Are You Buying a Business or a Ticker?

When you invest in publicly-listed companies in Singapore, do you see yourself buying a ticker with a price tag or do you see yourself investing into a business?

Given the convenience of current internet technology, it is now easier than ever to buy and sell shares of a company. In August 2012, Business Insider reported statistics compiled by financial advisory firm LPL Financial on how the average holding period for a stock among American investors had dropped from eight years in the 1960’s to around… five days currently.

Source: Business Insider’s article from LPL Financial’s Weekly Market Commentary

Is it really possible to invest in the future of a company for 5 days? Or have “investors” mistaken investing for gambling?

Buying a  Businesses

Imagine for a second, that you happen to know a friend who decided to start a small bank in Singapore in 1935 to serve the Fujian (a Chinese dialect group) community. He came to you, asking for an investment for 5% of the company.

Over the years, the company grew stronger and stronger. Through mergers and acquisitions, it has now become one of the largest banks in Singapore with a presence in more than 19 countries and territories in Asia Pacific, Western Europe and North America.  In fact, it has even grown to become one of the mainstays in our local market by taking up almost 10% of our market barometer, the Straits Times Index (SGX: ^STI).

This is the story of United Overseas Bank (SGX: U11) and its founder, Datuk Wee Kheng Chiang. If you were one of the original investors, how well do you think your investment has done?

I honestly have no clue, but suffice it to say that an investor would have done very well as UOB’s total assets have grown by 438% from S$50.8b to S$273.3b from just 1998 till today. Imagine how much smaller the bank’s asset base would have been all the way back in 1935 and the kind of subsequent growth an early investor could have experienced?

Now, if you think about it, if you had invested in UOB for only 5 days, how well do you think your investment would have done?

The stock market gives us a great platform to gain access to companies that we might not have access to privately. Nevertheless, whether we are buying a company through the stock exchange or investing into our sister’s company making pretty little cupcakes, we should still view it as buying a part ownership of a business.

Foolish Bottom Line

Investing is buying a piece of a business, and businesses need time to generate value for its shareholders. As one of our articles suggested, “99% of long term investing is doing nothing, the other 1% will change your life”, there might be more truth in that than we assume.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.