Is Stock Investing a form of Entrepreneurship?

Modified: 08-Jun-21

I have always looked at Stock Investing as a form of entrepreneurship. Stock Investing involves an analysis of business models, products, markets, customers and management of existing companies before you make an investment decision. This is similar to the analysis required when one plans to start her own company to give shape to her business idea.

One major difference between Stock Investing and entrepreneurship is that in Stock Investing someone else has already done the groundwork of establishing the business for you. You need to understand the business of existing companies and decide whether ideas of promoters are in line with your convictions. If yes, you invest by buying stocks of that company and come aboard the thrilling journey of a business.

However, Stock Investing can be compared to entrepreneurship only when you look at stocks as pieces of business ownership and not as trading instruments whose prices fluctuate all the time. If you buy stocks in anticipation of selling them at next price rise, then you are not ‘investing’ but you are ‘trading’. I find trading being similar to betting/gambling where the major part is played by skills other than analysis of business fundamentals.

Similarities in Stock Investing and Entrepreneurship

I have always believed Stock Investing to be a form of entrepreneurship as both are very similar in many aspects:

  • Understanding of business: Stock Investing requires you to understand the business of the company where you decide to invest. You need to know what product the company makes, where does it make it, where does it source the raw material from, to whom does it sell, who are its competitors, what are its strengths and weaknesses against those competitors, how well it manages its finances etc. You do the same analysis when you decide to start your own company and work on the basics of the business model. Stock Investing without an understanding of underlying business is like throwing dice while praying that it will roll in your favour. 
  • Invest money and get returns if the business performs: Stock Investing and entrepreneurship both involve taking a risk on the business of the company performing well. If you choose stocks where business performs well, the company expands its operations and gives profits/dividends to its owners; then you are on the way to make great amounts of wealth. It is the same way entrepreneurship functions. 
  • Hard work with the dedication: Both entrepreneurship and Stock Investing involve a lot of hard work. Entrepreneurship involves keeping track of your company on a continuous basis. You need to check production levels, sales performance, finances, employee performance, cost efficiency etc. continuously to know the health of your company. In Stock Investing, you need to monitor the same things through quarterly results, annual reports, company’s stock exchange filings and news reports etc. Stock Investing demands a lot of time & effort to keep track of the companies in your portfolio. If you have more companies than you can track, you expose yourself to bad surprises due to lack of monitoring. It is recommended to keep the number of stocks/companies in your portfolio to as low as you are comfortable.
  • Selection of wrong business; your capital would be wiped out: Similar to entrepreneurship, if you decide to invest in a wrong business idea, it is very likely that you would lose your money.
  • Selecting managers to handle the business for you: Once your entrepreneurship venture is successful, you are required to hire professional managers to run it so that you can concentrate on decisions for investing the money the company generates and working on new ideas. In Stock Investing, you are in this stage right from the start. You choose to invest in companies, which are run by good managers and have good corporate governance so that you can focus on making further investments of your income (salary and dividends).
  • Both lead to fame if successful: There are many examples of entrepreneurs and stock investors who have witnessed great fame once they succeeded. However, it is also true that for each successful entrepreneur and stock investor there are thousands of other entrepreneurs and investors who failed. Neither entrepreneurship nor Stock Investing is an easy task.

We can see that there are many similarities between Stock Investing and entrepreneurship. In fact, it can be said that Stock Investing is a type of entrepreneurship. However, I find Stock Investing has many advantages:

Advantages of Stock Investing over Entrepreneurship

  • Low capital requirement: You can start Stock Investing even with a few thousand rupees, which might not be possible in the case of entrepreneurship. Entrepreneurship would require you to invest at least a few lakh rupees at the start to have initial setup for starting business operations. 
  • Diversification in many businesses: In Stock Investing, you can invest/own as many business ideas/companies as you are comfortable. It reduces the risk of losing your invested capital because the probability of all the businesses/companies failing together is low. However, this is not possible in entrepreneurship where usually one works for a single business idea at a time. In entrepreneurship, your fortunes are tied up with success or failure of a single idea/venture, which increases the risk significantly.
  • Easy to rectify the mistakes: If unfortunately, you chose a wrong business idea, Stock Investing provides easy opportunities to rectify the mistakes. You can simply sell the stocks of that company/business idea and look for other opportunities. In entrepreneurship, rectifying wrong business selection is very difficult. Usually, an entrepreneur would have already invested most of her capital and some debt from family and friends, in her company. The decision to change business might mean losing most of that capital and starting afresh, which is more difficult than investing in a new company while doing Stock Investing. 
  • Always ready buyers at independently determined prices: In Stock Investing, whenever you decide to get out of any business/company, you can sell your shares in the stock exchange at the current market price of that company. The current market price is determined by independent buyers and sellers and is continuously updated by the stock exchange. However, if an entrepreneur decides to sell the company or its assets, she may not get a good price. In fact, the entire investment of an entrepreneur might sell for almost nothing, if she is not able to find a buyer for the assets/machines of her company within a reasonable time. 
  • You can continue your daytime job: This is the best part. In Stock Investing, you can continue to chase your dreams while continuing the daytime job. Your family need not see the hard times because of your aspirations to own a business. Whereas in entrepreneurship, very often you need to resign from your existing job to give full-time focus to the business. This requires you to let go of your current salary income in expectations of future gains, which may or may not come.

Until now, we have seen that Stock Investing is similar to entrepreneurship and the reasons for my belief that Stock Investing is better than entrepreneurship. However, there are many differences between Stock Investing and entrepreneurship, which make people very passionate about entrepreneurship and choose it over Stocks Investing:

Differences in Stock Investing and Entrepreneurship

  • Dream of working towards your own idea: Entrepreneurship gives you a chance to give shape to your own business ideas. You can create your new products and develop your proprietary technologies. However, in Stock Investing, you need to choose among the various ideas already available in the stock market in form of listed companies. 
  • Your name on the company: In entrepreneurship, you can have your name on the company right from the start. In Stock Investing, you might not be able to put your name on the company unless you buy a very large part of it, which may not be possible in the initial stages of your investing career. However, as your investing career progresses and you make a large portfolio, you can buy and have as many companies bearing your name as you wish. 
  • Self-ownership: In entrepreneurship, the relationship with the entrepreneur and the company is very strong. Many times people compare the strength of this relationship with the parent-child relationship. In Stock Investing, if you are not attuned to think of shares as ownership of businesses, you may not get the feeling of being the owner of the company.

Thus, we can see that Stock Investing and entrepreneurship have many similarities and many dissimilarities. Many people prefer starting their own companies to express their entrepreneurial spirit. Other people like me, believe that Stock Investing gives them enough opportunities to be an owner-entrepreneur. There are different views and these will continue to be there.

I believe that Stock Investing is like discovering diamonds out of stones. Stock Investing gives you the opportunity to work hard and find great companies out of all those being traded on stock exchanges. It is like a treasure hunt and the thrill of finding a good company, which creates wealth for you, is one of the best feelings I have ever experienced.

What do you think about Stock Investing? If you have entrepreneurial ambitions, would you like to buy stocks of an existing company and benefit from its growth instead of starting your own company? If you already have started your own company, then what are your experiences? Let us know.


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1 thought on “Is Stock Investing a form of Entrepreneurship?

  1. What do you think about Stock Investing?
    Ans: It needs hard work to discover future gems & patience to hold in turbulent times.

    If you have entrepreneurial ambitions, would you like to buy stocks of an existing company and benefit from its growth instead of starting your own company?
    Ans: Yes, of course, I would like to buy stocks of an existing company and benefit from its growth instead of starting your own company. In fact, I am doing this.

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