Activist Investing 101

When thinking about Activist Investing, you might get the picture in your head of a protester sitting at a desk.  That’s not really the case.

Activist investing sounds a lot stranger than it is, but really it’s a smart business practice.  The basic principal is investing a large amount of money into a company in order to become a factor in key company decision-making.  It is a great way to find companies with high potential and turn them into well-oiled money making machines.

Carl Icahn is credited with being the pioneer of this financial practice during the 1980s.

Although some perceive Activist Investing to be a code word for hostile take over, this is often not the case.  Rather activist investors see companies that could be doing better, but because of mismanagement, inexperience or a host of other reasons are not reaching their full potential and success.  Activist investors invest money into these firms in order to have their voice heard, and are often backed by other sharp financial people, such as money manager Gregg Hymowitz of EnTrust Capital in New York City.

There are other reasons to become an activist investor besides trying to help companies improve their financial status.  There are activist investors who use their money and voice within a company to sway it’s politics and social leanings, for example convincing a company to sever it’s ties to a foreign country or back a certain position on a domestic issue.

It’s not just small companies that have benefitted from activist investing.  Hess, Apple, and Pepsi have all been benefactors of having hands on activist investors.

What was once thought to be ‘corporate raiding’ has been seen as a positive benefit to businesses.  It’s used today, and it will keep going as long as it is successful.