Sometimes you don’t want to know but you should, to have a better understanding of how it works. The more you understand how certain things work, the more it will benefit you.
If I asked you where your trash is taken each week, you may respond that you don’t give a second thought to that once it leaves your trash container or dumpster. As long as it’s picked up is all that you care about or want to know.
A comment I saw on recent LinkedIn post, “No one outside of Wall Street actually understands Wall Street. And it’s not a difficult business to understand.”
He’s right on both points. I didn’t understand waste management until I worked in that industry, the one that was completely out of my realm of experience. As I learned how the industry worked, I was able to draw parallels to the telecommunications industry where I worked for many years. Instead of short and long-haul circuits transporting voice & data to hubs and end points, it was trucks transporting trash & recyclables, via short and long-hauls to hubs (transfer stations) and end points (landfills). It’s not a difficult business to understand either.
Often the barrier to knowing more is simply no interest in knowing more or an underlying force to make it appear more difficult than it actually is. I think this is why so few outside of Wall Street understand how investing works. Most people contribute to some type of retirement plan whether it be a 401(k), 403(b), 457 (b)(f), IRA/ROTH/SEP, etc. They pick a few funds, with or without help, for their contributions to be invested in. After that, most don’t give it a second thought, myself included.
To understand investing for retirement, I think you need to start at the most basic level, how companies conduct business. I didn’t understand the differences between public and private companies until I had worked for both. How do they do business, make a profit, scale, increase revenue, control costs, maintain oversight?
Entrepreneur
If you are a legitimate entrepreneur, you most likely will have an LLC (Limited Liability Company), a partnership or corporation structure. When I worked for the start-up Internet service provider (ISP) in Charlottesville, it was 3 guys pooling their funds to form a corporation. There was no Board of Directors, no external reporting, no shareholders other than the 3 owners. This was the late 90’s so the dial-up business was booming.
So much so that the infrastructure (computers, servers, networks) continually had to be expanded and upgraded. Even though we had acquired several smaller ISPs, it came to a point of how we were going to scale, compete and survive, especially with the competitive rise of AOL. The 3 owners could approach venture capitalists for a round of funding or sell to a larger company. They chose the latter and were acquired by a regional telecommunications company.
Small Business
Small businesses are in a league of their own. Often family owned, this category comprises a broad range, from a restaurant to a retail clothing store to an electrician. They typically have a loyal customer base they serve sometimes 7 days a week without a need to scale larger but still remain competitive and profitable. The pizza restaurant I worked for while in school was an exception. It was the second in what is now a large franchise operation but is still operated privately. It is one of the few companies I have worked for that is still in existence today.
Medium-sized Business
Medium-sized companies like the telecom acquiring the ISP I worked for was a public company listed on the NASDAQ exchange. It had been a 115-year-old original telephone company that had continually implemented new technology and incrementally scaled to remain current in relatively rural Virginia where the large competitors didn’t have infrastructure. Dial-up Internet service was not their core product, wireless (mobile) phone service and broadband connectivity were. Even with the best strategy and intentions, the company was forced to file Chapter 11 bankruptcy due to debt and other factors. The company was purchased by a private equity firm and reorganized into two separate entities.
After I left the company 5 years later, the broadband business was spun off and the mobile wireless company was eventually sold to another local telecom company and on May 6, 2016, NTLS was delisted from the stock exchange. In its prime, NTELOS had risen to be the 9th largest provider of mobile broadband in the US. Once it reached a point it could no longer profit, scale or compete, other companies rose above it just as we saw in the Rise and Fall of the Most Valuable Companies in the World.
Large Corporations
Which brings us to the large companies, as much as some hate them, they are the core of the total stock market with the S&P 500 index of companies comprising 80% of the stock market. The first job I had out of college in Atlanta was at Lennar Partners, a small, newly registered subsidiary of Lennar Corporation, NYSE symbol LEN, headquartered in Miami. Lennar Partners didn’t survive but over the years Lennar has done well with their stock price rising from just under $10 per share in the 90’s to $192 per share this year.
The same is true for the last public company I worked for. I was hired by Allied Waste in August 2008 and by November of that year, we were merging with Republic Services and my position was being eliminated. I was lucky that I was offered another comparable Controller position where I didn’t have to commute or move, other than my office.
On December 5, 2008, Allied Waste was delisted on the NYSE as the company now traded under the RSG ticker symbol. Republic has also done well slightly trailing Waste Management, $204/share, the largest waste company in the country. Rising from about $25 per share in December 2008, Republic Services’ current high is $202 per share. These companies strategically paced themselves to remain competitive, profitable and scalable.
Wall Street and its underlying force to make it appear more difficult than it actually is becomes more straightforward once you begin to break it down into relatable content. It becomes something you do want to know more about, especially when you have opportunities to buy or receive your company stock or other stock and how it relates to your retirement fund – a future article. The more you understand investing and how it relates to you, the greater the benefit you will receive as your knowledge compounds, and you end up making wiser decisions.
Private vs. Public Company: What’s the Difference? (investopedia.com)
Private vs. Public Companies: What’s the Difference? – TheStreet