done poorly (i.e. what are the risks)? Likewise, a business investment focuses less on the actual earnings figures but more on evidence of business model execution and potential risks.
The first difference between a business and a financial investment is the duration of the holding period. After I had overcome my initial jittery over the stock price fluctuations for such a large concentration in GLP (see My Roller Coaster Ride with GLP), I am prepared to hold GLP for 15 to 20 years or more instead of taking profit in the short term. Having understood the business model of GLP, even a 50% gain in the short term will not be sufficient. GLP has the potential to be a multi-bagger if it is given enough time to develop to its full potential according to its business model. It does not matter if the stock market were to close for the next 10 years. Financial investors make money from the markets, but business investors make money from owning and growing the business.
The second difference is in how financial statements, especially quarterly ones, are viewed. For financial investments, I would read the financial statements, possibly discover some concerns, and sell off the investment the next morning. I once sold off a growth stock (Riverstone) after it reported weaker-than-expected quarterly results, only to see the stock doubled in price. But with GLP, the quarterly results are reviewed to monitor how well the company is executing its business model and plans and what are the potential risks. A set of poor quarterly results does not lead to the stock being sold.
An analogy would be the quarterly exam results of your children. If the child only scored 60 marks for one particular quarterly exam, would you quickly give up on the child, or would you look past the score and delve deeper into the exam questions to understand how well the child has mastered the subject syllabus (i.e. followed the business plans) and which areas has the child done poorly (i.e. what are the risks)? Likewise, a business investment focuses less on the actual earnings figures but more on evidence of business model execution and potential risks.
Because of the differences in emphasis, the questions asked by financial and business investors at Annual General Meetings (AGMs) are also different. It is not uncommon to hear questions such as why is the dividend so low or why has the profit margin dropped in AGMs, but these are mostly focused on the short term financial results. Between quarters or even financial years, there are certain to be variations in the results. Sometimes, the variations might simply be a matter of timing, which will reverse in the subsequent financial period. Long term business investors are more concerned about the viability of the business model and the potential risks. For example, if you are a long term shareholder of GLP, would you not be concerned over whether it is at risk of being disrupted by technological innovations or economic trends, or how it is going to manage rising interest rates and declining renminbi value? These are issues that could threaten the viability of GLP and everybody's investment in it if not managed well. In constrast, how low the dividend or profit margin are for one financial year seem less significant compared to these issues. Financial investors ask questions related to the past (e.g. earnings, dividends, etc.), while business investors ask questions concerned with the future (e.g. opportunities, risks, etc.).
There is also a conflict in what financial and business investors want from their investments. As an example, GLP was recently rumoured to be the subject of a takeover by a group of Chinese investors. Financial investors might be satisfied with a gain of, say, 20% over several months if the takeover were to materialise, but business investors would see a great business and a potential multi-bagger over 15 to 20 years being taken away.
There is also a conflict in what financial and business investors want from their investments. As an example, GLP was recently rumoured to be the subject of a takeover by a group of Chinese investors. Financial investors might be satisfied with a gain of, say, 20% over several months if the takeover were to materialise, but business investors would see a great business and a potential multi-bagger over 15 to 20 years being taken away.
In conclusion, the mentality and actions from being a financial investor and a business investor are very different. It might be a lot more risky being a long-term business investor, but also more rewarding if you get it right.
