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Whether or not you care about the stock market is basically a question of whether you run a functioning business or not. If you run a function business then you

by fergie 5y ago

Whether or not you care about the stock market is basically a question of whether you run a functioning business or not. If you run a function business then you are have cash sitting on accounts. Even for a fairly modest business, a reasonable operating cushion dictates that you always have 6-7 figure cash reserve. Ideally you want this money to be sitting somewhere where it generates good returns, yet can be accessed quickly and with low transaction costs. Therefore shares and funds start to make sense. These days you can actually move cash directly into funds from your corporate online bank. Shares (and all their financial derivatives) are a good hedge for profitable limited companies, because they either go up in value (yay! profit!) or down in value (yay! tax deductable loss rolled over to next year!). So long as the company is otherwise making a profit, shares are actually pretty hard to lose out on. Also pensions. Most pensions are backed by index funds which are generally related somehow to stocks and shares. If you need to manage a pension fund, you have to pay at least vague attention to the stock market.

iso1631 5y ago
Doesn't seem sensible to invest your operating cushion in something as volatile as the stock market, especially given the corralation between a recession causing your operating margin to crash and a recession causing your business to need that operating margin The US stock market has been ridiculously pumped from the last decade-plus of money printing, I wonder how many people think that's normal.
twic 5y ago
The stock market is a terrible - criminally negligent - place to keep a company's operating cash. I would be fascinated to read advice from an accountant or other financial professional that says otherwise. I once worked at a company which used a money market fund for its cash. That gave them a slightly better return than a bank account. In the end, not sufficiently better to be worth bothering with.
- dmurray 5y ago
  If the company has an excess of cash and nothing good to spend it on, I think it's fine to put it in the stock market. Maybe you wouldn't count this as "operating reserves" - I wouldn't do that with the money that's earmarked to pay suppliers but not due for another month, but I would do it with the money that's earmarked for opening a new business location at an indefinite time in the future. You can get whatever risk profile you want from the stock market in return for less yield. If you can accept two-nines certainty that you won't lose half your money in six months, any broad index fund will do. That would be acceptable for a lot of "modest businesses" which find themselves with "6-7 figures cash reserves". If you need better, you can do fancy things with options, or put a fraction of the money in the bank and invest the rest. (I am a financial professional, but not in this field, and this is not financial advice)
yen223 5y ago
If you're running a functioning business why wouldn't you plough the money back into the business?
- sokoloff 5y ago
  Eggs and baskets. If I owned a company that provided for my current income, I would not want to place myself in a position where the faltering of that business killed both my current income and my retirement at the same time. By all means plow a lot of it back into the business, but there’s good reason to pull some out over time as well.
- gumby 5y ago
  Hedge your risk. Investors get diversity (portfolio) spacially: they get a piece of lots of businesses. Entrepreneurs diversify temporally: they can reasonably only put their time into one thing at a time, and only a few over a lifetime. So if your business is doing well you can avoid putting all your eggs in one basket by investing some cash personally outside the business. And the easiest way is to jus put it into an index fund and then concentrate on your business.

by fergie 5y ago

iso1631 5y ago

Doesn't seem sensible to invest your operating cushion in something as volatile as the stock market, especially given the corralation between a recession causing your operating margin to crash and a recession causing your business to need that operating margin The US stock market has been ridiculously pumped from the last decade-plus of money printing, I wonder how many people think that's normal.

twic 5y ago

The stock market is a terrible - criminally negligent - place to keep a company's operating cash. I would be fascinated to read advice from an accountant or other financial professional that says otherwise. I once worked at a company which used a money market fund for its cash. That gave them a slightly better return than a bank account. In the end, not sufficiently better to be worth bothering with.

dmurray 5y ago
If the company has an excess of cash and nothing good to spend it on, I think it's fine to put it in the stock market. Maybe you wouldn't count this as "operating reserves" - I wouldn't do that with the money that's earmarked to pay suppliers but not due for another month, but I would do it with the money that's earmarked for opening a new business location at an indefinite time in the future. You can get whatever risk profile you want from the stock market in return for less yield. If you can accept two-nines certainty that you won't lose half your money in six months, any broad index fund will do. That would be acceptable for a lot of "modest businesses" which find themselves with "6-7 figures cash reserves". If you need better, you can do fancy things with options, or put a fraction of the money in the bank and invest the rest. (I am a financial professional, but not in this field, and this is not financial advice)

yen223 5y ago

If you're running a functioning business why wouldn't you plough the money back into the business?

sokoloff 5y ago
Eggs and baskets. If I owned a company that provided for my current income, I would not want to place myself in a position where the faltering of that business killed both my current income and my retirement at the same time. By all means plow a lot of it back into the business, but there’s good reason to pull some out over time as well.
gumby 5y ago
Hedge your risk. Investors get diversity (portfolio) spacially: they get a piece of lots of businesses. Entrepreneurs diversify temporally: they can reasonably only put their time into one thing at a time, and only a few over a lifetime. So if your business is doing well you can avoid putting all your eggs in one basket by investing some cash personally outside the business. And the easiest way is to jus put it into an index fund and then concentrate on your business.