What Type of Investor Are You?
Case 1 – Environmental Matters
Imagine you are very concerned about the environmental risk of oil spills and you strongly support the search for alternative energy sources. You own 1,000 shares in a small oil company, which is also on the cutting edge of solar energy research. The shares are selling for $5 each.
You have just received a letter from one of the major integrated oil companies that has an especially poor record of oil spills, offering to acquire each of your shares for $15 worth of its own. It is offering to do this primarily to gain control of your company’s oil reserves, which adjoin its own and which would greatly strengthen its reserves position. It has no plans for the solar energy research unit.
If a majority of the shareholders of your company agree, the acquisition will be consummated and you will receive $15,000 worth of the acquiring company’s shares in exchange for your own. If not, you’ll keep your shares, which will probably still be worth about $5,000.
How would you vote and what would you do if the acquisition were approved?
If you vote in favour of the acquisition and, if it goes through, hold the shares you receive in exchange as an investment in its own right – reflecting the improvement in the acquiring company’s reserves position – then you would be classified as a traditional investor.
If you vote in favour of the acquisition, but with the intention of selling the shares you receive for $15,000 as soon as you get so that you don’t retain an investment in a company with a bad record of serious oil spills – then you are an avoidance investor.
If you vote against the acquisition, and it goes through anyway, and you hold the shares so that you can introduce shareholder resolutions urging that the acquiring company (i) maintain and expand the solar energy research operation and (ii) improve its environmental record by increasing safety precautions in its transportation of oil, then you are an activist investor.
If you vote against the acquisition, and if it goes through anyway, and you sell the shares you receive for $15,000, and look to invest the proceeds in another small company that is researching alternative energy sources, then you are an alternative investor.
Case 2 – Social Responsibility Matters
You are very much opposed to smoking but are strongly in favour of corporate support for the arts. You have received a gift of 100 shares in the company Tobacco International Inc (TII), and apart from its social characteristics, you consider the stock to be an outstanding financial investment. As a leading national corporate supporter of the arts, TII has incorporated a branch of the National Art Museum into its own corporate headquarters, sponsored major art exhibits nationwide, and supported major dance and ballet troupes. It is also a major cigarette manufacturer.
At TII’s next annual meeting in two months, you will be given an opportunity to vote on a shareholder resolution urging the company to divest itself of its tobacco business before the year 2015. If that were to occur, the company’s cash flow would be reduced substantially and its programmes in support of the arts might have to be curtailed.
If you hold the shares and vote against the resolution in order to indicate your general support of management’s business policies, then you are a traditional investor.
If you sell the shares now because you don’t want your funds invested in shares of a tobacco company – no matter how good its record of corporate support of the arts – and look for another company that is not in the tobacco business in which to invest your money, then you are an avoidance investor.
If you hold the shares so that you can vote in favour of the company’s divesting itself of its tobacco business – even if that would jeopardise its programmes in support of the arts – then you are an activist investor.
If you sell the shares and reinvest the proceeds partially in the shares of a small new company that franchises a chain of clinics to help stop smoking, and partially in below-market rate loans to community cultural activities, you are an alternative investor.
Having identified what type of investor you are, investment options that best meet your needs can then be recommended. Responsible Investment options that best meet your needs can be recommended according to your preferences for avoidance, activist and/or alternative investment styles.