I Bought (a lot of) a Company!

Have you ever bought a company?

I know a few people who have a bought a money-making blog. That’s rare. It’s also possible to buy some real estate and create an investment property company. That’s mostly starting a company though.

Other than those cases, I don’t see people buying companies often. However, most everyone I know has bought parts of many companies by investing in stocks or mutual funds. Often they end up owning a millionth (or even less) of a single company.

Last month, I did something that was in the middle of both buying company experiences. I bought a double-digit stake in a company. It’s a small enough stake that I’m not expected to actively manage anything in the company. It’s a large enough stake that my suggestions will be heard and given a fair shake.

It’s not a public company. I’d be shocked if you have heard of it. The business is so extremely boring that I won’t describe it here for fear that you’d simply click away and never come back.

To make things easier, I’ll call the company WidgetTech.

WidgetTech has a lot going for it. Its customers need the service it provides. WidgetTech makes a profit. Just as importantly (to me), it has a profit sharing program.

I’m not going to share specific numbers such as how much I invested and what the return is. The WidgetTech owners know and read this blog. I presume they are a private company for a reason, and I respect that.

Instead, I will say that it is somewhat similar to one of our investment properties that we bought in 2013. We got it at a bargain price and it’s appreciated 60% since then. While we have currently a mortgage on it, in a few years, the rent minus the expenses (maintenance, property taxes, insurance, association fee, etc.) will earn us decent monthly check.

I like the WidgetTech investment more than the investment property for a few reasons:

• Better Returns

  The amount of income that I’m making for the amount invested is better. In other words, the yield is better. This is usually the most important thing for investors. Making more money while investing less is a win, but it is elusive.

• No Work

  Being a landlord can be a lot of work at times. Usually it’s somewhat passive, but it isn’t 100% passive unless you have a property manager. Paying a property manager cuts into profits. With a passive stake in WidgetTech, I’m not going to get calls at 3AM about a pipe bursting.

• Recession Resistant

  WidgetTech has customers from all over the world paying for the product. While the United States may experience a downturn, WidgetTech’s global audience could allow it to weather a slowdown better than some investments. It’s a different kind of diversity from our other investments.

• The People

  I’ve had some tremendous tenants. However, it would never occur to me to go grab a beer with them, much less go on vacation with them. That relationship is very strictly business – especially because it can get messy if you have evict them down the line. In contrast, I know the WidgetTech owners well and have a great relationship with them. There is very little direct client communication as long as things are operating well, so there’s no animosity there either.

While I wrote “no work” above, I want to put more work into WidgetTech. If you’ve watched Shark Tank, you’ve seen how the sharks work to promote their companies. That work improves the profits and value for all owners. I’d like to do something similar and I think there’s room to do it.

As you can tell, WidgetTech seems like a superior investment. That’s why I’m excited about it. However, you rarely get something for nothing when it comes to investing.

There are downsides to this type of investment:

• It’s Not Liquid

  If you put your money in a savings or a checking account, you can get it back out easily. You might not earn a good interest rate, but you have great access to your money. If you bought stocks or a mutual fund, you could sell and get your money out easily as well. You might have to pay more taxes, but you’d still be able to get your money.

  With WidgetTech, my underlying investment money is hard to get back. It would require a very significant emergency to try to get it back. I’d be looking to exhaust all my other options first. This is another reason I consider it similar to the investment property. While I could take a loan out on the property, for the most part, the money is spent. I could sell the property, but it’s not easy and I find the costs to sell often prohibitive.

  Sometimes having an investment that is not liquid is a good thing. It prevents me from making rash/emotional decisions.

• Risk of Company Failure

  Few companies last forever, right? If the company falls on difficult times or business landscape changes, the investment could be in trouble. I feel strongly about WidgetTech’s chances to last a long, long time.

In both investment cases, I know that I’m making a financial decision that isn’t for Lazy Man today, but for Lazy Man tomorrow. In today’s world of YOLO culture, this may not make sense to some people.

However, it’s easy for me to focus on the financial picture tomorrow. I’ve personally seen how the financial decisions over the last 20 years have put us in a great financial place today.

Alternative Income and Net Worth Reports

For the last few years, I’ve been publishing my alternative income which is passive and “passive-ish” income. This investment converts a large sum of money that was earning minimal interest in a money market account into something that generates significantly more through the profit sharing plan.

That’s going to give my alternative income a good boost. It will show up in the dividends category which is essentially what this is (even if the tax treatment is different). It’s certainly close enough based on it being the income return from investment in a business.

One the net worth side, I’m going to keep the underlying money that I invested as an asset. As I wrote above, it is possible to sell even if it’s difficult. This will give our net worth a boost going forward because the income earned is much better than what the bank’s money market was paying. In a number of years, this income will be worth the same as the underlying investment (if all goes according to plan), which would effectively double the value of it in our net worth.

This is no different than buying an investment property and keeping the value of the property on the books while collecting monthly checks.

Final Thoughts

When I started this blog back in 2006, I did it with the idea of coming up with a way to create passive or alternative income that would allow me to at least equal what my wife’s military pension will be. Life has a number of roller coaster ups and downs and twists and turns over a 13 year span.

With this investment, I can confidently say that the blog’s goal has been accomplished. (Just wait until you see what happens over the next 13 years of this blog.)