By elmads

This is a simple and general narrative of the stock market based on the perspective of a business owner and an investor. A story to understand the relationship of a business and investor, how they help each other into achieving their own goals. I hope you’ll enjoy it.

Through the Lens of a Business Owner

Hi my name is Nave, I’ve been a businessman for years now. I started my own brick and mortar clothing retail shop in my local neighbourhood named ELM a few year back. Everything was doing well during its early years, demand and sales from it started slow from year one and two, but it eventually skyrocketed after I started ramping up on my online advertising and marketing via the internet and social media platforms.

Due to the increase in sales, I was able to expand my operations and open another retail shop in other locations. I’ve also included not just clothes but also some books and shoes to resell. There were times in which sales were not that great as it became stagnant, but in time I was able to break through it by making my own website where I posted my inventories that my physical store sells. It made wonders and helped me to overcome my stagnating physical retail business model. Nevertheless, I still continued with my brick and mortar shops but with the primary focus in the online selling and the logistics of delivering my products to my customers. This is my way of balancing diversify and balancing the risks.

My business continued to scale, grew and expended to the extent that it operated in multiple cities in the country. Unfortunately, with great achievements came greater responsibility, and that is to sustain and further grow the business. Once again, my company reached a ceiling, sales slowed and stagnated.

The operations reached the boiling point, in which it cannot sustain anymore the demand for online purchases. I need more man power to deliver and sort out the products, a bigger space for inventory like more warehouses and more webpage developers as well because my website cannot keep up with the traffic of visitors and online orders. Plus, If I’ll not find a way to do this, my competitors will surely overtake my business and get a larger slice of the market pie, which will push down my business revenue. I need to keep up and expand in order for my business to grow and survive this competitive market. For me to do this, I will need more capital. My current debt is manageable and I wouldn’t want to raise money through debt because I want it to be in a certain threshold.

So considering all of my business’ financial health and operations, there is only one way for me to get the needed capital for expansion and that’s through the capital markets. I will sell portions of my company to investors and make my private company be a public company via Initial Public Offering (IPO). Once I sell the broken down number of shares of my company to investors, I’ll use that money to achieve my goals of further expansion and growth.

“The Financial Markets” & “Mister Capital Market” – BLOG LINK

“HOW SHARES ARE MADE AND HOW THE STOCK MARKET WORKS“ – BLOG LINK

My plans for IPO involves me going to a bank and applying for their services to be an intermediary in the IPO procedure. There were mountains of licenses, paper works and approvals that I sorted out not just from the bank but most especially from the Securities Exchange Commission and other government agencies that are involved in this process.

It took months before they approved my company IPO. The bank reviewed everything, including the financial statement of my company, its profitability, health and cash flow. The bank valued my company at £100,000,000, with the decision to divide my company into 1,000,000 shares outstanding. So this means that 1 share of my company is worth £100.

Value of company for IPO : £100,000,000

Number of shares of the company : 1,000,000

1 Share = Value of company / Number of shares of the company

1 Share = £100,000,000 / 1,000,000

1 Share = £100 price

or

£100 Price Per Share

The Initial Public Offering went really well. A lot of institutional investors bought shares of my company, a total of 500,000 shares were bought. That translates to £50,000,000 amount of money raised in the IPO.

£50,000,000 = Number of shares X Price per Share

£50,000,000 = 500,000 X £100

This is wonderful, I’ll be able to use now this money for my expansion goals. At the moment, I need to check all of the co-owners of my company. This is because, the investors who bought a significant amount of the company’s shares are now a co-owner of the business as well.

“STOCKS AND SHARES” – BLOG LINK

The major shareholders of my company are big institutions. Some of them will be holding the shares of my company while others will sell it into the secondary markets via the stock exchanges.

My company is located in the United Kingdom, same as the institutions who owns my shares. It is highly possible that they will list my shares into the London Stock Exchange. In that way, they will be able to sell my shares to the secondary markets which they will gain money from when other investors or traders buy it for a higher price. In the secondary market, the small capitalized investors (also called retail investors) can take part in buying and selling some of my company’s shares.

Nonetheless, as a good CEO and chairman of my company, I must not care in my company’s stock market price, what I must do is to focus in my company’s improvements, growth and expansion. Anyway, stock prices always follow the trajectory of a company’s growth, profitability, expansion and great management decision making. My mission is to bring the needed merchandises of my customers in a faster and safer way, while my vision is to give value and happiness to my countrymen by providing an efficient commerce that is in sync with the culture of the people with the aid of our current technology.

Through the Lenses of a Small Capitalized Investor (The Beginner)

Hi my name is Tine, my husband is an investor, he influenced and encouraged me to invest in the market with his guidance and help. He told me the process how to start, firstly it is through finding a trustworthy brokerage account. Broker accounts are the gateway and the middleman for the small capitalized investors like us to buy and sell stocks. They are just like the fish vendors in a wet market, we will not be able to buy a fish without a fish vendor selling it.

I chose a broker account in the country where I currently work and reside, with a long track record of operating as a broker company, and with good reviews from other investors who use their services.

Afterwards, I applied online to open an account. They asked for various information like my proof of address, identifications and other contact information. (this may vary per country as other brokers might ask for you to pass a photocopy of your papers and post it via mail).

After my account was approved, I immediately transferred an amount of money that I am willing to invest. At the moment, I have not invested in any company yet as I am trying to learn more about the world of investing from the basics first, going up to intermediate and hopefully into the advance stages.

Nonetheless, I’m already invested into MUTUAL FUNDS because this is the safest way for people who wants money to work for them immediately without requiring the intermediate to advance knowledge of investing. Furthermore, my husband told me that there will always be risks with investing and that there is no such thing as 0 risk in it. That’s why he told me to invest the money that I won’t be needing for at least 7 years and above when it comes to mutual fund investing.

“What are Mutual Funds?” – BLOG LINK

Through the Lenses of a Small Capitalized Investor (The Experienced)

My name is Louise, I’ve been an investor for a couple of years now and I do fundamental analysis in which I look into the company’s performance from past to present and its future possibilities.

I’ve noticed that ELM has been a newly publicly listed company which I am interested into because of their commerce business operations. I am knowledgeable about this industry compared to others, due to my deep dive studying in it for a couple of years now.

The CEO and management of ELM has been doing well so far, low debt compared to their equity, stable growth of the company, they used the raised capital from the initial public offering (IPO) for buying warehouses which is definitely needed for expansion most especially with commerce type of businesses, improvements in their webpages and logistics. In my own point of view, I am seeing good decisions made by the management in terms of capital allocation and investments.

Their financial statements are not one of the best, but it is very good compared to some of its competitors. Their plan for growth is superb and it is actually in sync with the cash out flows of their company (where they spend their money for).

With regard to the company stock market price, I have computed that they are trading higher than their fair valuation of the company, which is computed through looking into their past to current earnings, the future possible growth based on their investments and most of all the discount rate which is purely based on the risks in investing in this company.

ELM has various competitors from the small, to medium and large corporations in the same industry. Their current advantage is that they are into the online commerce already which they are further strengthening into, this is great because the consumers’ attention are mostly now in the online space.

Although their advantage is not rock hard solid compared to other giants in this industry, the bright light with ELM is that it is still a small capitalized company in a fast growing industry, which means that they have a long growth runway and a market pie that is still in expanding.

What is important here is for me to be updated in the changes in the company’s growth trajectory, investments, and reinvestment decisions. If there are changes that I do not like and I think could be a significant blow to the company’s overall growth and operations, then I will be forced to sell my positions completely.

As a fundamentalist myself, I completely understand that stock market prices are manic depressive, it always shouts different prices into my face, either at a fair valued price (which is the calculated equal to the stock market price of a company based on their financials), low prices, high prices, incomprehensible over prices and screaming sale prices.

What I need to understand here is that as long as the company’s operations and performance are in my range of standards and the prices hits my buy level, then that’s where I come in hard and greedy.

I always have a note to myself that the stock market prices will always reflect the general performance of a company.

So how do investors get money?

AFTER 10 years of the investor Louise’ narrative

Hi I’m back, It’s investor Louise here again. After a few years of studying, researching, monitoring and investing in ELM, my capital invested have seen massive returns. My investment grew 15 times the capital I invested because ELM grew more than I have ever expected and calculated based on my investment thesis. It was just pure crazy how the company expanded and grew within that previous 10 years!

I attained monetary gains through capital appreciation in which the company’s stock market price grew than the price I previously bought. Although the company did not give any dividends because ELM needed all of the company’s earnings to be reinvested to their company in order to expand their operations and also their products and services.

As of now, ELM has drone deliveries (not requiring any human drivers anymore), groceries that do not require any staff in the counter, it will be the consumers who will scan the products that they purchase, and they have their own streaming services as well.

In summary: Investors get money through capital appreciation (stock prices go up) and Dividends (when company gives out a portion of their earnings to their investors).

Note: some companies do not pay dividends because they reinvest all of their left cash flow back to the business in order to generate better growth and expansion for them. This in turn will make the value of the company larger which means that the stock market price’s fair value will also increase. This translates into higher stock prices in the long run. That is why the company’s management, business operations and competitive advantage are all important. Also, we must be wary about this, because not all companies that reinvest their profits back to the business mean that they make a good decision, because there are reinvestments that turn out not to be a profitable investments. For example, AT&T acquired Direct TV which is an American direct broadcast satellite service provider. They acquired it mostly by tapping into a massive amount of debt, then fast-forward today, AT&T wants to sell Direct TV because it’s been dragging of their business revenues for a couple of years now. They didn’t get their expected return from that acquisition they made, what they only attained is a lot of debt. As of the moment they are willing to sell Direct TV at a loss, because they are selling it now way less than what they initially purchased it for.

To sum it up

The narrative of this blog is the basic summary of my previous blogs about investing in my elmads.com webpage. Investing is indeed an arduous task because it takes a significant amount of time and effort to understand a company, also despite having that knowledge we will still have the unknown insider information about a company which poses a risk. Investing will always have a corresponding risks with it, that is why learning as much as we can about the investment we have and we want to have will mitigate these risks.

Nonetheless, we should treat investing like playing rather than a task. It is not a work that we have to do, but a hobby that we want and love to do while making money. That’s the wonder of investing! We are not bound to one method because there are various strategies in this space. What we need is to find that specific one that will coincide and jive with our lifestyle, time and personality. What matters is the discipline and enjoyment of investing, to make money work for us and not us working for money forever. The the ability to get up in the morning and do whatever we want to do, the freedom of choice.

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.