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Notes by EMA: That Better Owner

Enrique Aboitiz Mendieta

May 2018

 

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Appreciating that the general opinion of the market is the goal of an enterprise is to provide long-term value. That is the main purpose that everyone working for an enterprise realizes in different degrees. May I provide you with an interpretation of that view.

The path that I suggest for long-term value lies in the pursuit of better and better shareholders – a better owner in simpler terms. Do we care who owns our stocks? Yes, we do! We prefer owners versus shareholders, people who care about the company they own rather than speculators or traders. This is the main argument against regular briefings made quarterly, arguably targeted at the wrong audience. Anyone who cares how you are doing on a quarterly basis or that monitors you every three months is a shareholder you do not want. He is not the owner that we want.

The ideal owner is the shareholder who keeps buying your stock with his savings and his dividends. He may sell stock once in a while to enhance his life, not to enhance his pocket, e.g. to put a downpayment on a house for his newly married daughter.

 

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The owners we want are individuals who pass on their stock to their children because our company has enhanced his and his family’s life. Value is always a factor of supply and demand. Always. Nothing else drives value but supply and demand. The more owners we have, the higher our stock price because the supply of shares in the market keeps shrinking. Owners are your best buyback plan. Investment bankers tell you that having a float is the right strategy to drive long-term value and there is an argument there. The world has taught us that shortage of supply due to increase in demand is a more powerful value driver than liquidity. The why of supply shortage matters. That why is continually increasing demand. A shareholder who does not sell passes his stock to his children who are buyers so that their new income goes into buying more stock and not selling the stock they inherited.

 

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How do we get better owners? There is, again, only one way: through better margins – larger and higher margins.

How does an enterprise get better margins? Again, like in most questions in life, the answer is not only simple, it is in front of us – through better customers. Is the customer the king? No! There are terrible customers out there, customers who think they walk on water and yet pay late. Oversupply has a way of creating more of these creatures. Oversupply feeds the worst in customer attitude. Are the right customers kings? Without a doubt. Who are they? Those that keep giving us better margins.

 

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How do we create better margins? Again, in very simple terms, through better systems, better ways of doing things — and that means a better culture. Culture is defined very simply as how we do things around here. It is alive and evolving by the day.

Evolution could be the God that many earth for. It has always been there, it controls everything and it will always be there – 360-degree infinity.

If we are algorithms as people, then we do not control that evolution. However, for now, those of us who believe that everything in life is a miracle prefer to think that the pursuit of better and better people with better and better attitudes is the ingredient that ends up driving who that better owner is.