Tuesday, May 5, 2009

Your investments and corporate behavior

Just about everyone's portfolio has shrunk over the past year or two. We feel poorer because the market has lowered the value of our investment assets. This change has certainly affected my behavior and it probably has affected yours.

The same is true of corporations. When the market adjusts the value of their stock downward, they look inward and say "what should we be doing differently?"

As an individual, it would be hard to get the attention of any corporation by telling them you plan to sell 100 shares, thus driving the stock value down by a tiny, tiny amount. But, what if it were 100 million shares?

It's hard for individuals to envision, but when it comes to large pots of money (held in endowments, pension funds, mutual funds, and so on), there is in fact an active selling process between companies and investors. It is very much like the same company selling a physical product in a store. The company is disappointed if people don't buy the product, and eventually takes the product off the market.

The Point: Access to investment dollars can directly affect the behavior of companies. Individuals can influence this access in two ways: First, they can attempt to influence the investment policy of some of large investors (remember university divestment in South Africa in the 1980's). The second, which is relatively new, is through investment behavior of individuals.

I remind you of the problem that the corporaration couldn't care less if you sold your 100 shares, but what if it were 100 million shares?

Next time, a discussion of mission driven mutual funds.

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