#TBT Fixing Our World with Activist Investors
I want to talk about an important way that the general public can practice socially responsible investing - all without a degree in finance or even investing in the market at all. However, in order to impact the world this way, you need to have an open mind and a logical brain. I'm a huge supporter of using the power of activist investors to help shape the course of not just the market, but the why corporations do business and respond to consumer concerns.
Activist Investors are individuals or groups who purchase large numbers of a public company's shares and/or tries to obtain seats on the company's board with the goal of effecting a major change in the company. A company can become a target for activist investors if it is mismanaged, has excessive costs, could be run more profitably as a private company or has another problem that the activist investor believes it can fix to make the company more valuable. Obviously an activist investor is more often than not motivated by money rather than doing it for the greater good. However, when the largest consider group in the world is concerned about certain business practices, it would of course be the most profitable and in their best interest to appease this group for better or worse.
Now, it’s easy to get your blood boiling over the fact that these people spend your annual salary in the course of a few hours. But they are a very important solution to the problem. Think of billionaire activist investors like (smarter) politicians. Imagine if the 99% petitioned the 1% to implement socially responsible investing changes on their behalf? How can they say ‘no’ to a million people? Don’t believe me when I say this is a real thing? Let me give you a real example…
This is a fellow many of you will recognize – Warren Buffet.
When I was an associate analyst, I noticed a framed letter in the office of one of the portfolio managers I supported and one day I asked him about it. He told me that a few years back he was convinced that he had a unique and interesting perspective on a particular stock (which I cannot disclose) and so he wrote a letter to Warren Buffet saying that he should consider including the company in the Berkshire Hathaway portfolio.
Well guess what? Warren Buffet wrote him a long letter back, saying he liked the idea and I will say this recommendation was of great significance based on certain investments that Buffet has made recently. For those who need some context, Warren Buffet is a majority stakeholder of all of these companies: Fruit of the Loom, Heinz, Benjamin Moore, GEICO, NetJet, The Pampered Chef, and Dairy Queen.
Just imagine it – my manager, was nobody special (although if he were here right now I’m sure he’d say otherwise) but he was able to sway the investing thought process of a man whose net worth is $66.7 billion and is considered the most successful investor of the 20th Century. One ordinary person has the power to sway a billionaire’s opinion of a company with a simple, short letter.
Imagine if all of a sudden billionaires like Warren Buffet were bombarded with letters from a concerned public and they didn’t include death threats and ramblings about corporate greed, but rather gave him a logical direction of where to steer the business practices of corporations he can control? Heinz may not listen to consumers opine about non-GMO tomatoes and non high-fructose corn syrup in their ketchup. But they WILL listen to Warren Buffet.
Millennials are about to become the largest consumer group in the world – according to the US Census there are 92 million Millennials (consumers between the ages of 15 and 35) compared to 61 million in Generation X and 77 million Baby Boomers. That’s a lot of consumers, a lot of concerned voices realizing that their values are changing from what they were when they were children. There’s a lot of money to be made here, and these voices will be heard.
Got something you want changed? Formulate your own letters and keep your head level. Let me know when you strike it big!