Holdings vs. Whole
Holdings supply a magnification of cash flow and wealth. Simple investment principle, geared right is how leaders lead the game.
Investment is a game with its own principles and rules. And primarily it’s mathematical. Moving parameters to allow room for more.
Hence the application of holdings vs. whole.
Let me explain…
There are 2 ways to earn money from owning a business:
Whole ownership (100%)
Part equity ownership (???%)
Whole ownership is exactly what it sounds like - you own an entire company. 100% of the profits or losses are yours.
Part equity ownership happens when an investor parts with capital in exchange for part ownship of the business invested in. This is achieved by the investor purchasing stocks in a business (a kind of marketable security).
Both allow for the financial enjoyment of the business doing well and operating at a profit.
However, as Warren Buffett (currently, the world’s wealthiest and most successful financial investor) eluded to in this Berkshire Hathaway annual meeting:
“We can never own more than 100% of a business, but if we own 2% of a business at a given price that we like, we can add 4 or 5%. So that’s an advantage.”
Simple maths. With profound financial impact.
But before we leap upon the concept, let’s lay some ground rules:
The businesses must have…
An operation that the investor can understand.
Sustainable competitive advantage.
Outstanding management.
The investor must be…
Debt-free
Cash-rich
When you combine the variables listed above with multiplicity within a single holding - over time - you get wealth generation.
i.e. positive cash flow that snowballs exponentially, magnifying and fueling more of itself.
What opportunities does this present for you as a poultry entrepreneur?
Principally…
…2 opportunities:
Build a holding.
Attract holdings.
But before we go down that road together, let’s just take a moment to reflect on the beginnings of Berkshire Hathaway Inc. (which today is Warren Buffett’s investment holding company).
“Berkshire Hathaway originated as a textile manufacturer formed in 1955 from the merger of Hathaway Manufacturing Company and Berkshire Fine Spinning Associates. After the merger, Berkshire Hathaway had 15 plants employing over 12,000 workers with over $120 million in revenue, and was headquartered in New Bedford. However, seven of those locations were closed by the end of the 1950s, accompanied by large layoffs.”
So Warren (as a private investor) simply over subsequent trades, bought out 100% of Berkshire Hathaway - the textiles company - and converted it into a holdings company (i.e. a company that acts as a container to ‘hold’ other companies).
Today (70 years on from its formation and 60 years on from Buffett’s takeover), Berkshire Hathaway’s financial fortunes look remarkably different:
“According to Berkshire Hathaway's latest financial reports, the company's current revenue (TTM) is £304.58 Billion….The revenue is the total amount of income that a company generates from the sale of goods or services.”
That’s $120Million → £304Billion.
The secret?
Well, there are many actually…
But one of the most fundamental contributors to that transformation was the nature of the business radically changed from whole to holdings…
…from 1 textiles manufacturing business to→ over 70 wholly (100%) owned subsidiaries and over 3 billion individual shares in over 45 companies.
Quite simply, Berkshire Hathaway went from:
Operator → Investment Vehicle.
And that is the basis of the profound shift in wealth/financial fortunes.
A man who understood…
“We can never own more than 100% of a business, but if we own 2% of a business at a given price that we like, we can add 4 or 5%. So that’s an advantage.”
Back to poultry entrepreneurship, what’s your take-away?
Again:
Build a holding.
Attract holdings.
Build
Build a poultry holding company. Become a poultry investor, not an operator.
Here are your 3 steps:
Invest your time to understand each ‘link’ within the ‘poultry value chain’ with practical work experience…i.e. breeder, hatchery, farm, retailer etc.
Study to understand consumer behaviour within the poultry industry and examples of sustainable competitive advantage.
Find poultry businesses that are run both excellently and profitably, that have an advantage that sets them apart for the long-term.
From this, once you strengthen your commercial acumen in poultry, you can build a poultry-focused holding enterprise that ‘microinvests’ in poultry operators.
Attract
Become a poultry business operator. Attract value-investors.
Here are your steps:
(Repeat steps 1 & 2 above in the ‘Build’ plan - plus:)
Identify a hyper-specific market or niche that is simply not getting the service or product it deserves.
Get creative and propose a ‘best fit’ solution that fills the gap, profitably.
‘Bake in’ sustainable competitive advantage that gives you enough of a lead on competitors that puts you out of reach.
Get developing and deliver a minimum viable product.
Get proof of concept - trial the solution with a select audience and use in-depth interviews for feedback to refine your offering.
Iterate and re-test continually trialling and testing concepts and theory.
Write a 6-year project report with a zero-debt, launch strategy…completely bootstrapped.
Launch a well-rounded 1st offering on the market - small, manageable, debt-free.
Trade hard, well and profitably.
Reinvest for continued, sustainable growth.
Document all your financials (p&l, balance sheet etc..
Draft a future investment roadmap with projected returns i.e. an evidence backed extension of your project report.
Research and identify prospective investors with commercial competency in poultry.
Outreach.
Closing
This blueprint of ‘holdings’ is how wealth is magnified by financial investments (marketable securities) in today’s economy.
Understanding and putting this into practice separates the participants from the players.