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Interesting ways that companies invest to diversify

By Dan Teuton
11 November 2019

These days, it is important for all companies to consider how to diversify their income streams. While some do this by launching new products or by entering new markets, there are other ways of doing this successfully.This can be a useful way of ensuring steady income streams. Even if the main area of business suffers a temporary dip, the income from other sources can make up for this. The following are some of the most interesting methods of diversifying incomes.

Buying real estate

In this case, a business uses a strategy of buying properties as a way of investing its income. This can be a solid long-term approach to growth of capital. A good example of how this can work extremely well comes from Europe’s richest man, Amancio Ortega.

The founder of the Inditex group (Zara, Bershka, Oysho etc) has a solid strategy of focusing on property investments. Corporate accounts filed in 2015 showed that the total value of real estate held by his Pontegadea Inmobiliaria arm was some €6 billion (£5.1b) at that time.

More recent reports suggest that his properties are now closer to £10b. This enormous portfolio largely consists of properties in prime locations, such as in London’s Mayfair and New York’s Soho, as well as in Madrid and Barcelona. One of his biggest purchases was the £600 million Adelphi building in London that he bought in 2018.He built up this property empire by re-investing the huge dividends earned from Inditex each year. In 2015, the income from these properties was reported as being €810m (close to £700m). This includes rental income from his own stores, as he bought many of their premises.

Stock market investments

Another option is to buy stocks with the profits earned from the company’s core business. One of the ways of doing this is with a stock buyback. This is essentially when it buys its own shares off the market as a means of investing in themselves.

Another approach is to buy shares in other firms. This can be seen clearly in the way that Berkshire Hathaway have operated over the years. Its CEO is Warren Buffet, who changed its focus from textile milling plants to diverse investments.

The success of this strategy saw its stock value rise by 2,472,627% between 1965 and 2018. Buffet’s shareholding makes him one of the world’s richest men, with an estimated net wealth of $82b (£63.3b) in 2019.

As with any type of stock market investor, companies embarking on this strategy need to consider their goals. Do they want long-term stability and good dividends? Or would they rather aim for big profits on shares that are currently under-valued?

Foreign currency trading

Investing in foreign currencies is an interesting option for businesses, especially those that work in different countries and currencies. For example, if a company makes products in the UK and sells them in mainland Europe, then its costs are in pounds but its income is in euros.

This leads to risks if the currency rate fluctuates. It could end up costing companies more to make a product than they sell it for. Therefore, they may choose to hedge in order to mitigate the risks involved in this. It is also an approach that adds a safety net to overseas corporate investments. A business that invests a lot of money in a foreign currency will want to protect itself against any major swings in the market.

The main players in this market tend to be the likes of banks, hedge funds, or money managers. However, individuals and companies can easily get involved by using online forex brokers such as FXTM, Alpari and HotForex. Minimum deposits start at just $5 in some cases.

Cryptocurrencies and blockchain projects

As these digital currencies are relative newcomers to the financial world, it seems certain that a lot of business people are looking at the rising industry with a great deal of interest. After all, the story of bitcoin’s staggering rise from being virtually worthless to a price of close to $20,000 (£15,450) raised eyebrows all over the world.

The reputation of cryptocurrencies for being extremely volatile makes this a bold sort of investment. At the moment, most of the bitcoin millionaires are individual investors or part of specialised cryptocurrency investment firms.

It could be that buying bitcoin or other digital currencies is seen as too much of a risk right now. This is especially true in businesses where several people would need to sign off on the decision. However, some firms have found an alternative way of getting involved in this growing industry.

This is because many major companies have looked into launching their own currencies and blockchain projects. These include Facebook, Walt Disney, and IBM. Reports from 2018 suggested that the Bank of America holds the most blockchain patents, with over 40 at that time. Technology giant Apple has also lodged a number of patents.

By doing this, they are looking to the future by getting a step ahead of the competition. This sort of investment allows them to cut out middle-men by offering their services directly or obtaining supplies in a decentralised way.

It is an expensive investment but it seems that many business leaders are now convinced that the blockchain is the way forward for them. Indeed, it has been reported that, by 2025, 10% of global GDP will be on the blockchain.

It is a question of choice

As has always been the case, every business is free to choose its own approach to diversifying through investments. The good news is that there are now more ways than ever before to do this. So, everyone can find the perfect method for its company’s needs.

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