private

Private

A private company is a business whose ownership is held privately, meaning its shares are not traded on a public stock exchange like the New York Stock Exchange or NASDAQ. Unlike its counterpart, the public company, which must answer to a vast sea of shareholders and regulatory bodies, a private company enjoys a more intimate and controlled existence. Ownership is typically concentrated in the hands of a few individuals, such as the founders, their families, employees, or specialized investment firms like private equity or venture capital funds. This tight-knit ownership structure means private companies are not subject to the same stringent disclosure requirements mandated by regulators like the U.S. SEC (Securities and Exchange Commission). They can keep their financial statements and strategic plans under wraps, operating with a level of confidentiality that is simply impossible in the public domain. This freedom allows them to focus on long-term growth without the relentless pressure of pleasing the market every quarter.

You might wonder why a successful company wouldn't want to go public and cash in. The reality is, staying private has some serious perks, many of which align beautifully with the long-term, business-focused mindset of value investing.

  • Freedom from Market Madness: Public companies often live and die by their quarterly earnings reports. A slight miss on expectations can send their stock price tumbling. Private companies are blissfully immune to this short-term noise. Management can make bold, strategic decisions—like investing heavily in a new product that won't pay off for years—without having to justify it to anxious analysts or a fickle market.
  • Lower Costs and Headaches: The process of becoming a public company through an IPO (Initial Public Offering) is incredibly expensive and complex. And it doesn't stop there. Being public comes with a mountain of ongoing regulatory, legal, and accounting costs to ensure compliance. Staying private avoids this entire circus.
  • Keeping Secrets: Imagine Coca-Cola having to publish its secret formula. While not that extreme, public companies must disclose a great deal of information that competitors can use against them. Private companies can keep their “secret sauce”—be it a unique business process or a new strategic direction—safely behind closed doors.
  • Maintaining Control: When you own a private company, you're the captain of the ship. Founders and owners can steer the business according to their vision without needing to win a popular vote from thousands of anonymous shareholders, some of whom may be more interested in a quick profit than the company's long-term health.

For the average person, the world of private companies can feel like an exclusive club with a “members only” sign on the door. And in many ways, it is.

Directly buying a stake in a promising private startup or a stable, family-owned business is generally not an option for most retail investors. These opportunities are typically reserved for accredited investors (individuals with a high income or net worth) or institutions, partly because of the high risk and lack of liquidity involved. However, there are a few back doors you can peek through:

  • Publicly-Traded Private Equity Firms: You can buy shares in large private equity firms like Blackstone or KKR, which are themselves public companies. This gives you indirect exposure to their portfolio of private businesses.
  • Business Development Companies (BDCs): A Business Development Company is a type of publicly-traded company that invests in small and mid-sized private businesses. Investing in a BDC is one of the most direct ways for retail investors to gain exposure to the private market.
  • Crowdfunding Platforms: Newer crowdfunding portals allow smaller investors to participate in early-stage ventures. Be extremely cautious here. The risk of failure is immense, and thorough due diligence is non-negotiable.

Even if you never invest a single dollar in a private company, studying them offers priceless lessons. Great investors like Warren Buffett often praise businesses that are run with a private-owner mindset. When you analyze a public company, ask yourself: Does the management team act like owners or like hired hands just trying to hit a quarterly target? Do they allocate capital with the same care you would if it were your own family's money? Do they have a clear, long-term vision, or are they swayed by the latest market fad? The best public companies are often run like the best private ones: with a focus on operational excellence, disciplined capital allocation, and a deep commitment to creating genuine, lasting value.