Why Divestment (Selling) Is Important

Have you ever looked at a company that might be in the news for a negative reason and think "How could anyone invest their hard earned money into a company like that?" only to find out that the mutual and retirement funds you invest in purchase shares and end up promoting those exact activities you deplore? If the answer to this question is no, you are probably self made through a business you created. If the answer is yes, as it probably is for 99% of us, there is some work to do to get this issue resolved. Sometimes, either by happen circumstance, or by design, your ability to divest is purposely taken away from you. This book will explore the whys, hows, and derivative results of divestment. 

The basic definition of divestment or divestiture is the act of selling all or a part of an ownership ownership stake in an asset. As with any action, divesting has both positive and negative results,  depending on the motivation behind the sale.

This series will explore the whys, hows, and derivative results of divestment putting a focus on three different areas. The first two areas of importance will focus on the definition of divestment and its role in the investment community. The second part will focus on  the different influences on divestment. and what positive and negative results divesting can create on a company or market. The third part will look at how to bring a more transparent process to divesting for the every day retail investor and how that process will improve the market as a whole.  

There are many different reasons to divest and sell a security or asset. It might not be providing enough profit. The investment may no longer fit into a particular ethos of an investment plan. The investment's management and or the focus of the company may have changed. We will go more in depth with examples into each of these areas and explore how divesting can influence investors returns and success.

The ability to divest from an investment ranges from easy to difficult and depends largely on the level of control that you or your institution has over its portfolio. On the one end, investments into single assets directly by the investor or organization provide the easiest in being able to sell and divest if desired. On the other end, if the investment is part of a mutual, retirement, or pension fund, divesting is actually quite difficult for an individual that has money invested in those funds. There are regular penalties from the fund and sometimes even from the government. As a quick reminder, it is generally best as an investor to have the highest level of control possible. Divestment processes should be part of the investor's checklist before committing capital. You will find that most of the great investors have a high level of understanding what the divestment rules of each of their investments.    

Divestment has many positive and negative effects for investors, the companies or assets being sold, and the overall community at large. The previous sentence should alert you to how integrated ownership of a company or asset is within society. The perspective of the entity analyzing the situation is very important. On the positive side for the investor, divestment provides the opportunity to be cut loose from an under performing asset and an opportunity for making a better investment. Doing so also brings awareness to other owners of that investment. On the positive side for the company or asset, it is an opportunity to analyze why someone is selling their ownership stake in the investment and take action. Sometimes, a large divestment can also bring attention from the larger community, which can bring about positive changes from the community in regards to the asset. On the negative side, the investor may not have another investment making the same return ready to replace the one being sold. For the company, the immediate results are rarely positive in terms of return. For the community, issues of the company being able to continue providing value to the community can become an issue.  More detailed examples of the results are in the book.

Having a greater understanding of the importance of selling an investment is critical not just for the investor, but for the company, the market, and society as a whole. Allowing for a more transparent lens when looking at divestment will bring the market closer to balance and parity. Be sure to check on your investments and take a look to see if there are any that you would not like your hard earned capital promoting. Selling might create an opportunity for your capital to be invested in something that you not only hold dear, but can also bring profits.