A share is called a share because when you buy it you are buying a share of a particular business. You become a part-owner of a business.
We are all part-owners of great businesses, if not directly in our own names or within a managed fund, then through our superannuation funds.
Being a part-owner of something is a wonderful thing, particularly in this context as it is so easy. The business you own doesn’t require you to put any time or effort into it. The company directors run the ‘shop’ as successfully as they can and you, the business owner, reap the rewards.
Any business owner will tell you cash flow is the key, and whilst turnover is vanity then profit is sanity. Never lose sight of the fact you, as part-owner of the business, are entitled to share in its success and, most importantly, share in its profits.
When a business such as the Commonwealth Bank of Australia (CBA) posts a first quarter record profit putting it on track to make over $8 billion in one year, remember your part-ownership of the business entitles you to share in the profit – with no time, effort or energy required by you.
Your share in the ownership means you are part of something worth (in the CBA example) $125.7 billion which is nice, but it doesn’t mean much. The company’s worth may fluctuate quite a lot over time. Something you will also share in is the result of human endeavor and innovation, met by consumer need and demand – a healthy profit.
The activity of demanding goods and services and the ability to meet this need, is all that drives the profit. Therefore, don’t get ‘hung-up’ by the value of your share, get excited about the entitlements it gives you to profits, which is ultimately a truly passive income.
By Gareth Daniels
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.