The Pros and Cons to Activist Investing
Article Written by : Avoid Debts
The goal of activist investing is simple: obtain seats on a company’s board in order to enact certain changes the investor might want to pursue. The practice of activism in investing is becoming a lot more prominent as time passes, and is now a regular part of our usual lexicon. Here, we look at some of the pros and cons to activist investing.
The good news about activist investing is that it sometimes works. If management finds that press for certain changes to be strong enough, they will enact them. One massive success story of this kind of investing is when Wendy’s spun off Tim Hortons.
Activism might also spike demand for shares. When an activist buys shares, they buy a great deal of them. Add in others trying to make a profit on the rise in stock price and you get the recipe for quick profits (which also has a downside).
Finally, as is the case introducing new faces into any organization, new people on the board means new ideas.
With those profit spikes from buying into activism come the sell offs, which can seriously hurt companies in a matter of days. The entire plan could backfire if the company loses its value because of the move. Activists are also usually motivated by a strong desire to achieve their own goals, meaning the needs of the average investor take a backseat.
And that upsets people because activists aren’t always right. People tend to think activists are smarter than the average person, but you don’t know if the billionaire from Silicon Valley really has a firm understanding of the market behind renewable energy or fossil fuels or any one of a number important issues that affect us all.
Bio: Omar Amanat is an investor and philanthropist who raises money for the United Nations, and the Alliance of Civilizations.