What's the difference between owning stock and a business?

Question

I was thinking about Warren Buffet specifically. Lots of articles are written about his investing style, but I think he got rich owning entire businesses and not just stocks. What's the difference between owning a business outright and owning just some of the stock, and why is there an advantage in owning outright?

Answer 1

The difference is day to day management decisions and management control.  Normally a shareholder doesnt participate in day to day management decisions.  However the more shares you have the more influence you conceivably have over management decisions.                                                                                                                                                                                                                                                        ; at least according to the accounting rules.  Accounting rules say that influence begins at 20 percent ownership.  Buffett buys control or entire companies and lets the existing management run the company.  And he makes broad management decisions.  If you own the compay outright you can have as much management control as you want.  Or let someone else manage it.  Buffett got rich investing in the right companies, with good management, that he pretty much leaves alone to run the companies.

Answer 2

The main advantage of being a majority shareholder is that you are the ultimate boss of the company and not its management team.  Which means that you can replace the management team if you don't like the way they are managing the company.

During the last decade many companies have made record profits.  During this time, dividends paid out to shareholders have declined to record low levels.  And during this time, salaries and bonuses paid to company executives have soared to stratospheric levels.

When you don't own the company outright.  Then more likely than not, the managers of the company will reap huge rewards.  While you will get a miserly 2.1% yearly return on your investment.  Which is the average dividend yield of S&P500 companies at the present time.

I doubt you will find any of Warren Buffet's executives paying themselves hundreds of millions of dollars in compensation.  But you will find plenty of such examples among other publicly owned companies with lots of minority shareholders.

Warren Buffet gets all the profits he is entitled to as the owner of his companies.  And that's why he is so rich now.

Here is where I got my information from:

http://www.safehaven.com/article-10695.h...

http://www.safehaven.com/article-10716.h...