Opinion – Grain in Grain: Is entrepreneurship better than investing in stocks?

I often get questions from investors about whether to set up a business or buy certain franchises. During the discussion, they always ask me if, alternatively, it would be better to invest in stocks on the stock exchange. Many criticize this comparison, but it deserves attention and should be part of everyone’s discussion, because in both cases you own the business.

Entrepreneurship is the dream of many. Also, it is possible to say that it is the nightmare of many.

There are three factors that are important in the comparison: business risk, potential return, and commitment.

Let’s start with the risk.

Having a business of your own is a dream, because when we have the idea, we imagine and put in the spreadsheet the numbers we want the business to reach. We usually disregard the difficulties that occur along the way.

Despite having fallen, it is well known that the death rate of small businesses is enormous. According to data from Sebrae, about 20%, that is, 1 in 5 small businesses close their doors in 5 years.

This is the number of companies that close operations in the short term.

It doesn’t say about the magnitude of the losses that these and the other 80% eventually had.

Closing the doors can mean you lose all your capital and still get into debt.

Also, the fact that the other 80% of companies continue to operate does not mean that they are making a profit.

This introduction is important to relativize the risk with investing in the stock market.

The companies that came to issue shares on the stock exchange are those that beat the surf. They are at another stage of maturity.

Therefore, as volatile as the financial market may seem, the results of these companies, on average, are much more stable than the average results of small companies.

Therefore, the risk of companies listed on the stock exchange is significantly lower.

You’ve probably heard the saying about return and risk: the greater the risk, the greater the potential for return.

Here it is no different. A small company has more risk, but usually has greater potential for return. I say usually, because it’s not always true.

There are companies in the market that, if you evaluate the relationship between return and risk, you can come to the conclusion that it is better to buy their shares on the stock market than to set up a similar store or buy a franchise from it.

Thus, the decision between undertaking or investing in stocks is also related to the risk profile and return objective that the investor has.

Finally, commitment must be considered.

In the business itself, you put your time and effort. Therefore, he must pay you for it, that is, you are also an “employee” of his business and earn the CEO salary, or at least you should.

When you decide to invest in stocks, you do not act in the business. So you don’t have any of the natural difficulties, worries and stresses that any business owner does.

It works as if in your business you hire a group of directors who do everything. Obviously, this board would be remunerated and this remuneration would reduce your earnings, but it takes the work away from you.

So while in stock investing there is no compromise on your job, owning a business requires your full-time attention.

In any chosen case, the evaluation of the return must always be carried out in investment horizons of more than five years.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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