Investments Within Investments
Comparing pitches, weighing up risk, timing entry and exit points; we’re kept very busy as investors. But it’s not just us!
Netflix also has money to put to work, and that’s what drives the pursuit of fresh, original hit content. Apple devotes mega sums to technological research and development (R&D), while Nike continues to invest big into advertising as the Tokyo Olympics draw near. The entire business world from top to bottom is wrestling with investment pitches of different types, weighing up risk, and timing entry and exit points!
All being well, business leaders will wrestle with these issues every year in the face of brand new influxes of profit. Since investors have an economic right most of that profit, markets find it hard to resist peering over those leaders’ shoulders to critique what they get up to with that money.
The simplest option is for management to set up a wire transfer, and buzz the cash straight over to investors. Dividends are exceptionally popular, providing what’s usually a fairly stable, if taxable, income.
The main gripe with dividends, however, especially among young investors, is that they put you back at square one again with another investment decision to make. CEOs that pay them also don’t reinvest into growth opportunities, such as pursuing fresh, original hit content like Netflix!
If the risk of pursuing fresh, original content is worthwhile, dividends should be subbed out for reinvestment. Then, the stock suddenly attracts a completely different crowd. More business growth can potentially fuel a higher share price, but only if the risk is worthwhile!
If investors aren’t convinced, sentiment tips the wrong way. The larger the company tries to grow, the more investors frustrate at the reckless investing of management, poor returns, and lack of dividends. Think like the Netflix CEO, the Apple CEO, and the Nike CEO. 80/20 reinvestment? 50/50? 60/40? It’s your call!