Investing
ur path to personal investment W
hat better way to spice up your portfolio than by supporting entrepreneurs through your personal investment strategy?
This Q&A with Ben
Paton, fund manager and author of Valuing the Future, A Conversation about Investment may provide some of the answers you need to formulate an investment strategy. Ben is well qualified to comment, having worked in investment for over twenty years. He ran the Fidelity International Small Cap Fund for over four years from the beginning of 2004 and the Fidelity Enterprise Value Fund for some six years from mid 2002.
Q Are you an entrepreneur if you invest on the stock market? A ‘Investing’ on the stock market and being an entrepreneur are different things. An entrepreneur puts time and money directly to work. A stock market ‘investor’ buys second hand shares from other shareholders. When a saver buys shares from someone else nothing changes at the company which issued the shares. Entrepreneurs are investing directly, whereas stock market ‘investors’ are trading second hand assets, which is the same as buying a second hand house or car.
Investing in the stock market gives you the potential to be an entrepreneur by proxy, to invest in entrepreneurs. When you buy shares in a quoted company you are at least buying a ‘real asset’, a collection of real things which has to be managed to make a return, as opposed to buying a financial asset like a bond which produces interest with the elapse of time. So you are half way there. If you hold equity shares over a long period you are trusting the management to retain and reinvest profits on your behalf. You must exercise entrepreneurial judgement in selecting the management teams to trust. That involves forming a view of the business activity and management strategy.
For the most part, though, the division of labour in a modern economy is such that households now delegate most primary investment to companies and to government. All of our futures depend on the skill and entrepreneurship with which companies and governments invest.
Q So which models are more difficult to start up? A The challenges of entrepreneurship in these different business models differ. Finance, Natural Resources and Capital Goods models all deal with real and financial capital, stuff which endures over long periods and it may be necessary to confront fundamental uncertainties. Will an organisation exist in fifteen years’ time to repay a bond? Will the oil be present several kilometres below ground? Will the customers buy the capital good in
sufficient volume to justify the working capital forecast? The answers to some of these questions may not be knowable. It requires a strategic purpose or intent together with faith to do ‘what it takes’. Korea has built its silicon chip and shipbuilding industries on the back of this sort of determined purpose rather than any measurable ex ante competitive advantages.
Q And which models are easier? A Service, Distribution and Process models can often take a shorter planning horizon. As a generalisation it is easier to start a new business with a Service, Distribution or Process business model. Many service models are long established. The capital assets used in the models have been around a long time and are well understood – things like white vans, civil airliners, hotels, or trained consultants or professionals. Service and Distribution business models are less likely to confront fundamental new business uncertainties like finding an oil field or building a new jet engine to a novel design.
Q So what’s the purpose of entrepreneurship? A At its heart entrepreneurship is about creativity and primary investment. These things literally build our futures. That we can switch on a mobile phone or get on a plane or train is possible because prior generations made the necessary investment.
Q Can entrepreneurship solve society’s problems? A Some of the really big issues confronting civilisation are things like the need to reduce our dependence on fossil fuels to produce our electricity and fuel our engines. How can civilisation protect the environment, contain population growth, and create sustainable food supplies?
Entrepreneurs and entrepreneurial business will solve many of society’s problems. But it is not realistic to expect them to solve all of its problems. The really big problems need collaboration by and with governments as well; they will need entrepreneurial government! To build a new capital good which has the potential to change the shape of civilisation in the way the internal combustion engine or the jet engine changed civilisation in the last century requires the spirit of adventure, determination and altruism which only entrepreneurship can supply. Government did not invent the internal combustion engine or the jet engine. But it creates the framework in which entrepreneurs and entrepreneurial companies develop new products and
ideas.The answers to some of civilisation’s most difficult problems will be found by concerted collaborative effort. Government, citizens and business will need to collaborate to nurture in entrepreneurial activity.
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