Last Friday, Cosan released a statement to the market that it had acquired a 6.5% stake in mining company Vale. The announcement is impressive, as this share is equivalent to R$ 23.5 billion and Cosan’s market value is only R$ 31.2 billion. There are several lessons to be learned from this operation, but today I will comment on just one of them.
According to a survey by the Global Entrepreneurship Monitor (GEM) with support from Sebrae, almost half of Brazilians want to open their own business.
Normally, we want to have a business because we want to own a stake in an enterprise and earn from its growth.
Except for disruptive businesses, that is, those in which there is nothing similar, usually, there are two alternatives for being a partner in a company.
You can start from scratch, or buy shares in a company on stock exchanges, whether in Brazil or worldwide.
However, we all know that the first option, that is, setting up a business from scratch, is very risky. Cosan is well aware of this and taught it with its acquisition.
It is possible to mention four advantages that Cosan has in the acquisition in relation to setting up the business from scratch. With the acquisition, she:
1 – Skip steps and start to take advantage of something mature and working;
2 – It takes advantage of the skills and experiences of the company’s executives;
3 – Avoids the risk involved in licenses and concessions that a mining and logistics business require;
4 – It has greater liquidity and lower cost to dispose of the investment if it does not occur as expected.
All these risks are also to some extent faced by small entrepreneurs. However, most do not know how to estimate how much they cost. That is, how much they would save by not facing the risks.
Of course, there is a price to pay for avoiding all these risks.
A mature and tested business has to be more expensive than something built from scratch.
Ultrapar, for example, has already felt the bitter taste of assembling something from scratch.
Between 2014 and 2021, Ultrapar invested R$730 million to create the Extrafarma pharmacy chain. During this period, she only had losses with the operation. In 2022, he sold the operation for practically the same amount invested.
If you consider the time value of money and the losses with the operation, it is possible to say that the lesson has been learned.
If Ultrapar had bought shares in Raia Drogasil (RADL3) instead of setting up its stores, it would have more than doubled its invested capital in the same period.
Therefore, before investing in a business of your own, evaluate the following questions:
1 – How much would you pay per store when buying shares of a company in Brazil or in the world?
2 – What is the return the company on a similar exchange obtains, how much do you believe it will generate more return and why?
3 – How long do you believe your business will reach the break-even point and what is the opportunity cost of already having results from zero when buying shares in a publicly traded company?
4 – What risks could harm your business and how much would you lose if you had to close operations, that is, for how much would you sell the stock and equipment?
5 – What skills do you not have that could be supplied by the executive team of a publicly traded company?
Therefore, if you are thinking of opening a gym, clothing retail, car rental store, shoe retail, gas station and others, consider investing in a publicly traded company in Brazil or worldwide.
Yes, you are also an entrepreneur when you buy shares in publicly traded companies with proven results. Additionally, it reduces the uncertainties about the investment that all projects have.
Learning from the mistakes of others, for example, from Ultrapar and from the lessons of great businessmen such as Cosan, is something of extreme value.
Michael Viriato is an investment advisor and founding partner of Investor’s House
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