Pause Audio ❚❚
start slideshow

The Activist Fund

Our Definition of an ‘Activist’ is an agent of change, either coming from outside the company or from within it.
Broad Definition of Traditional Perception Irrelevant where change Originates.

Our Approach:

Invest in companies where:

  1. The change has been identified
  2. There is high probability that it will happen

boardroom

Why Shadowing Works

  • ACTIVIST COMPANIES OUTPERFORM THE MARKET
    • Lots of studies done showing this
  • ACTIVISTS INVEST SIGNIFICANT RESOURCES
  • ACTIVISTS ARE VALUE INVESTORS—Trained bargain hunters
  • Shadowing is flexible:
    • Flexible timing
    • Flexible position size

SUMMARY: We get Returns, Activists do the Hard Work

 

Buffett Rule

“What you really want to do in investments is figure out what is important and knowable. If it’s unimportant or unknowable, you forget about it.”

Warren Buffett, University of Florida, Talk to MBA Students, YouTube 1998

We have a HUGE Disadvantage

  • We are Outsiders:
  • Not Privy to Inside Thinking, Planning and Intended Actions of Activist or Target Company
  • We find out along with everyone else

Risks

Investing  Too Soon After Activist Campaign Initiation Begins

The Problem

  • Campaign may fail
  • Activists may evacuate—decide it’s not worth the effort
  • Activist may succeed, but Potential Negative Issues:
    • Campaign drags on—long work-out period
    • Their analysis is faulty
    • Target Company Wins Battle—Activists Successfully Repelled

 

BIG INVESTING VULNERABILITY

“I went in search of cheap stocks and had the misfortune to find them.”

Warren Buffett

Risks: Relying on the Activist’s Analysis

Appears Cheap on Financial Statements, BUT:
Buy Awful Businesses
OR
Pay Too Much, Even If Great Business

Risks: Activist Has Aggressive Sale Value for Company/Segment

The Problem:

  • It is very hard to know how long the sale process will take
  • Company/Segment may not be put up for sale
  • The company/Segment may be put up for sale, but not receive
    serious bids
  • The eventual buyout price may be significantly lower than expected

Solution

Have Patience – No Need to Rush In for Great Long-Term Returns

Solution

Do Independent Analysis

  • Do Your Own Fundamental Research
  • Determine Downside/Risks

Solution

Focus on High Probability Situations

In most cases, we have found that the best outcome is to either wait:

  1. For a formal announcement that the company will be restructuring its operations or is initiating a “strategic alternatives” process
  2. The activists are well represented on the Board

Solution

Stick Around After it is all Over

A recent study discovered:
Target companies’ valuations, including return on assets and operating performance, improved in the five-year period following an activist engagement.

Advice to Companies & Activists

TO COMPANIES

  • Be Proactive
  • You Know Your Company
  • Once Activist Emerges—You Play Defense.

TO ACTIVISTS

  • Make detailed letter or presentation or letter available to the investing public
  • Get on the Board to prove a longer term commitment
  • Find Co-Operative Companies
  • Avoid messy lengthy battles

The Power of Activism

boardroom