Imagine for a moment that you personally own a large mining conglomerate which consists of:
- Iron ore and nickel operations in Western Australia
- Copper & base metal operations in Chile;
- Potash operations in Canada:
- Uranium, copper, gold and silver operations in South Australia:
- Offshore oil operations.
- Coal mines in Queensland;
Imagine also that your company generates about $65 billion dollars a year in revenue and provides an annual profit of about $12 – 13 billion.
Your company also has millions of dollars of intellectual property and fabulous staff.
One day your neighbour comes to your door and says, ‘Hello. I’m interested in buying your company.’
Your neighbour goes on to say, ‘There’s a pandemic on at present, and I notice that lots of mining companies are selling very cheaply, so we need to discount the price I pay you’.
It wouldn’t take long for you to show your neighbour the door. Why would you sell your wonderful business now, particularly when prices are so low?
You think though, that you better check with your professional adviser, and they reassure you that you’ve done a great job building up your business, and there’s no reason to sell, particularly at a bargain basement price.
You may have guessed the hypothetical company above is what was once known as the ‘Big Australian’ or BHP.
You may also have realised that as a shareholder of BHP your economic investment and outcome is the same as if you owned the entire business.
However, because the company is listed on the stock market, human behaviour becomes inverted.
Many investors sell at low prices simply because the market (the hypothetical neighbour) decides to offer a lower price.
The opposite of the behaviour that would likely occur should the business be unlisted. The savvy owner of a business would be looking to purchase his competitor’s businesses at lower prices, not sell his own.
It is very important when one buys a share of a company, one must purchase through the eyes of a business owner, not a share trader. This thought process not only leads to better long-term economic outcomes, but also helps to avoid the panic and stress of short-term ownership.
The following videos may require readers to sign up for a free account with Ausbiz in order to view them.
Thomas Madden spoke with Ausbiz news on 1st June about stock picking
And on the 19th June about Nick Scali and Sydney Airports
It goes without saying that it has been a tough financial year for almost everybody. We cannot say when, but there will be a time when this period is confined to the annals of history.