A Common Millennial Dilemma

Q: Should I own a house or own a business?

*Answers in Dwight Schrute voice*

A: Easy, both. Next question.

Q: But what if I don’t have a steady stream of income coming from my multigenerational family beet farm and have to choose?

A: Answer is still “Easy, both. Business now, house later.”

Q: But isn’t owning a business super risky compared to a house? And wouldn’t I need to have a good product that people would actually buy? And don’t I need to raise a lot of money to get it off the ground?

*End Dwight Schrute voice*

A: Yes, yes, and yes.

Q: That sounds pretty time consuming and I don’t know if I can do my day job and run a business at the same time.

A: You’re right, you probably can’t. So you should just buy someone else’s business.

Q: Sounds expensive. Also what? Can you…just do that?

A: Let me ask you something…is water wet?

Q: What?

A: Stocks. Buy stocks.

A stock, in its purest form, is just a certificate that says “I own a slice of this business”. Imagine you and your two friends, Jeff and Andy, start a company to sell books online using the internet. You decide to split the profits equally, so you each own 1/3rd of the business. To formalize things, you write it all down and create three stock certificates that each represent a right to 1/3rd of the profits. The business is doing very well, and you decide to start selling electronics online to complement your book offerings. But you need more funding to get this project going. You decide to raise money from 3 new outside investors who will simply provide the cash and have no part in the operations. And since things are going so swimmingly, you are ok with splitting the profit 6 ways now vs 3 ways before since you are making more money overall. So you create and sell 3 new certificates to outside investors.

Q: Ok. So I can be an outside investor and earn a piece of the profit without having to do any work at all?

A: Well you have to do some work to make sure the business you are buying into isn’t a dud. But yeah, it’s pretty simple, and there are even people out there whose only job is to guide you into buying the best businesses.

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