The Dhandho Investor
Dhandho101: Invest in Existing Businesses
Of all of the options of asset classes that are available for investment, the author asserts that common stocks have proven to deliver the best returns. Even though investors have the option of buying and selling individual businesses, the author proposes the following advantages of the stock market:
With an entire business, one has to run it or find someone who can. This requires an enormous amount of dedication to be successful.
In the stock market, one has to buy a business that is already staffed, yet will be entitled to share the earnings.
With whole businesses, the prices offered are not usually as attractive as they can be in the stock market.
Acquiring an entire business requires a large capital. However, in the stock market, one can start with just a small amount of investment and add to that capital over the years which is a great advantage.
The preference offered to buyers of private businesses does not correlate to that offered by the stock market. The investor has an alternative to purchase from 100,000 companies worldwide with a few brokerage accounts. On the other hand, investors can hardly find any private businesses for sale within a radius of 25-mile.
While purchasing a private business, transaction costs can add 5%-10% to the price. However, in the stock market, the frictional costs are extremely low even for an extraordinarily active investor.
The stock market offers the best possibility for achieving extraordinary returns on investment as long as investors follow the "Dhandho" approach.