The nature of responsible investing

THIS week, we continue with our quest to educate people on how best they can invest their money.
Zimbabwe is regarded as one of the country with great potential but unfortunately the culture of investing among locals especially on long-term projects seems to be going down.
People have also been discouraged from investing partly because of lost investments, which they suffered when the country experienced hyper-inflation which wiped out most people’s savings.

However, while history is said to be important in shaping the future, it is also folly to get stuck in the past and ignore the reality of tomorrow where we still need to have a decent life. This can only be achieved if we try to invest the little we have today so that it can sustain the tomorrow.

Below is an article by the Zimbabwe Shareholders Association on the nature of responsible investing.
“We see investors as individuals who essentially are responding to the most basic financial impulse of all, to save for the future, because the future is unpredictable. Indeed it has become even more unpredictable in these times.

In the words of Niall Ferguson: “They appreciate that the world is a dangerous place, and not many of us get through life without having a little bad luck. Some of us end up having a lot.”

If they are to save effectively, they have to try to assess the relative likelihood of the various uncertainties to which their savings will be subjected.

Even the apparently low-risk option of putting money into a fixed interest account or long-term bond will prove dangerous in an inflationary environment.

Why does the behaviour of individual investors matter to society as a whole?
The essential point is that the diversity resulting from a range of individual views is more likely to bring to light the dangers of foolish strategies than is the collective standpoint of large institutional investors who tend to hunt in packs.

It has truly been said that money managers do not suffer from being wrong, as long as they are wrong with everyone else. Punishment is reserved for those who are wrong on their own. For example the myth that an “efficient balance sheet” is one loaded with debt has led many otherwise successful, but cyclical companies either to their doom or need for a deeply discounted rights issue to enable the shareholders to retain a shred of value in the enterprises which their directors have debauched.

The association sees a responsible investor as a person who invests only in an area about which he or she has gathered information and properly understands.

Inevitably responsible private shareholders come in all shapes and sizes.
Some operate as dealers, making short-term profits here and there but having no long-term commitment to the companies in which they invest.

This group is serious and sometimes financially highly successful, as a result of the attention that its members devote to their operations, but their focus is by definition on the short term.

By and large short-term investors do no real harm and no real good to the companies in which they invest, although larger institutional funds, so-called vulture investors, can do considerable harm by short selling and putting a company in play and so destroying businesses, especially those that are quietly pursuing longer-term strategies to build shareholder value.

Of those who seek long-term investments, we believe that anyone who is not able, or is not prepared to devote enough time to really understand the principles of how to value business would be unwise to embark prematurely on direct investment in companies.

The Zimbabwe Shareholders Association is a special interest group bringing together people who have some money, some time, a definite interest in pursuing the direct investment route and a general interest in promoting the prosperity of businesses based in Zimbabwe.

We respect people who do not share our willingness to devote a considerable element of spare time in attempting to understand the mechanics of investment and the economics of individual businesses, but who wish to invest as safely as possible in a medium that gives them exposure to the stock market through some form of collective investment instead.

We believe that a number of investment trusts can be worth considering by such investors, provided there is evidence that the managers are competent and trustworthy and the management charges are relatively modest.

For those who are less confident about their capacity to make a choice, there is much to be said for a cheap tracker fund, which simply follows market movements without attempting to outguess its competitors on market timing or the strengths and weaknesses of individual companies.

By private shareholders, we mean investors who choose to invest directly in companies rather than through collective vehicles such as pension funds.

Such private investors have a direct, albeit usually heavily diluted role in choosing board of directors on whom they rely to look after their investment.

They usually take at least some interest in proper governance and allocation of funds by the companies in which they invest, because they want to see them run properly.

It is evident that private investors are savers primarily seeking benefit for themselves and their families, but wittingly or unwittingly they also make an important contribution to society, especially one which has taken on very significant debts.

Their savings are directed towards providing capital for businesses to grow, whether directly or by purchases of investments on the stock market which is itself a process that ultimately results in more money becoming available for reinvestment directly into industry.”

From the standpoint of corporate governance, private investors have no conflict of interest and are without commercial pressures from employers, so they enjoy the luxury of being able to take a more objective position than those who are required to demonstrate short-term results.

For more information on the above subject contact the organisation at [email protected] <mailto:[email protected]>.
For feedback get in touch at [email protected] <mailto:[email protected]> or 0777390875 (SMS/WhatsApp)