Circle of Competence Issue #26
Quote of the week: "Someone is sitting in the shade today because someone planted a tree a long time ago." - Warren Buffett
FOOD FOR THOUGHT
This week, after reading a Harvard Business Review piece on why activist hedge funds aren't good for companies, and a New Yorker profile on Paul Singer (the doomsday investor), I decided to dive a little deeper into the empirical economics of activist investments.
There are industry practitioners who praise activist investors, and those who despise them. On the academic side, there are several who support the effects of activists with empirical data that seem to point to increased financial performance of targeted firms (Lucian Bebchuk, Wei Jiang). There are also other financial experts and economists that are not so sure that hedge fund activists create long term value (Dr. Yvan Allaire, MIT).
I also found two interesting pieces from the corporate law firm Wachtell, Lipton, Rosen, & Katz on defending and dealing with activist investors (including the typical activist's playbook) and the new paradigm of corporate governance that is meant to help preemptively deter activists and encourage long term value creation by corporations.
Finally, there's good ole' Warren Buffett, who has a small handful of early activist investments in his career, but predominantly believes that most activist campaigns (but not all) are short-term focused and out for publicity and a quick buck.