5 Reasons Managing a Stock Portfolio Can Improve Your Business
- I think every business executive/owner should manage a stock portfolio. What an efficient business education.
- It’s a more affordable and practical way to gain some of the insights and skills venture capital firms, and investors enjoy.
- You learn to analyze critically businesses, something most business leaders never do to their companies. Most are over-reliant on instinct.
- It expands your field of vision of markets and potential opportunities.
- Business executives and owners: Do you manage a stock portfolio?
Business executives and entrepreneurs should manage a stock portfolio. It’s the arguably the most diverse and swift business education available.
Managing a portfolio of publicly traded companies — selecting, investing, and divesting — is a great way to continually learn from a variety of strategies, business models, operational execution, and financials. This exercise, done diligently, exposes you to professional analysis and insights into markets, giving you insights into current markets and revealing potential future opportunities.
All of this education is delivered faster and most objectively than any MBA program or personal experience. Here are just a few of the business skills I’ve learned to value from managing my stock portfolio.
How to Critically Analyze Businesses
Most leaders rely way too much on instinct. Rarely do they critically analyze their decisions and instincts or pull back and consider the whole business and its performance.
This is a missed opportunity.
Managing stocks improve your analytical skills and conditions you to make a habit of using these skills in evaluating any business, including your own.
How to Evaluate and Forecast Growth Opportunity
One of the most important things that new IPOs have to learn (and often stumble through in the first year) is how to evaluate and forecast future growth opportunities. Unique to publicly traded companies is the need to report regularly earnings and forecast future growth. This forces these companies to drill down and understand how their business works to do this with the predictability that the public market demands.
As a business leader, wouldn’t it be nice to relieve some of the stress of worrying about what the future holds for your revenue and earnings? Watching stocks gives you experience in how these companies, and the analyst that follow them, develop these metrics and forecasts.
Can you consistently forecast and hit your core metrics? It’s not a bad exercise to try.
How to Evaluate Markets and Their Impact on Business
Another blind spot for many executives and entrepreneurs is objectively looking at the market and predicting how it might impact your business. In the frenzy of running day-to-day operations, we often get locked into tunnel vision and miss the forest for the trees.
Managing stocks give you the opportunity to watch different markets and see how they impact the businesses (stocks) you own. It also gives you practice spotting market opportunities and predicting when these opportunities might open and close.
How to Manage Corporate Finances for Growth
Managing business budgets and finances is a whole lot different from managing your household checkbook, yet most entrepreneurs and some companies make that mistake. Concepts like cash flow, leverage, and capital are simply words. Understanding these concepts help you to appreciate that money is more of a tool in business, not necessarily the end goal.
Analyzing stocks will help you to understand how different companies manage their finances — managing cash flow, leveraging debt, and effectively deploying capital. Breaking out of the simple ‘money in and money out’ mentality can be explosive for your business.
How to Navigate Stormy Business Cycles
Truth be told, most executives and entrepreneurs don’t weather market and business cycle storms. Most executives that hit rough waters get fired or watch their business or startup collapse. You have to figure out how to navigate these challenging times, as it is the very nature of business, any business, to have good and bad times. Unfortunately, most business leaders get stuck when the environment changes, finding that their old approaches don’t work, and they’re not sure how to pivot.
Are you managing a stock portfolio? Should you?
Managing a stock portfolio can give you a rapid and relatively affordable education in leading a success business under a variety of market conditions.
Watching the companies in your stock portfolio move up and down gives you a rich education in how to navigate business cycles, changes in consumer behavior, and general market disruption.
Are you managing a stock portfolio? Should you?
I’d love to hear your thoughts on anything I write.)