When we sit down with an owner or investor to talk about strategy we always suggest starting the same way, with Question One; “If you did not already own your company, rather you had the cash equivalent, would you buy in today?” This is the same question that wise investment advisors ask their clients to ask themselves to prevent their clients from hanging on to a bad stock expecting it to recover someday. The same logic applies. Are you here because this is your best alternative? … or is it for some other reason?
Most often the answer that I get is “ …some other reason.” I haven’t run the numbers, but I suspect this is because I work with a lot of family owned businesses where the returns are far from solely financial. With an investment in your IRA, you aren’t sentimental about the companies represented by the ticker symbols. At least you’re not supposed to be. It’s different in a business where you work. Of course you draw a paycheck, but there can be much greater rewards.
Business friends of mine site very different reasons for staying in a business that might not be beating the S&P 500:
Everyone’s list is different. The important thing to remember is to ask yourself that question. I know individuals, particularly in today’s environment, that are ready to sell. They’ve said goodbye to too many valued friends or they’ve seen the character of their industry and markets change and the fun just isn’t there anymore. And often times, they don’t recognize that they are ready until they ask themselves; “Would you pay for the privilege of owning this company, if you didn’t already?”
This entry relates to an article I wrote in our Bottomline newsletter last week. Stay tuned to for more on the subject of “What COULD we be doing?”