Jeffrey A. Miller

A Five Year Investment Plan

GRAR: Thank you for your comment. You had good points on all counts. Your points in order:
1) It does take a considerable amount of time to oversee the investment. I do question whether our stock investments shouldn't also be monitored closely. But I appreciate the distinction. To some degree this is a matter of preference - oversee a major stock investment or a small business.
2) Here I do disagree. Yes, it is unlikely GE will go to zero. But it seems quite possible that Citi or BofA or GM etc. may in fact go to zero. My small business also has the risk of going to zero although it is not "the most likely outcome". In fact the worst outcome (which you also mentioned) is not going to zero but slowly bleeding to death. Again, I have cutoff points (e.g., stop-loss) established for just that reason.
3) My requirement all along was to be the majority owner for exactly the reasons you state. I do not participate in the daily operations but by retaining majority ownership I can pull the plug - and will - when and if it becomes necessary. Managing this risk is very similar to managing my risk in a major stock investment where timely information is often difficult to obtain and may only be unearthed after the fact.

I'm sure we all agree there is no risk free investment so it does become a personal choice. The liquidity argument is the strongest against a small business. Being in that position now brings that fact home. But it is not necessarily a sufficient reason to avoid investing in a small business. Thanks again, I appreciate all the thoughtful comments.




On Feb 19 02:52 PM GRAR wrote:

> Investing in small business is a fine idea. I see only three problems.
>
>
> First, investing in small businesses requires a serious investment
> of time, both in finding the most promising among the thousands of
> opportunities, and keeping close tabs on the progress. This sounds
> more like a second job than an investment.
>
> The second problem is risk. It is true GE stock could go down 30%
> from here. But it is very unlikely to go to zero, which is the most
> likely outcome for the majority of small businesses.
>
> The third problem is liquidity. If GE goes down 10% you can always
> just sell the stock. With a small business, you are pretty much locked
> into the investment. The only way out is to liquidate or sell the
> entire business. And even with your increased "say", unless you own
> a controlling majority, you don't get to decide when to pull the
> plug. You could be treated to watching your equity slowly bleed away.
>
>
> To summarize: I agree that the stock market probably will not appreciate
> in the forseeable future, and that small business is potentially
> more profitable. However, direct investment in small ventures ("angel
> investing") entails more downside than was described.