As is de rigueur, let me start with a quote by Warren Buffett: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
When you intend to be a long term investor, you are not merely a shareholder, you are part and parcel of the ups and downs of the business. You fight the same battles and experience the same emotions that the management does, albeit passively. When you decide to stay put, despite a glitch in the business, you too are a business-owner, and not a shareholder who exits at the slightest hint of trouble and chooses to exercise his options available on the screens of the exchanges.
You may not have a frontline seat at the company meetings, but your collective vote as shareholders, choosing to remain or exit, is an indirect action that either endorses or rejects the company’s decisions. As anyone in the world of business knows well, you can never put all the troubles at rest; as soon as you deal with one crisis, the next one is waiting in the wings to be taken care of. As a shareholder, you are detached from this daily soap opera and that’s an advantage you have as a ‘business owner’ to be able to take a long term view of the business and thereby the company. Often it is a blessing in disguise to not know the daily travails of a company; people who seek to keep daily tabs on a company are at a disadvantage and suffer mood swings from euphoria to depressions. This is what leads them to exit the company at the slightest hint of trouble. Ignorance, as they say is truly bliss.
Mukesh Ambani proclaimed at a meeting of group business heads that he was the investor and the managers were the entrepreneurs. The difference between Mukesh Ambani and you (other than tens of billions of dollars, of course!) is that he is a majority shareholder in Reliance, while you are in minority. Nonetheless, you too should take the same view that he does and be a business owner, rather than merely a shareholder.
I would like to share a personal example. When JSW Steel announced the plan to take over Ispat Industries, I bought into Ispat, believing the long term future to be good in the hands of JSW as it was a step towards consolidation in the right hands. The shares were then exchanged for shares in JSW. Within a year, the steel prices started moving southwards led by surplus capacity in China. Indian steel producers started showing poor results and as a shareholder would tend to do, I panicked and sold. While Mr Sajjan Jindal hunkered down, went to the government to get protection from dumping by China, cut down his costs, shifted to more profitable products rather than commodity steel- all that a business owner would do. Had I also thought like him or endorsed his actions and stayed put I would be seeing a price of Rs 288 today rather than Rs 160 at which I sold in March 2016.
As a minority shareholder, you may not participate in the management meetings and take active part in decision making, but you have an option that the majority owner doesn’t have- an ability to take to walk away by selling the shares. If after a rigorous analysis you feel that the business is not worthy of holding onto, you can sell your shares without a flutter. Keep that option in mind and take a long term view to reap the gains.