Is stock investing destroying the feeling of ownership?

Buying & Selling stocks has become very easy if you have the right pieces of paper attesting who you are & where you live. You can buy a stock in the morning & sell it off the same day without feeling anything about having bought or having sold it. It would be a long forgotten transaction a week from then. With trading stocks so easily, is it possible that it has eroded our sense of entitlement or ownership in these stocks?

When we buy a stock in any company, it is not just a piece of paper or bits on the screen. It is a part ownership in the business whose market value is represented by that one share. It also represents something else. It represents a right to vote & a right to exercise our opinion to the extent of our ownership. So in short, it doesn’t matter if you own a single share or if you own a lac shares. You have the same right to be represented as any other shareholder of that business.

The sense of ownership in any business can come through many ways. One is to actually start the business. When you start a business, there is an automatic responsibility to make the business a success. You find ways to make sure that the business does what it has set out to do. You hire more people & bring them into your vision to expand the scope of your small idea. Eventually the idea either grows or perishes. But at least you have that sense of ownership & ‘control’ over the outcome of that business.

Now contrast that to the same responsibility of a normal stock investor who chooses to buy a few shares through the market. What sense of responsibility does this investor have towards the underlying business? Should this investor care about how the company is being run? Should the investor really bother to see if the company is doing the best it can to do what it has set out to do & earn a profit over a long period of time? This sense of responsibility evades the whole purpose of why the person has invested in the stock in the first place. He’s just there for the money. Any AGM of any Indian company which has a decent enough public shareholding proves to be a direct example of this farce of ownership. Shareholders haggle with the managements for dividends, gifts, free this & free that & in return provide no support, guidance or understanding to the people who run the business. It is always an expectation from a capitalist entity to provide for its shareholders without the shareholders actually doing anything to deserve it.

The right to own shares in a business does not morally equip us the right to demand gifts. As a responsible shareholder, no matter how many shares you own – you must be willing to go to management & convey your thoughts about what is right or wrong (if you have any). Not all the things you offer might be relevant but some might be useful from your own unique experience. To streamline this process & provide oversight on behalf of the shareholders, there is a body of people called the Board of Directors which does this exact same function. Any responsible owner would make sure that the board understands his/her point of view & duly communicates it to the management of the company.

All of that in an ideal world? Well, this system of oversight has been abused beyond the point where shareholders have lost faith in their ability to raise their voice. The authorities under the guise of sound legislature can never touch this structure. In fact they shouldn’t. So the small shareholder has found the next best thing to show his/her point of view. By voting through the wallet. A shareholder will sell shares in a company where things aren’t going as they are supposed to. This is sadly the first order of business rather than seeking a dialog with the management first. After the shares are sold, there is no incentive left to have any dialog with the management.

A lot of times, the number of shares held is used as an excuse. When small shareholders don’t speak up against wrong doing in the companies they own, then the whole concept of public shareholding loses its purpose. So the small shareholders have thus become just a medium to channelize their savings into these good or bad companies through their ipo’s. A lot of wealth can be created & destroyed this way & it all seems to be in the natural order of things. Would these same shareholders be so unconcerned if it was their own company? But it is their own company.

Should we leave capitalism in the hands of the few & then complain about the great economic divide between the rich & the rest? Well, we all as public shareholders are responsible for it because we have too loose a grip through which these unscrupulous managers escape like sand.

We tend to vote with Exit, rather than with our voice, which does ‘absolutely’ nothing to make the system any better. We have no right to complain if we don’t participate in creating something. As we sow, so shall we reap.

by Raunak Onkar

1 Comments

  1. Hi Raunak,

    Excellent post! It’s one of it’s kind…:-). Not seen very many posts which talks about shareholders also having some “duties” as owners. However, the problem is that an unbelievably large (and highly educated) section of society view stocks as trading papers! So, large section of retail shareholder lack this perspective of “ownership” altogether.

    I know many colleagues/friends who have done MBA in finance from highly reputed B-schools but still considers investing in stocks/market as a gamble! And sometimes I have no other option but to agree with them after I witness the process and motivation of investing in market! Indeed, they play a game of poker…

    Though to be fair, many companies discourage participation/inquisitiveness by shareholder covertly or blatantly for various reasons. But very interesting thought process indeed!

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