Following activist investors has become pretty popular on Wall Street.
For those not familiar with activists, these hedge fund managers resemble the corporate raiders of the 1980s with better manners and a little less junk bond-fueled firepower.
For that reason, they’ve also been compared to pirates.
They buy a stake in a target company and then pressure management to do things that will “enhance shareholder value.”
In layman’s terms, they want a higher stock price, so they want the Board to initiate a massive stock buyback, sell unprofitable divisions or assets, and raise the dividend, or take some other action that will cause the stock price to move higher.
Often the real goal is to get the company to put itself up for sale so the activist can cash out at a significant premium to the current stock price.
As you can imagine, these investors are not real popular with the people running the corporations. Many accuse them of being short-sighted, caring only about how much money they can make and not the good of the company and the people working there.
Others think they keep corporations honest and make them better stewards of shareholder capital. The truth is probably somewhere in the middle.