Activist Investors

“Activist investors! Love ’em or hate ’em, they form part of the investment community that make noise and shake things up. Perhaps businesses do get too complacent in their thinking and doing, and that is where activist investors can step in. There are normal investors of the retail kind, like you and I and then there are the shareholders on behalf of long term savers, pension funds and the like”


 

To market to market to buy a fat pig Stocks in Jozi were weighed down by the resource companies, selling off nearly a percent and a quarter as a collective to drag the overall index down four-tenths of a percent. Financials held their heads above water, the firmer Rand perhaps had something to do with that, plus the increasingly strong calls for the independence of the mandate of the Reserve Bank. I think that is very important.

Many institutions may be compromised in the eyes of the chattering classes, remember that it is what people do, and not what they say that ultimately counts. Politics is a profession of politicking. In a world more connected by the internet, it should mean that politicians are directly linked to their constituents. Alas, the barriers are many ….. Banks all rallied here, Amplats and Mondi were the biggest losers, Standard Bank and Nedbank were the two biggest winners.


 

Over the seas and oceans, European stocks were boosted partly by a new stake by Dan Loeb in Nestle – Nestle Targeted by Dan Loeb in Activist’s Biggest-Ever Bet. It is roughly one in five Dollars of their fund. Dan Loeb is serious. Nestle has a market cap of 266 billion Swiss Francs (273.6 billion Dollars), this is hardly a huge stake as a percentage. See activism below and how it impacts you as an ordinary shareholder.

All major indices sold off as the Trump visa ban came back, sort of as this Vox article points out – Donald Trump’s travel ban is about to go into effect. If you have family or a relationship (i.e. work), you can still come and go. If you want to come for the first time to spend your tourism Dollars, sorry, go somewhere else. Or business, for that matter. I am not too sure this makes sense at all, who am I though ……

The Dow Jones Industrial average which was up over one-third of a percent at the start, ended up a fraction by the end, ditto the broader market S&P 500. Technology and healthcare businesses were most impacted in the trading session, both those down, which led the nerds of NASDAQ lower by around three-tenths of a percent on the day. Microsoft, Amazon, Alphabet and Facebook all lower on the day.


 

Activist investors! Love ’em or hate ’em, they form part of the investment community that make noise and shake things up. Perhaps businesses do get too complacent in their thinking and doing, and that is where activist investors can step in. There are normal investors of the retail kind, like you and I and then there are the shareholders on behalf of long term savers, pension funds and the like. There are in fact, many different kinds of investors, most of whom differ in time frames. A retail investor has a time (their life ends) limit of holding a stock. In theory, entities and corporations never have to sell the stock of a business. Like ever …..

For activist investors, I get the sense that their holding period is just until they make enough noise to shake things up and get the necessary price pop for their investors. Whilst it is true that the rest of the investors get to benefit alongside the activist investor making enough noise to draw attention to themselves and their ideas (and definitely their new holding), the long term implications of what the activist investor gets done (in making their noise) may not really be of any benefit to long term holders. The activist investor may get their price pop and sell out and move along. It may well be a case of standing in a queue at a government department just to hear the clerk shout “NEXT”!

There actually is a lot of academic literature on the subject. One of the best and most balanced that I came across researching the subject, is a piece written by a fellow by the name of Charles Nathan. Charles is, according to his Linkedin profile, Partner and Senior Advisor at RLM Finsbury. He is also a professor of law at Columbia Law School in New York. The article is great, and titled Seven Deadly Fallacies of Activist Investing’s Critics. What it does is balances the short and long term objectives of all parties, a great and insightful piece.

He makes some good points. Activist investors don’t have the resources, nor do they want to own the whole company. They want other shareholders to see a different perspective and sway their view. At the end of the day, if you buy a small (percentage wise) stake in a listed business and manage to rally the other shareholders to change their perceptions, you can win votes. Shareholders after all are holders of the company, they are the owners and they set the tone at the special or general shareholder meetings. If you own something, and you are willing to vote alongside a new point of view, you have the power to appoint new board members and throw out old ones.

There are a few good points in that Nathan piece, some of which I have harvested for the purposes of this “insight”:

 

“There is nothing innately virtuous about long-term, whether it be the duration of a portfolio position or a company strategy, nor is there anything innately evil about a short-term holding period or implementation period for an alternative company strategy. It is ludicrous to claim (or worse, believe) that anything long-term is by its very nature good, while anything short-term is by its very nature bad.”

 

Which often leads to shareholders having to decide:

“Activists don’t possess some magical power which allows them to bewitch shareholders. Rather, they present a case for their proposed solution to what they perceive as a company’s shortcoming, and management presents its case. Whether management’s case is in defense of a long-held strategy adopted in good faith by the board, or a recently created attempt to “be your own activist,” the bottom line is that shareholders are the ones who get to decide.”

 

And then lastly, to the point that the shareholders (we often make this point) are the ultimate holders of the business and have the ability to change the course:

“There is no principled reason to believe that boards, management and their advisers know better and should be freed from the distraction, stress and risks of a debate over their corporate stewardship. The paternalistic and patronizing view that management always knows best is simply an inversion of the reality of shareholders’ ownership and rights under our corporate governance system.”

 

I think the conclusion should be as follows: All shareholders have equal rights on representing their shares. All shareholders are entitled to their opinion on the direction of the business. All shareholders can rally against or for any proposal, it is their business after all. Not all activist shareholders get it “right”, check out old Carl Icahn, the best of them, who sold Apple stock ages ago on concerns about Chinese growth. It turns out that he was right and wrong. Activist investors take their chances like everyone else, interrogate their argument about the business. Be open to all angles. And if you think that it could get weirder, there is a fund dedicated to leveraging off 13D filings (5 percent up or down) – Investment Process. Holding period? 15 months.


 

Linkfest! Lap it up

As the popularity of the Mac grows so does the number of ‘bugs’ created for the operating system – The amount of malware for Macs is continuing to surge. No longer can you say, “I have a Mac so I can’t get a virus”.

As more people get faster and more reliable internet, the competition for their eye balls is heating up. Apple recently produced their own content and now Facebook are joining the fray – Facebook is reportedly in talks to produce original TV-quality shows

This seems wildly futuristic. Doable? ‘Hyperloop Hotel’ Could Be the Future of Luxury Travel. You can stay at the Park Hyatt in New York City, nearly 100 square metres in the King Suite for 1175 Dollars a night. That had better be a *nice* container for that price. You have to start somewhere.

Everyone needs a break at some point in their life. This is why I wasn’t quite surprised to see this story on the BusinessInsider – Jamie Foxx reveals how he helped launch Ed Sheeran’s career. Brilliant.


 

Home again, home again, jiggety-jog. Stocks are mixed globally, a little lower and a little higher across key markets in Asia.


 

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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