The old fashioned equity culture is about owning shares in companies believed to be durable, and holding them through the ups and downs. Often, these might include the familiar names you see on the products in your cupboard or medicine cabinet, or around your home or office.
An ownership share in a blue chip company may fluctuate in value, but a share is a share. The long term growth in the American economy has generally been reflected in its companies. Of course, there are no guarantees about what the future may hold.
More than a decade ago, in the financial crisis that began in 2008, we noticed something different about people who knew the companies they owned. Compared to those who owned investment products consisting of scores or hundreds of holdings, owners seemed to understand that they held shares of ownership in actual businesses. While the value of the shares might fluctuate, a hundred shares generally remains a hundred shares.
If you have this understanding, it may help you maintain a long term perspective, and hold on through the temporary price declines associated with recessions or market corrections. People with indirect holdings by way of products managed by people far away may not feel the same connection to their investments.
We are not suggesting that one strategy is more profitable than the other, only that greater clarity about one’s holdings may be helpful.
It makes sense to use the right tool for the job. There are some investment exposures which are best obtained by something other than direct share ownership. But all things being equal, we prefer to have shares in actual companies, not investment products made out of many underlying holdings.
Clients, if you would like to talk about the joy of ownership or anything else, please email us or call.