Thanks James. This was interesting and I like reading things like this that challenge prevailing (and certainly my own) understanding.
I guess I still feel like I benefit from the ‘placebo’ effect of ownership. It helps put me in the right frame of mind before buying a stock. I have even gone through mental exercises where I’ve imagined I was the sole owner of the company, and used that to help me decide whether I’d like to own a ‘share’ of the company. I certainly don’t disagree with your technical and legal arguments but do you agree that there could still be a placebo benefit of thinking in terms of ownership? I suppose one of the other comments kind of touches on this too
This mindset is very entrenched, it will be difficult to break.
You say, "I have even gone through mental exercises where I’ve imagined I was the sole owner of the company"
Once again, you are using the word 'owner' - old habits die hard.
Even if you set up a company from scratch, and you are acting as its management and the sole shareholder, you are still not the owner. A company has no owner. You are the manager and you have a beneficial interest in the business.
You could sell that beneficial interest, you could appoint someone else to manage the company, or you may fall into unmanageable debt and the company may be taken from you by your creditors and placed into administration.
I like the way you frame it as a 'placebo' effect, but do you need to view it as ownership for this to work?
I think it important to consider yourself acquiring a beneficial interest in a business, a long-term endeavour, rather than just seeing the purchase of shares as a kind of short-term lottery ticket.
Fair enough. I suppose it may just be a solution without a problem, ie, the myth of ownership isn’t doing much harm, and in fact might even be doing some good. As you say, some investors are too short-termist, in which case thinking more like an owner (in the sense that ownership is commonly understood, mythically or not) might actually be good for their investment outcomes. I don’t disagree with you technically, but technical correctness is just a means to an end in investing; the end goal is good investment outcomes, so whatever it takes to get more of that end goal!
Thanks for the interesting article, James. I had a question about how this idea should influence an investor’s practical approach.
When Buffett says, 'think of yourself as a part-owner of a business', my understanding is that we should approach buying public stocks the same way a private investor might approach buying a whole business: understand how it makes money, assess financial health, and do serious due diligence—since a private buyer doesn’t have the luxury of selling at a moment’s notice.
Graham’s quote also comes to mind: 'In the short run, the market is a voting machine, but in the long run, it is a weighing machine.' So if we 'think' like owners, does that help us avoid the short-term ‘voting’ mindset and align more with long-term 'weighing' business performance?
What I’m really trying to understand is how to apply this idea in practice. Is it mainly about doing more in-depth research into a management team to ensure they’re good stewards of capital? Or is there something deeper in how we should act—or not act—as shareholders?
Andrew, this is an astute observation. Thank you for the question.
Back in the 1950s the average holding period for a stock market investment was ~8 years. Today? Less than 6 months.
Very few companies will see material changes to their unit economics in such a small time period (OpenAI may be a rare exception which in its early stages witnessed millions of new customers signing up each day). But for the most part, a normal business grows at a pedestrian rate. New strategies, initiatives and investments take years to flow through into tangible results.
This being the case, buying a stock today with the intention of selling tomorrow, next week or even next month is not investing in the sense of allocating your capital to a business that will compound in value over time and take your investment higher with it.
Of course there are short-term strategies: cigar butt investing as Ben Graham used to call it, merger-arbitrage, special situations, etc.
But if your intention is long-term compounding on a risk adjusted basis, Buffett style, then you certainly need to focus on the fact that you are investing in a real business and not simply buying a lottery ticket.
I've had lots of DM's on this post, which I welcome, but feel that comments posted here are better as they benefit others. From those conversations, I would like to share one of my responses which I believe helped someone else better understand how this works.
At law, a beneficiary of a trust has what is known as an "equitable interest". He can't make decisions as to capital allocation (same as in a company), but he benefits when the trustee (or CEO in our case) manages capital well.
This is why the stock market is described as an equity market. You are buying equity - a beneficial interest in the company - but not fractional ownership of the company - that nuance is important.
Thanks James. This was interesting and I like reading things like this that challenge prevailing (and certainly my own) understanding.
I guess I still feel like I benefit from the ‘placebo’ effect of ownership. It helps put me in the right frame of mind before buying a stock. I have even gone through mental exercises where I’ve imagined I was the sole owner of the company, and used that to help me decide whether I’d like to own a ‘share’ of the company. I certainly don’t disagree with your technical and legal arguments but do you agree that there could still be a placebo benefit of thinking in terms of ownership? I suppose one of the other comments kind of touches on this too
Thanks again for the read
This mindset is very entrenched, it will be difficult to break.
You say, "I have even gone through mental exercises where I’ve imagined I was the sole owner of the company"
Once again, you are using the word 'owner' - old habits die hard.
Even if you set up a company from scratch, and you are acting as its management and the sole shareholder, you are still not the owner. A company has no owner. You are the manager and you have a beneficial interest in the business.
You could sell that beneficial interest, you could appoint someone else to manage the company, or you may fall into unmanageable debt and the company may be taken from you by your creditors and placed into administration.
I like the way you frame it as a 'placebo' effect, but do you need to view it as ownership for this to work?
I think it important to consider yourself acquiring a beneficial interest in a business, a long-term endeavour, rather than just seeing the purchase of shares as a kind of short-term lottery ticket.
But why perpetuate the myth of ownership?
Fair enough. I suppose it may just be a solution without a problem, ie, the myth of ownership isn’t doing much harm, and in fact might even be doing some good. As you say, some investors are too short-termist, in which case thinking more like an owner (in the sense that ownership is commonly understood, mythically or not) might actually be good for their investment outcomes. I don’t disagree with you technically, but technical correctness is just a means to an end in investing; the end goal is good investment outcomes, so whatever it takes to get more of that end goal!
Thanks for the interesting article, James. I had a question about how this idea should influence an investor’s practical approach.
When Buffett says, 'think of yourself as a part-owner of a business', my understanding is that we should approach buying public stocks the same way a private investor might approach buying a whole business: understand how it makes money, assess financial health, and do serious due diligence—since a private buyer doesn’t have the luxury of selling at a moment’s notice.
Graham’s quote also comes to mind: 'In the short run, the market is a voting machine, but in the long run, it is a weighing machine.' So if we 'think' like owners, does that help us avoid the short-term ‘voting’ mindset and align more with long-term 'weighing' business performance?
What I’m really trying to understand is how to apply this idea in practice. Is it mainly about doing more in-depth research into a management team to ensure they’re good stewards of capital? Or is there something deeper in how we should act—or not act—as shareholders?
Andrew, this is an astute observation. Thank you for the question.
Back in the 1950s the average holding period for a stock market investment was ~8 years. Today? Less than 6 months.
Very few companies will see material changes to their unit economics in such a small time period (OpenAI may be a rare exception which in its early stages witnessed millions of new customers signing up each day). But for the most part, a normal business grows at a pedestrian rate. New strategies, initiatives and investments take years to flow through into tangible results.
This being the case, buying a stock today with the intention of selling tomorrow, next week or even next month is not investing in the sense of allocating your capital to a business that will compound in value over time and take your investment higher with it.
Of course there are short-term strategies: cigar butt investing as Ben Graham used to call it, merger-arbitrage, special situations, etc.
But if your intention is long-term compounding on a risk adjusted basis, Buffett style, then you certainly need to focus on the fact that you are investing in a real business and not simply buying a lottery ticket.
If you haven't read it already, you'll enjoy this post which provides a mental model on how to apply this in practice: https://rockandturner.substack.com/p/investing-subconscious-myopia
I've had lots of DM's on this post, which I welcome, but feel that comments posted here are better as they benefit others. From those conversations, I would like to share one of my responses which I believe helped someone else better understand how this works.
At law, a beneficiary of a trust has what is known as an "equitable interest". He can't make decisions as to capital allocation (same as in a company), but he benefits when the trustee (or CEO in our case) manages capital well.
This is why the stock market is described as an equity market. You are buying equity - a beneficial interest in the company - but not fractional ownership of the company - that nuance is important.