In fairness to many investors, activism is a word now misused. It seems that any investor who takes a position and publicly demands change is labeled an activist. The word is starting to have a bad taste in the mouths of many.
Corporate decisions actually are being made about a company's future that otherwise might not be made if not for the prevalence of activists. Most of the top privately-held tech start-ups are adopting dual-class share structures so that voting control resides with the founder in order to prevent any future activist threat.
Most of these companies may not be publicly- traded for years. Tech giants such as Google (GOOGL) and Facebook (FB) have this dual-class structure, so it's almost certain they won't fall prey to activists.
I believe the word activist is being misused, however, and that confusion clouds the picture between those who are creating long-term value and others who are simply creating short-term gains, but not lasting value.
A good example of the former is ValueAct Capital, a firm that identifies opportunities and works constructively to create value. ValueAct has been doing this for years, compounding money at over 15% per year. While everyone knows that Carl Icahn was, or is, involved with names like Apple (AAPL), eBay (EBAY), and Family Dollar (FDO), few are aware that ValueAct is involved in positions such as Microsoft (MSFT) and Armstrong World Industries (AI). ValueAct simply prefers to work directly and quietly and deliver results year after year.
Today's investment world is awash in cash and nowhere to put it except equities. Such an environment makes it tempting for someone with lots of idle cash to take a position in a business and agitate for change that will only lead to a short-term gain in the stock price. I would not get too excited about such a proposition. More often than not, the activist has already reaped his reward by the time most other investors pile in.
If you consider the history of investing and the most successful investors, the names that surface are not activist types, but those who have benefited from the long-term compounding machine of the stock market. Don't confuse what I'm saying as a complete branding of activists.
There are many companies that are being mismanaged for shareholders. The activist investor has played a valuable service to the shareholders of these companies. But unless you are one of them, your investment activities are better spent finding quality businesses that can compound your capital over and over.
