3 Differences Between An Investor And A Business Person And How They Can Make Us Better Investors

“Investment is most intelligent when it is most businesslike” – Benjamin Graham

Most value investors would have come across the quote seen above from the great investor Benjamin Graham when they are learning the ropes of investing.

But, as much as it is important to analyse stocks from the perspective of a business-person, Graham’s statement is actually hard to practice in reality.

Through my years of talking to investors and business people, I realised there are three key differences between what the two groups focus on in a business. I believe if investors can learn just a little bit more about how to think like a business person, the better our investing results can be.

Focus on numbers OR people

As investors, we tend to focus more on the numbers because we are sitting behind annual reports and spreadsheets rather than with the employees and customers of businesses. We place heavier emphasis on the profit margins, revenue, dividends, and many other financial metrics.

Yet, most business people I have spoken to place more attention on the human aspects of a business. How can they attract the best employees? How can they motivate and retain their staff? How can they improve customers’ service experience? These are just some of the questions they think about and try to find practical solutions to.

Importantly for investors, none of these things can be detected easily just by looking at the numbers produced by a company.

Focus on the past OR the future

Investors love data. Unfortunately, all data is based on the past. Inevitably, many investors end up focusing too much on data and thus the past history of a company. I’ve seen many investing mistakes result from the assumption that the future will be the same as the past. For example, if a company has been growing at 10% per year, many investors will simply assume that this will be the case going forward.

Business people, on the other hand, would use data to understand how to continue growing a business. They tend to go one step further in the thinking process by digging into the “how” of growing a business.

Focus on risk OR opportunity

Most value investors I meet are mostly risk-adverse. They focus on the risks inherent in the companies they invest in and what could go wrong with an investment. There is nothing wrong with this approach – but it is rather different from how business people look at things.

Many successful business people laser in on the opportunities lying ahead. Sure – there may be huge risks, but if the opportunities are big enough, they would conclude that the risks are worth taking. Business people are also people of action and they believe that the future is up to them to create, not something to wait around for.

A Foolish summary

I feel that the main reason why most investors still think differently from business people is a sense of control. After all, as a minority shareholder of a company – as most investors are – most things within the company are out of our control. The situation is different for business people, who do have control. So, investors would often analyse the safety aspects of an investment first.

But, I still think that investors could be in for positive surprises if they can just think a little bit more like a business person.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.