32 | Patient Investing, Part 4 of 7: The Ceiling is the Roof

Investing in a manner that you believe in and in which you have a baseline understanding knowing that, regardless of strategy or plan, the only guarantees are that someone will always outperform you and that how you behave during the inevitable unsettling times will be the biggest determining factor in your lifetime returns. Owning businesses tends to increase potential returns, diversification tends to make the ride smoother, long horizons tend to increase the probability of positive returns, and above-average patience is a superpower.

The "Aura" of the Owner

Maybe there aren't that many dots to connect here. I think we all inherently know that owning something carries a different aura.

When someone says, "I work for this company", it's only so interesting and inspiring. Even someone in a key role will eventually be limited in the impact they can have and the reward they can reap.

When someone says, "I own this company", we're immediately taken to a different level. You feel it in your gut. An owner gets a different level of respect and share of the pie because they take on a different level of accountability and responsibility.

The Rewards of Ownership

When you own a business (as the sole owner or as one of many shareholders!), you get at least two things - income generated by the business and participation in the growth of the business itself.

When it comes to traditional investing, I think technology has abstracted each of these realities in distinct, unhelpful ways.

The income generated from a business used to arrive as a paper check that made it easy to see, feel, and appreciate. Now income gets commingled in an account and likely automatically reinvested making the income side of the equation feel a bit more mystical than it actually is.

The growth portion has turned into a convoluted, real-time metric that is updated every second on your smart phone, CNBC, or your Robinhood app. Instead of trusting that creation of value eventually leads to capturing of value, we've trained ourselves to believe that daily and even hourly moves of investments matter.

Even with these abstractions, the nature and rewards of owning a business have not changed one iota since the first business was incorporated - the income and growth potential that comes with ownership builds financial wealth in a way that is unmatched by being a lender or even speculating on the value of a scarce item.

As MJ would say, "The ceiling is the roof!" when it comes to the upside of owning a business.

The way that "owning-the-business-upside" plays out over time doesn't require an advanced degree to understand. In Morningstar's visual below, two lines are not like the others. That's the "different aura" showing up in the numbers.

The Hidden Side of Ownership

The sexy part of ownership is easy to sense and see.

The hard parts of ownership aren't quite as obvious.

Businesses get paid for fixing things that are broken or improving something that is sub-optimal.

This means that when a lot of things are broken or sub-optimal there is the greatest opportunity for growth.

The only way to participate in that growth is to be an owner before, during, and after the "fixing" or "optimizing" has happened.

The top lines above look great on paper, particularly relative to the lines beneath them, but the chart ignores the uncertainty and discomfort faced every step of the way.

Every bit of growth happens before, during, and after wildly unsettling things are happening all over the world.

Morgan Housel illustrates it well in this chart below. This is the "different aura" showing up in the lived experience.

A key word in all of this is "owning businesses tends to increase potential returns". Because it's not a guarantee, that's all the more reason we own a bundle of companies instead of just one...

Additional Reading

Asset allocation: Key to your investment climate by Vanguard

Stock, Bond & Cash Returns Over the Past 95 Years by Ben Carlson

Keep in Mind, Stocks Rose 1,100-fold During This Period by Morgan Housel