I hope you’re appreciating the reporting of the current ‘Apocalypse du Jour’ (i.e. the federal government shutdown) as much as I am.
We now have yet another reason to be scared out of our wits and run for cover. Financial markets can’t possibly withstand yet another crisis!
Or can they?
Before answering that, take a moment to recall this brief list of recent “crises” which, at some point during the last two years, has each been widely reported as a crisis worthy of your attention, and worthy of a change in your investment strategy by the financial media:
- S&P Lowers U.S. Bond Rating…No Longer AAA
- Anemic GDP Growth
- High Unemployment
- The European Debt Crisis (Greece, Italy, etc.)
- The “Sequester”
- Debt Ceiling Crisis (2012)
- The “Fiscal Cliff”
- Our Syrian Invasion Post Chemical Weapons Attacks
- The Fed’s ‘Quantitative Easing’ Program
- The ‘Timing’ of the Fed’s ‘Quantitative Easing’ Taper
Please take a moment to seriously recall the tenaciousness of the reporting of each issue on this list and how dire everything sounded when they were reported on.
Now ask yourself a very important question: is the value of the overwhelming number of companies you own today higher or lower compared to their market value when each of these issues was reported?
And, a more important follow-up question to that: did you personally sell any of your positions in the companies you own when any of these events were first reported?
If no: why?
If yes: why?
As you’re pondering those last questions for a moment, think about this:
Let’s assume for a moment that twenty years ago, you took the carefully thought out leap of faith to borrow the necessary funds to buy and operate a McDonald’s franchise (certainly a business we’re all familiar with).
Quite a leap of faith as all of your friends and co-workers thought you were crazy. Not to mention your spouse!
After attending Hamburger University, and then suffering through a lot of bumps and bruises over the next ten years, you reached the point where profits were good enough, and you had the confidence to purchase a second McDonald’s franchise.
Over the most recent ten years since then, you’ve run your stores exactly as McDonalds suggests, you’ve carefully studied your marketplace, you’ve come to really understand and develop a level of confidence with each store’s cash flow during good and challenging economic cycles, and your profits, while not explosive or in a straight line, have continued to rise over the years.
While it’s been anything but easy, you’re happy with your decision thirty years ago as owning these two McDonald’s franchises has provided a very nice lifestyle sustaining income for you and your family. And, it certainly appears to be able to do so in the future.
Your Big Question
What if the person I just described who owns these two McDonald’s franchises was YOU?
Imagine turning on your television to any one of the reported ’crises’ over the last two years that I spelled out earlier. Or, to these recent headlines from Yahoo Finance:
- ”China’s Credit Levels Echo U.S. Crisis”, or
- “No Country Is Safe From Emerging Market Meltdown”, or
- “Traders Struggle with Perfectly Terrible Jobs Number”
Here’s your BIG Question: Would you scramble and search for the phone number of a local business broker so you could put your two McDonald’s franchises on the market to sell?
After all, the economic landscape going forward doesn’t sound too good. What if the government shuts down for a week? A month? A year?
What if unemployment figures never improve?
What if the Fed continues its Quantitative Easing Program forever?
Or worse, what if they suddenly, and without any warning, stop? What then??
Would your McDonald’s franchise survive? And, if it survives, doesn’t it sound like a sure thing that the value can’t go anywhere but down in the future?
Wouldn’t it be smarter to just sell the franchises and wait this thing out? Then, when everything settles down and gets back to ‘normal’, you can buy another one.
Your Likely Answer
Given everything I’ve shared with you about the owner of these two McDonald’s franchises, I’m confident that you’re laughing right now and shouting out a resounding “NO WAY”!
If that’s true for you, why not? Why wouldn’t you sell your franchises?
Well, to start with, you’re an owner! You didn’t buy your McDonald’s franchises so you could buy and sell in and out of them in order to gain some sort of short term profit.
Second, you’ve lived through a lot over the last twenty years. You know what you own. You’ve seen how they perform during different market cycles, and your experience tells you that the long term impact on your business from any and all of these reported ‘crises’ is highly likely to be next to nothing.
Because they’ve never turned out to be an issue in the long run before.
What’s the Difference?
So, what is the difference between you owning a McDonald’s franchise as I’ve described vs. you owning any investment you currently own?
Please take a moment to pause and really give some thought to this.
The only difference is if you choose to ‘operate’ the McDonald’s franchise, i.e. “work in the business” on a day to day business. However, many franchise owners own multiple units and don’t work “in” the business at all.
Aside from that, it’s exactly the same.
When we all invest, what are we doing? We’re all buying pieces of companies (shares). That’s what investing is…ownership.
And, we own and accumulate shares in many companies because we need to own assets that can rise in value over time and produce increasing levels of income (dividends) in order for us to maintain our lifestyle in a continuously rising cost world.
This is such a critical distinction for your future.
When we listen and watch the financial media on a day to day basis, and we listen to friends, family members, and co-workers talk about investing, this is NOT what we hear.
We hear them talk about “the stock market” as if it’s this mysterious and scary thing.
The “stock market” is simply a mechanism to buy and sell pieces of companies. That’s it.
It’s a collection of thousands of enterprises whose value and dividend levels will each rise and/or fall based over time based on their ability to produce profit and income for their “owners”.
So, when you invest, you’re not ‘buying’ a market. You’re buying an “ownership” stake in one or more companies just like buying a McDonald’s franchise.
And, buying and owning pieces of well run companies is a lifelong venture for everyone who has a goal of producing continuous lifestyle sustaining income.