I’ve spoken a lot about business and thinking like a business owner over the years.  But it still amazes me that the average investor refuses to think like a business owner when there are significant advantages to taking that approach to putting together a portfolio.  A business owner thinks about profits, risks, costs, and valuation.  A business owner approaches each new venture trying to determine if he or she will get the initial investment back plus a good return after inflation and taxes.  A good business owner knows to protect assets in case the country goes into a recession or depression.  Yet, it seems as if none of these wise behaviors are mimicked when picking shares of stock for a brokerage account, 401(k), or Roth IRA.

Today, for example, was the day that General Electric stockholders received their quarterly dividend.  Throughout my personal, business, and family brokerage accounts, retirement trusts, and pension plans, cash was deposited by GE to represent our part of the profit the company made by selling jet engines, railroad locomotives, wind turbines, credit lines, infrastructure equipment, and light bulbs.  We bought our stake during the stock market meltdown a couple of years ago and now think of it as a family holding just as we do the real estate, manufacturing plant, and other assets we own.  The stock market is only relevant to me in that it might provide the opportunity to buy more ownership when it is being offered cheaply or sell some ownership when it is being overpriced.  Though, to be fair, I’m not particularly big on the selling part.  My style is more being extremely selective so you never have to sell, or do so only rarely.  But that isn’t everyone’s cup of tea.

As with all things, there are no guarantees in life.  There are good business owners and bad business owners.  Some are more successful than others.  Some lose everything due to missteps and bad luck.  The bottom line is that thinking about the reality behind the companies you own – what they do, how they make money, and what you are paying for your share of the profit – is probably the single most important step you can take to making sense of the enigma called Wall Street.  After all, a piece of stock is nothing more or nothing less than a partial share of ownership in a company.

To learn more read Investors Should Think Like Business Owners.

Want Better Returns on Your Stock Investments? Try Thinking Like a Business Owner. originally appeared on About.com Investing for Beginners on Wednesday, October 26th, 2011 at 05:43:29.