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.
