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Renting the Oil Company
We all seem to know intuitively that rent on a residence covers all the expenses of ownership, plus a profit for the landlord. Hence most people prefer to own their homes rather than pad the landlord’s wealth.
And yet when we buy a gallon of gasoline, we are paying all of the oil company’s expenses plus a profit for their owners. We pay the cost of refining crude oil into gasoline, transporting it to retail locations, or running the store at which we purchase the gasoline. Not to mention the cost of exploring for and pumping the crude oil and shipping it to refineries.
But if we own a piece of the action (in the form of shares of common stock) in an oil company, we indirectly own a share in the oil wells and refineries and transportation and everything else needed to put a gallon of gasoline within our reach. Own or rent? We prefer to own—and by the way, if you prefer to rent, thank you for doing business with our oil company!
We and our clients own phone companies and clothing manufacturers and car makers and raw material producers and major retailers and airlines and nearly every other segment of the economy. From the time we wake up and brush our teeth, put on clothes, go to factories and shops and offices, use energy through the day… we are doing business with ourselves. We are owners, not renters.
It is our opinion that a person who owns no common stock or other business rents everything: the refineries, auto manufacturers, food distributors, trains and planes, communications networks. They are paying rent for everything that goes into their life, without receiving any benefits of ownership.
Rent or Own? You might want to own shares of companies for the very same reason you prefer to own your home. We are available to discuss whether this philosophy fits into your plans and planning—call or write.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Stock investing involves risk including loss of principal.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
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