If a listed company announced they want to diversify into a new business, in the name of risk management, recurring income, improve profit, etc, is it good or bad?
I think unless the new business venture can create synergy to current business, else is not a good thing. From an investor point of view, if the management has no experience and not familiar in the new venture, and the diversify action by management is just to improve profitability of the company without synergy created between those business, investor will be better off by diversifying themselves and choose the best company in each businesses to invest into.
Those company who diversify without synergy thought acts like a speculator, crowd mentality, dives into other type of business whenever the business prospect looks good, like the company is owned by them. They don't realize that most of the investor invest into the company because the company has excellent track record in the current business, not because the company management have "farsighted ability predicting the future of economy". Imagine a property developer suddenly venture into oil and gas, or a electronic manufacturing firm venture into oil palm. It is just ridiculous.
If for example the oil palm company venturing into property development because they have lots of land, or oil service company venture into upstream exploration to have full control of supply chain, or a drink company venture into snack company to create a better brand, or a bank venture into insurance business, then synergy can be created, and value can be added to the company.
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