Why it’s better to invest in stocks rather than buy a business

wealthymatters.comThe following is a repetition of material found here https://wealthymatters.com/2011/03/06/the-dhandho-investor/ . But I think the material is significant enough to bear repetition.This is a list of reasons why a Dhandho Investor who wants High Returns but Low Risk should prefer to buy stocks rather than businesses.

I am rather indiscriminate when it comes to businesses.I would rather make money from a whole bunch of businesses rather than content myself with one source.And as the Indian economy explodes and money is made in so many different ways  it’s so hard to pick just a few businesses to focus on or to put money in.The list below is my way of consoling myself  for all the businesses I will never own.

  1. With an entire business, you have to run it, or find someone who can. To be successful, this requires an enormous amount of dedication.
  2. In the stock market, you’re buying a business that is already staffed, yet you still get to share in the earnings.
  3. With whole businesses, often the sellers know a lot more about the business than the buyers, and furthermore the prices offered are not usually as attractive as they can be in the stock market.
  4. Buying an entire business requires a large investment. In the stock market, however, you can start with just a tiny amount of capital, and add to that capital over the years – a tremendous advantage.
  5. The selection offered to buyers of private businesses does not compare to that offered by the stock market. With a few brokerage accounts, the investor has the option to purchase from 100,000 companies worldwide. On the other hand, how many private businesses are for sale within a 25 mile radius of the investor?
  6. In the purchase of a private business, transaction costs can add a good 5 to 10% to the price of the transaction. The frictional costs in the stock market, however, even for an extremely active investor, are extraordinarily low.

About Keerthika Singaravel

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