Equity Investment vs Traditional Business

Advantages of equity investment are manifold. To illustrate lets compare it with a  small business. 

 A dad   had 2 girls to whom he divided and gave  his assets amounting to Rs 40 lakhs each. Imagine Kareena sets up a shop near her home, close by a  busy junction selling books, music albums  and other stationary. Her shop also  has a  Xerox, scanner where she gets income from photocopying and scanning documents. She appoints a  staff  to look after the shop where she will visit the shop while opening, closing and lunch breaks spending few hours there.

Whereas her sister Karishma chose to invest a major part in stock markets keeping a short fund for herself to meet the  expenses for a immediate year. Now lets compare what happens as years pass by.

Event - Business is dull for a  prolonged period and wanted to close the business.

Kareena            -Difficult to implement as huge sum is invested and selling of office equipments can be done only at  a huge discount

Karishma-         Do it with few clicks. Sell all her holdings in 3 seconds.

Event-There is good scope of a  footwear business there. Wanted to switch business.

Kareena            -Cannot think abou it. Selling her shop equipments in incur huge loss

Karishma          -Three clicks. Sell ‘Future retail’. Buy ‘Bata’

Event                - Got a call in the morning saying that the care taker is on leave. 

Kareena            -Have to take the bike, go to a  few friends who can give an alternate person for a  day.

Karishma          - Mr Ambani will do that for her. Day to day work related pressures etc is kept off screen.

Event                -Wanted to go on a vacation which was long impending 

Kareena            -Cannot do that as accounts needs to be closed daily and cash transactions has to be handled carefully.

Karishma          -Off to Kuala Lumpur.

Event                -Year end accounting    

Kareena            -Worried that accounts has to be proper.Have to sit hours tallying. Auditor will here any moment.

Karishma          -Profit /loss account at click of a  button.

Event                -Business is picking up slowly. Got another 20 lacs from dad. Wanted to invest in a footwear shop next to the current shop     

Kareena            -No shops are available all are empty. So have to drop the idea.

Karishma          -Invested the 20 lacs in the same shares and mutual funds in that propotion.

Event                -Business is again down. Wanted to  raise Rs 10 lac to help dad in a business emergency. To be raised in a months time.

Kareena            -Helpless. Looked out for a  partner to sell the 50% share of shop. Got one with much difficulty.

Karishma          -3 clicks. Sell .And money credited in 2 days.

Event                -Dad gave back the 10 lakhs. Can now reinvest.

Kareena            -Helpless. Partner is refusing to sell  50% share back

Karishma          -3 clicks. Buy the same shares sold a  month.

Event                -Business is doing extremely good these months..

Kareena            -Two more stationary shops came up just next door. Moreover future retail and staples  are setting up 5000 sft shops not far by

Karishma          -Need not worry on operations. If bad, 3 clicks,  Switch the business.

Event                -A small fire happened. A notice to vacate as road has to be widened. A shop lifter caught red handed and handed over to police. New agreement has to be made for tenancy. Auditor found some discrepancy in accounts. Care taker resigned. Bharat Bandh for few days and shop is closed with no business.

Kareena            -Required lot of time to sit with police, insurer, auditor.

Karishma          -3 clicks. Period.

4. Your job won’t take care of you when you are sick. Your friends and family will.

This life lesson is  from the widely known, highly popular column by Regina Brett. “45 lessons, written by a 90 year old”