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How to Read Financial News: Tips from Portfolio Managers

A Dozen Things Charlie Munger has said about Reading

July 26, 2015

9 Comments

1. “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero.”

2. “You’d be amazed at how much Warren reads – at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” 

3. “As long as I have a book in my hand, I don’t feel like I’m wasting time.”

4. “I’ve gotten paid a lot over the years for reading through the newspapers.”

5. “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you.”

6. “For years I have read the morning paper and harrumphed. There’s a lot to harrumph about now.”

7. “We read a lot.  I don’t know anyone who’s wise who doesn’t read a lot.  But that’s not enough: You have to have a temperament to grab ideas and do sensible things.  Most people don’t grab the right ideas or don’t know what to do with them.”    

8. “By regularly reading business newspaper and magazines I am exposed to an enormous amount of material at the micro level.  I find that what I see going on there pretty much informs me about what’s happening at the macro level.”  

9. “Warren and I do more reading and thinking and less doing than most people in business. We do that because we like that kind of a life. But we’ve turned that quirk into a positive outcome for ourselves. We both insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think.”

10. “If you get into the mental habit of relating what you’re reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate some wisdom.”

11. “Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”

12. “I met the towering intellectuals in books, not in the classroom, which is natural. I can’t remember when I first read Ben Franklin. I had Thomas Jefferson over my bed at seven or eight. My family was into all that stuff, getting ahead through discipline, knowledge, and self-control.”

p.s., “Obviously the more hard lessons you can learn vicariously, instead of from your own terrible experiences, the better off you will be. I don’t know anyone who did it with great rapidity. Warren Buffett has become one hell of a lot better investor since the day I met him, and so have I. If we had been frozen at any given stage, with the knowledge we had, the record would have been much worse than it is. So the game is to keep learning.”

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09 August 2016

How to Read Financial News: Tips from Portfolio Managers
By Robert J. Martorana, CFA
Posted In: Economics, Leadership, Management & Communication Skills, Weekend Reads

A portfolio manager once told me that half the research on my desk was a complete waste of time. “Figure out which half is garbage and you’ve just doubled your productivity,” he advised.

His point was that most research is backward-looking rather than predictive. Reading obscure financial information may look and feel like productive work, but most of this content has little chance of leading to better results.

Nevertheless, many of us plow ahead, reading news and research until our eyes turn red. After all, reading is easier than critical thinking, and it may impress people if you are up to date on a wide range of financial subjects.

Rather than reading less, portfolio managers must learn to rapidly detect what is nonsense and move on. It’s a necessary skill when confronted with the hype and sensationalism now masquerading as news: press releases that spin the facts, earnings reports that ignore basic arithmetic, and management explanations that test the boundaries of probability.

It is worse now that investment blogs have embraced the golden rule of tabloid journalism: simplify, then exaggerate. Pseudo news and pseudo analysis clutters the web, making it harder to stay well informed.

Fear sells, fact-checking is passé, misinformation is rampant, and track records of past predictions are irrelevant, according to Jeff Miller, president of NewArc Investments, who blogs at Dash of Insight. He writes extensively about how superficial journalism is shortchanging readers of financial news. Miller suggests focusing squarely on the future since you do not get paid for yesterday’s news.

Unfortunately, you’re pretty much on your own when trying to learn to read financial news effectively. The web is full of articles discussing how to detect political bias, while the professional investment literature discusses how to dissect financial statements. How to skillfully read financial news gets little attention.



Three Questions to Ask
Is the article based on data or opinion?
Is it descriptive of past conditions or predictive of the future?
Does the article have a testable hypothesis?

These are tedious questions to answer, so I asked five of my colleagues for insight on how they separate the signal from the noise.

Best Practices
Understand the Consensus: You need to grasp the conventional wisdom in order to bet against it. This becomes easier once you’ve done the groundwork on a specific investment thesis. After you catch up on the relevant news, you might want to jot it down. Brian Gilmartin, CFA, founder of Trinity Asset Management Inc., does this diligently on Fundamentalis, where he tracks corporate earnings: “I publish for myself — it forces me to organize my thoughts.”
Seek Disagreement: You need to understand the other side of the trade. This means reading opinions that contrast with yours in order to avoid confirmation bias.
Question the Narrative: Reporters are under intense deadline pressure and often frame issues in a way that is confusing or distorted. As Marc Gerstein, director of research at Portfolio123, who blogs at Forbes, said, “Reading too much financial news is counterproductive. The narratives are often incomplete, misleading, or flat out wrong.”
Respect the Data: Charts, tables, and numbers are good places to start for corporate results and economic data. Always check the primary source when possible. “My models are based on data, so I prefer charts to commentary,” Gerstein noted.
Avoid Partisan Interpretation: Turn off your political bias when you read and interpret the news, and be wary of commentators who have political agendas.
Develop Your Own Framework: Before you read the news, you must have your own framework in place for decision-making. Otherwise, you’ll be unduly influenced by what you read. As Ed Stavetski, founder of PCM Partners LLC, put it, “You must have an independent view of the markets or the media will force a view upon you.”

Tips for White Papers

When reading long reports and academic research, reviewing multiple articles on the same topic is better than random reading. To do this, sort content by topic, save papers in folders, schedule weekly reading time when possible, and read in batches.

Dealing with Politics

Effective interpretation must be nonpartisan but does not ignore politics. In fact, some portfolio managers use political interpretation as an edge. Gerstein believes that politics can be a leading indicator because it reflects the mood of the country. “The political eventually determines the economic. It takes a long time to play out, but it eventually works. Listen for the key narratives in the market,” he said.

Stavetski is quick to point out how the media is slow to recognize public anger. It is now conventional wisdom to say that the presidential campaigns of Donald Trump and Senator Bernie Sanders revealed deep discord in the United States, but Stavetski pointed this out in 2015. He likes to read unconventional websites because they “find the potholes first.” These sources may have agendas, but that doesn’t mean they’re wrong. It just means you have to dig through a lot of garbage to find a worthwhile warning sign. This process can serve as a kind of “torpedo alert” for news that is under the radar of the mainstream media.

I like to look for stories that defy the political leanings of a news source. For example, a key turning point was when the Wall Street Journal started reporting on income inequality. This shift in news coverage was followed by broad public attention on the minimum wage and later by margin pressure at certain retailers and restaurants.

What Tools Do I Use?

The list below shows some of my favorite forums but is by no means comprehensive. For more detail, please see the slide deck at the end of this article.

News Aggregators
Abnormal Returns: Consistently excellent links.
Briefing.com: Stock and bond content for portfolio managers.
RealClearMarkets: Many links, small space; a Craigslist for financial news.
The Reformed Broker: Snappy headlines and bold opinions from Josh Brown.

Financial Planning
Retirement Researcher: Wade Pfau, CFA, produces work that is academically rigorous.
Michael Kitces: Practical and prolific, and always a blue shirt.
David M. Blanchett, CFA: More credentials than anyone I know; publishes faster than I can read.

Corporate Earnings
FactSet Earnings Insight: Weekly PDFs with 15 or more charts on aggregate revisions and estimates for the S&P 500. Simple, authoritative, and free.
FactSet Cash and Investment Quarterly: Cash flows, capital spending, debt issuance, and research and development for the S&P 500 (also see Buyback Quarterly and Dividend Quarterly).
Fundamentalis: Gilmartin’s thoughtful, opinionated analysis cuts through the numbers quickly and accurately.

Economics
Dash of Insight: Miller provides exhaustive research on the effectiveness of economic forecasting and a comprehensive weekly outlook.
FRED Dashboard: The US Federal Reserve Economic Dashboard (FRED) allows you to pick your favorite charts and save them in a dashboard. You can then download everything into PowerPoint with the click of a button for client presentations.

Capital Market Assumptions (CMAs)
AQR: “Alternative Thinking: 2016 Capital Market Assumptions for Major Asset Classes”: Deep theory and great writing from Cliff Asness.
JP Morgan: “Long-Term Capital Market Assumptions 2016“: A comprehensive chart pack.

Miscellaneous
Stock screening at Portfolio123: Gerstein knows fundamental research from the bottom up and has an effective, logical, well-documented process.
YCharts: Use the correlation tool to see what’s driving the market.
Portfolio Visualizer: Perform factor analysis of exchange-traded funds (ETFs) and mutual funds to evaluate beta exposures.
feedly: A feed reader to organize your blog content.
Advisor Perspectives: A mix of practical and academically rigorous ideas. Editor Robert Huebscher maintains high standards.
Daily briefing from Convergex: Nicholas Colas and Jessica Rabe provide original and entertaining coverage. Convergex also publishes lengthy guides to world equity markets each quarter.

For more insights, the presentation, “Six PMs Describe How They Read the News,” is available via Scribd.

Robert Martorana, CFA, presented a webinar, “How to Read Financial News More Effectively: Tips from Six Investors,” on 7 September 2016.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©iStockphoto.com/Valeriy Kachaev


Tags: Equity Research, Investment Industry, portfolio management
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About the Author(s)


Robert J. Martorana, CFA

Robert J. Martorana, CFA, has worked on the buy-side since 1985 as a stock analyst, portfolio manager, research director, financial advisor, and editor of a hedge-fund website. In 2009, Martorana founded Right Blend Investing, a fee-based RIA that manages individual portfolios and does consulting for the asset management industry. Since 2011, Martorana has published over 1,000 pages of contract research, and he is co-author of Alts Democratized by Wiley Finance.

37 thoughts on “How to Read Financial News: Tips from Portfolio Managers”
Chris Heller says:
9 August 2016 at 12:41

Great stuff, very practical. I appreciate the insight.
Reply
Robert J. Martorana, CFA says:
9 August 2016 at 16:11

Chris,
Thanks–I hope you liked the slide deck. There’s a lot more there that we’ll discuss in the webinar.
Rob
Reply
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Jeff says:
10 August 2016 at 00:43

Thanks for the insight. I always find myself at odds between news /blogs and Press releases published by companies themselves- I often feel that both are rather superficial sources of information
Reply
Robert Martorana says:
10 August 2016 at 07:42

Jeff,

Thank you.

Companies have a lot of leeway in news releases, especially when it comes to non-GAAP accounting. As for news and blogs, I look for writers that link back to the original data, and who provide history and context. There ARE some reliable sources out there, and I prefer to read those deeply (rather than read widely).

The danger with reading a lot of news is that it fills your head with narratives that simply are not true. It’s like walking through a carpentry shop: You’re going to get covered in sawdust, so I try to limit my exposure.
Rob
Reply
Kashif Veerani says:
10 August 2016 at 03:17

Brilliant article, Amazing and superb! So very true also!
Reply
Robert Martorana says:
10 August 2016 at 07:43

Kashif:
Thanks.
I give kudos to my peers, industry veterans who each have 30+ years in the business.
Rob
Reply
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brooke southall says:
10 August 2016 at 14:43

You blast “blogs” then cite a blog as you key source for this article!

“It is worse now that investment blogs have embraced the golden rule of tabloid journalism: simplify, then exaggerate. Pseudo news and pseudo analysis clutters the web, making it harder to stay well informed.

“Fear sells, fact-checking is passé, misinformation is rampant, and track records of past predictions are irrelevant, according to Jeff Miller, president of NewArc Investments, who blogs at Dash of Insight.”

Robert, I fear you have fallen into the same trap you advise us to avoid.
Reply
Kashif Veerani says:
10 August 2016 at 15:07

“FEAR SELLS! ” (Contrarian!)

warmest regards everyone!
Reply
Robert J. Martorana, CFA says:
11 August 2016 at 14:52

Brooke,

Thanks for pointing that out–I regret any confusion.

I should have said “…MANY blogs have embraced the golden rule of tabloid journalism…” Likewise, many newspapers and journalists have embraced tabloid standards, so we have to read carefully.

BTW, I’m a fan of your work at RIAbiz.

Rob
Reply
Chinedu Madiebo says:
11 August 2016 at 17:41

The article is amazing. How can I get updates of any of your published works as they are released.
Reply
Robert J. Martorana, CFA says:
13 August 2016 at 10:59

Chinedu,
Please send me an email: Rob@RightBlendInvesting.com.
Thanks.
Rob
Reply
Kouadio Madou Serge says:
20 December 2017 at 04:13

I want to have up date to your published works this is very help .
Reply
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Prachi says:
19 August 2016 at 14:12

Helpful article for beginners 🙂 Greta stuff !
Reply
Kashif Veerani says:
20 August 2016 at 02:53

You know its a fact as I read in a book on Warren Buffet that he still makes notes, (as I recall correctly) and has that long term “fundamentalist” view about “excellent long term stock returns” versus “garbage stocks”….I guess the Omaha Oracle was “one of first practitioners” (not the first) to read the financial news and derive sensible conclusions from it! Any comments, gentlemen.
Reply
Kashif Veerani says:
20 August 2016 at 02:59

and Oh yes Rob…..Can I also use the same email address given above (@RightBlendInvesting) to get updates on your published works as they are released

Thanks & Regards
Reply
Robert Martorana says:
22 August 2016 at 15:52

Kashif,
Yes, that email is fine. I’ll send you a list of my links and publications.

I also recommend the lessons about behavioral finance from Amos Tyversky and Daniel Kahneman. For example, three key biases are anchoring, representativeness, and availability (what you have is all there is). “Thinking Fast and Slow” is an excellent introduction.
Rob
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Vijay Kapoor says:
18 July 2017 at 09:03

Reading is always beneficial if a person could take the good from it or it proves to be a source of knowledge for them. Reading useful information can help in making better strategies. The tips given here for portfolio manager are really helpful thanks for sharing.

 

Link: https://blogs.cfainstitute.org/investor/2016/08/09/how-to-read-financial-news-tips-from-portfolio-managers/

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Renewable hydrogen ‘already cost competitive’, say researchers

RENEWABLES
25 February 2019
Renewable hydrogen ‘already cost competitive’, say researchers





Electrolysis facility. Credit: Sunfire GmbH, Dresden/renedeutscher.de

RENEWABLES
25 February 2019 16:00
Renewable hydrogen ‘already cost competitive’, say researchers



JOCELYN TIMPERLEY25.02.2019 | 4:00pm
RENEWABLESRenewable hydrogen ‘already cost competitive’, say researchers




Hydrogen produced using renewable electricity is “already cost competitive” in niche applications, a new paper says, adding that it is likely to match industrial-scale alternatives in about a decade.

The research, published today in Nature Energy, contrasts with other work on renewable hydrogen, which has found it would be prohibitively expensive compared to the alternatives.

The study shows that policymakers “should not ignore hydrogen” in the discussion on how to move to a renewable energy system, the lead author tells Carbon Brief.
Low-carbon hydrogen

Hydrogen is seen as a potentially important low-carbon replacement for natural gas (predominantly methane) in the energy system, alongside the roll-out of renewable electricity.

It could be used to reduce emissions from industrial processes that need gas to create high temperatures, such as steel production. Or it could replace natural gas in homes already connected to the gas grid, with some modifications to boilers, pipes and hobs.

For high-latitude countries, such as the UK, where gas use peaks during the cold winter months, seasonal energy storage would also be needed to complement a highly renewable energy system. Low-carbon hydrogen offers one solution for this problem, too.

There are two main ways to make low-carbon hydrogen. The first builds on existing production methods where natural gas is “reformed” into hydrogen and CO2. Adding carbon capture and storage (CCS) means this CO2 would not be released to the atmosphere, though this is unlikely to avoid 100% of emissions.

The second route is via electrolysis of water using low-carbon electricity. However, this is currently thought to be a more costly alternative than the fossil-fuel-with-CCS route. (Other possible ways of producing hydrogen, such as “thermochemical water splitting” and artificial photosynthesis, are at earlier stages of development).

Many energy experts remain sceptical that large-scale renewable hydrogen will ever be viable at a low cost.

The potential for using renewable hydrogen in the UK is “limited” due to its low efficiency, the UK government’s climate advisors, the Committee on Climate Change(CCC), recently concluded. Only a “selective” rollout of hydrogen produced from gas with CCS had a potentially important role in cutting emissions, it said.
Falling costs

Today’s paper challenges this view. It finds that hydrogen produced using wind power in Germany and Texas is already cost-competitive for small- and medium-scale users of the gas, who generally pay more for the material.

It adds that renewable hydrogen will become competitive with current large-scale industrial supplies from fossil fuels in the next decade or so. This is due to the falling cost of wind energy and the electrolyser technologies used to convert it to hydrogen, it says.

The overall cost reduction is shown in the chart below. Renewable hydrogen is currently economically viable – meaning it could, in some cases, provide a higher return to investors than investing in a renewable power plant without hydrogen – if it is sold for at least $3.23 per kilogramme (kg) in Germany and $3.53/kg in Texas, according to the paper.


Calculated “break-even price” of renewable hydrogen for Germany (left) and Texas (right) compared to benchmark prices for hydrogen supply from fossil fuels not using CCS. For Germany, this assumes a waiving of the requirement for subsidies that renewable electricity be fed into the grid. The peak in 2020 for Texas is due to a phasing out of the production tax credit (PTC), a fixed credit per kWh of produced electricity. Source: Glenk & Reichelstein (2019).

It should be even more favourable to produce renewable hydrogen in the UK than in Germany, says Gunther Glenk, doctoral candidate at the Technical University of Munich(TUM) and lead author of the paper. This is because the UK is windier than Germany. He tells Carbon Brief:

“Basically, the higher the wind intensity, the cheaper the cost of obtaining electricity from wind. And that is an important factor in the whole equation.”

It is worth noting that these results show renewable hydrogen is competitive with fossil-fuel hydrogen production, even when the latter does not include CCS. Glenk says:

“CCS is another major cost barrier for hydrogen produced from fossil fuels. So I just don’t see the case for it.”

However, the paper’s assumptions may not be directly transferable to the UK situation, says Dr Daniel Scamman, senior research associate at University College London’s Energy Institute, who was not involved in the study. He tells Carbon Brief:

“Their costs are lower than in some other studies as they assume the wind turbines qualify for a production subsidy, that the electroyser can be shrunk to increase utilisation and that the plant benefits to some extent from off-peak prices. These assumptions may not be applicable in all situations and their results may not be directly transferable to the UK.”
Economically viable?

There are several reasons why the paper reaches a favourable conclusion for hydrogen produced from renewables.

First, it finds recent improvements in electrolysers – the technology used to convert electricity and water to hydrogen – mean costs have fallen substantially. The paper performed a cost review of electrolyser technologies from a wide variety of sources, including manufacturers, plant operators, scientific journal articles and other reports.

The efficiency of the conversion from hydrogen to electricity has also improved, Glenk says.

Second, the study bases its results on plants with the “optimal capacity size” of both the renewable source and the accompanying power-to-gas electrolysis facility, says Glenk.

For example, if a wind turbine on average produces only around 30% of its peak power output, any power-to-gas facility built alongside it should use at most this amount of power: any larger would be a waste of money.

The extent to which electricity prices fluctuate also needs to be take into account when deciding how large – and, thus, how expensive – a power-to-gas facility should be, Glenk adds.

Facilities can now be operated in near-real time, allowing them to optimise the system by giving them more control over whether to sell electricity to the grid or use it to produce hydrogen, he adds. He tells Carbon Brief:

“I’ve actually never seen both optimisations in real-time operation and in capacity sizes in any other study.”

Third, the paper assumes that wind energy will get much cheaper over time. It assumes the price of buying new wind turbines falls by 4% per year, roughly halving between now and 2030. It also assumes their capacity factor – the actual electricity produced compared to the maximum possible – increases by 0.7% per year.

All this means the “levelised cost of electricity” from wind in Germany would fall from €54 per megawatt hour (MWh) today to €33/MWh in 2030, with similar reductions for Texas.

Another recent academic review of the role of hydrogen in a low-carbon economy – on which Scamman was one of the authors – concluded that falling electrolysis costs and altered national regulatory frameworks could render power-to-gas profitable within 10 to 15 years.

In contrast, the CCC report argued wind generation would need to fall to less than £10/MWh for renewable hydrogen to be competitive with the fossil-fuel-plus-CCS alternative. It said renewable hydrogen might be competitive in countries where solar power is very cheap.
Cheaper than thought

This view of hydrogen costs, along with other factors, led the CCC to recommend a cautious and “selective” approach to using the fuel. Yet today’s findings suggest renewable hydrogen could be much cheaper than previously thought. Scamman tells Carbon Brief:

“This study is part of a growing body of literature arguing that the falling cost of renewables combined with the significant cost reduction potential of power-to-gas technology could lead to much cheaper electrolytic hydrogen production than many have previously thought…

“In their report, the CCC expressed concern that there would be enough low-cost, low-emission hydrogen to make much of a contribution to the UK’s decarbonisation effort. This study helps build the argument that substantial reductions in the cost of electrolytic hydrogen are possible and that hydrogen could end up playing a bigger role in a low-carbon UK energy system than many currently think.”

But cost is not the only reason some are cautious about hydrogen, Scamman notes. There is also a limit to the amount of renewable capacity that can be built in the time available to meet the UK’s climate goals. He also points to the energy losses during the electrolytic conversion process, as well as doubts over how quickly an international market in low-carbon hydrogen might develop.

“This paper helps address the first concern, but not the others. Efficiency losses do mean that renewable electricity should be used as electricity where possible,” Scamman says. “However it’s cheaper to store bulk hydrogen than electricity – particularly for seasonal storage – and hydrogen may be required to decarbonise some sectors including heavy-duty transport and industry where electricity is less suitable. History has shown that renewable deployment can occur faster than some expect. Likewise for the development of international markets.”

As the CCC hydrogen report notes, large-scale production of hydrogen from electrolysis in the UK would imply “extremely challenging” build-rates for low-carbon capacity by 2050.
Policy outcomes

The new findings show that policymakers “should not ignore hydrogen” when considering how to move to a renewable energy system, says Glenk.

“It’s already competitive today if you do the calculations right, and it will become even more so even before 2030,” he says.

However, in some countries, systems which support the uptake of renewables will need to be adapted to ensure renewable hydrogen is also credited, says Glenk. Policymakers could also consider bringing in specific subsidies to accelerate the transition to hydrogen, he adds.

Hydrogen is “the single most important remaining question in the energy transition”, energy commentator Chris Goodall tells Carbon Brief in response to the paper. He adds:

“Cost competitive hydrogen from renewables makes full decarbonisation possible through power-to-gas and power-to-liquids.”
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What is an Activist Investor

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Activist Investor

REVIEWED BY WILL KENTON

 

 Updated Jul 20, 2018

What is an Activist Investor

An activist investor is an individual or group that purchases 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 within the company. A company can become a target for activist investors if it is mismanaged, has excessive costs and 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.

BREAKING DOWN Activist Investor

Private equity firms, hedge funds and wealthy individuals are types of entities that might decide to act as activist investors. One indication that a company may have become a target for activist investors is the filing of SEC Form 13D, which must be filed when an investor purchases 5% or more of a company's shares.

Many well-known activist shareholders, such as Carl Icahn and Nelson Peltz, engage in their business activities through their holding companies or hedge funds.

Carl Icahn

Carl Icahn is the founder of Icahn Enterprises, a diversified holding company that owns many of the investments that Icahn makes. In the past, Icahn has taken positions in companies such as Yahoo Inc., Netflix Inc. and the Clorox Company. One of Icahn's more notable investments was in Apple Inc. He bought 4.7 million shares of the company and pushed for a $150 billion share buyback. On June 27, 2016, Xerox Corporation announced it was putting an Icahn associate on its board of directors.

Bill Ackman

Bill Ackman is the founder and chief executive officer (CEO) of the Pershing Capital hedge fund. Pershing has taken positions in Target Corporation and Wendy's Company. Ackman's more well-known moves include a short position in Herbalife Ltd. and his big bet on troubled drug company Valeant Pharmaceuticals International Inc. In 2003, Ackman partnered with Icahn for shares of Hallwood Realty, a deal that resulted in Ackman suing Icahn over profits from the share sale.

David Einhorn

David Einhorn is the founder and president of Greenlight Capital, a hedge fund he's managed for 20 years. Two of Einhorn's more well-known plays include shorting Lehman Brothers and Allied Capital Corporation. In May 2016, Einhorn announced that Greenlight had taken a $60 million stake in Yelp Inc.

Dan Loeb

Dan Loeb is the founder of the $10 billion hedge fund Third Point Partners. In 2012, Loeb took a position in Yahoo and eventually gained a seat on its board of directors. In 2013, Loeb announced that his company was the largest shareholder in Sotheby's. Third Point also has sizable positions in Baxter International Inc. and Ligand Pharmaceuticals Inc.

Link: https://www.investopedia.com/terms/a/activist-investor.asp

Activist shareholder

Activist shareholder
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An activist shareholder is a shareholder that uses an equity stake in a corporation to put pressure on its management.[1] The goals of activist shareholders range from financial (increase of shareholder value through changes in corporate policy, financing structure, cost cutting, etc.) to non-financial (disinvestment from particular countries, adoption of environmentally friendly policies, etc.).[2] According to research firm Activist Insight, a total of 922 listed companies globally were publicly subjected to activist demands in 2018, up from 856 in 2017.[3]

A fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign. In comparison, a full takeover bid is a much more costly and difficult undertaking.

The financial form of shareholder activism has gained popularity as management compensation at publicly traded companies and cash balances on corporate balance sheets have risen. Not only are the aggregate dollars invested in the activist asset class continuing to grow, but activists are also generating significant positive attention from mainstream media by taking more sophisticated approaches to identifying their platforms and running their campaigns.[4] Once derided as corporate raiders, shareholder activists are now the recipients of admiration for sparking change in corporate boardrooms, leading to corporate boards developing best practices for responding to shareholder activism.[5] Activists increasingly are transitioning from outside agitators to influential insiders. In fact, some well-established activists were able to secure board seats without running a proxy contest in 2015.[6]

Shareholder activists are making their mark on M&A activity as well – a 2015 survey of corporate development leaders found that 60% of respondents saw shareholder activism affecting transaction activity in their industry.[7] Increasingly, however, the non-financial form of shareholder activism is affecting companies in a range of sectors. Shareholders, often with a comparatively small stake in a company, are seeking to influence the company's environmental and social performance.[8]

Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management. Daniel Loeb, head of Third Point Management, is notable for his use of sharply written letters directed towards the CEOs of his target companies.

Some of the recent activist investment funds include: California Public Employees' Retirement System (CalPERS),[9] Icahn Management LP, Santa Monica Partners Opportunity Fund LP, State Board of Administration of Florida (SBA),[10][11][12][13] and Relational Investors, LLC.

Due to the Internet, smaller shareholders have also gained an outlet to voice their opinions. In 2005, small MCI Inc. shareholders created an online petition to protest the MCI/Verizon merger.


Contents
1History
2Notable investors
3Notable scholarship
4Performance
5Socially responsible investing
6Research
7See also
8References
9Further reading
History[edit]

Replica of an East Indiaman of the Dutch East India Company/United East Indies Company (VOC).
Further information: Dutch East India Company

The practice of shareholder activism has its roots in the 17th-century Dutch Republic, with pioneering activist shareholders like Isaac Le Maire, a sizeable shareholder of the Dutch East India Company (VOC).[14][15][16][17][18][19]
Notable investors[edit]

During the 1980s, notable activist investors such as Carl Icahn and T. Boone Pickens gained international notoriety and were often perceived as "corporate raiders" for acquiring an equity stake in publicly owned companies, like Icahn's investment in B.F. Goodrich, and then forcing companies to take action to improve value or rid themselves of rebel intruders like Icahn by buying back the raider's investment at a fat premium, often at the expense of the other shareholders.

In an Opalesque TV interview with notable activist investor Phillip Goldstein of Bulldog Investors, Goldstein describes the role of an activist investor as that of a catalyst unlocking value in an underlying security. He goes on to say that the public perception of activist investors has changed, and this image of "corporate raiders" has dissipated.[20]

Notable activist investors:[21][not in citation given]
Isaac Le Maire (1609)
Carl Icahn
Nelson Peltz
Bill Ackman
Daniel Loeb
Barry Rosenstein
Ralph V. Whitworth
Kirk Kerkorian[22]
Warren Lichtenstein
Alexey Navalny
Stephen Mayne
T. Boone Pickens, Jr.
Phillip Goldstein
Theo Botha
David M. Webb
Guy Wyser-Pratte
D. Kyle Cerminara

A list of institutional activist investors in the United States that filed appropriate disclosure forms with the SEC within the most recent 12 months, can be found on Fintel.[23]
Notable scholarship[edit]

New research published at The University of Oxford revisits the assumption that all shareholder activism is the same, characterizing Bill Ackman's activities with Canadian Pacific Railway as paradigmatic of "engaged activism" – which is longer term in nature with correlated benefits to the real economy, as distinct from shorter term "financial activism".[24]
Performance[edit]

Taking an activist approach to public investing may produce returns in excess of those likely to be achieved passively. A 2012 study by Activist Insight showed that the mean annual net return of over 40 activist-focused hedge funds had consistently outperformed the MSCI world index in the years following the global financial crisis in 2008.[25] Activist investing was the top-performing strategy among hedge funds in 2013, with such firms returning, on average, 16.6% while other hedge funds returned 9.5%.[26]
Socially responsible investing[edit]

Organizations such as the Interfaith Center on Corporate Responsibility (ICCR), As You Sow and Ceres use shareholder resolutions, and other means of pressure, to address issues such as sustainability and human rights.
Research[edit]

Shareholder activism directed at both European and American companies has been surging.[27] Numerous[which?] studies try to examine firm characteristics that lead to shareholder activism.[citation needed] A seminal[dubious – discuss][citation needed] work in the field was brought forward by Michael Smith in 1996 in an article published in the Journal of Finance.[28] Researchers also try to understand what makes company a desirable target for an activist investor.[29] Lately,[when?] both scholars and practitioners started using machine learning methodologies to predict both targets and activists.[30]
See also[edit]
Board of directors
Corporate governance
Corporate raid
Proxy statement
Shareholder rebellion
Socially responsible investing
References[edit]

^ Reasonable Investor(s), Boston University Law Review, available at: http://ssrn.com/abstract=2579510
^ Carried Interest: "Activist Investor Definition" [1]. Retrieved 17 July 2015.
^ "The Activist Investing Annual Review 2019". www.activistinsight.com.
^ Grossman, Richard; Arcano, Stephen. "Navigating Today's Shareholder Activism Landscape". Transaction Advisors. ISSN 2329-9134. Archivedfrom the original on 2014-11-08.
^ Golden, Peter; Richter, Philip; Schwenkel, Robert; Shine, David; Sorkin, John; Weinstein, Gail. "Shareholder Activism in M&A". Transaction Advisors. ISSN 2329-9134. Archived from the original on 2014-11-09.
^ Gerber, Marc. "US Corporate Governance: Have We Crossed the Rubicon". Transaction Advisors. ISSN 2329-9134. Archived from the original on 2016-06-05.
^ Ruggeri, Chris; Kirschner, Ken; Blanchard, Tony. "Corporate Development Strategy: Thriving in your Business Ecosystem". Transaction Advisors. ISSN 2329-9134. Archived from the original on 2017-02-02.
^ Cundill, Gary (2017). "Non-financial shareholder activism: a process model for influencing corporate environmental and social performance". International Journal of Management Reviews. 20 (2): 606–626. doi:10.1111/ijmr.12157.
^ Forbes: "Calpers Votes Against Jamie Dimon, Again" "Archived copy". Archived from the original on 2016-03-04. Retrieved 2017-08-23.. Retrieved June 28, 2013.
^ Eric, Finseth (2011). "Shareholder Activism by Public Pension. Funds and the Rights of Dissenting. Employees under the First Amendment" (PDF). Harvard Journal of Law & Public Policy. 34 (1): 289–366. Retrieved 28 June2013.[permanent dead link]
^ ProxyDemocracy.org: "FLORIDA SBA" "Archived copy". Archived from the original on 2013-05-11. Retrieved 2013-06-28. Retrieved June 28, 2013.
^ State Board of Administration: "SBA Corporate Governance Principles & Proxy Voting Guidelines" [2][permanent dead link] Retrieved June 28, 2013.
^ Harvard Law School Forum on Corporate Governance and Financial Regulation: "Florida SBA Supports Proxy Access and Advisory Firm Transparency" "Archived copy". Archived from the original on 2014-08-01. Retrieved 2013-06-28. Retrieved June 28, 2013.
^ Frentrop, Paul (2009). The First Known Shareholder Activist: The Colorful Life and Times of Isaac le Maire (1559–1624), in Frentrop/Jonker/Davis 2009, 11–26
^ Frentrop, Paul; Jonker, Joost; Davis, S. (ed.), (2009). Shareholder Rights at 400: Commemorating Isaac Le Maire and the First Recorded Expression of Investor Advocacy (The Hague: Remix Business Communications, 2009)
^ Gelderblom, Oscar; De Jong, Abe; Jonker, Joost (2010). Putting Le Maire into Perspective: Business Organization and the Evolution of Corporate Governance in the Dutch Republic, 1590–1610, in J. Koppell, ed., Origins of Shareholder Advocacy. (New York: Palgrave Macmillan)
^ McRitchie, James (6 Oct 2011). "Will UNFI Go Virtual-Only Again? Not if Shareowners Just Say No". CorpGov.net. Archived from the original on 2016-06-25. Retrieved 28 Dec 2016.
^ Mueller, Dennis C. (ed.), (2012). The Oxford Handbook of Capitalism, p. 333. (New York: Oxford University Press)
^ Hansmann, Henry; Pargendler, Mariana (2013). The Evolution of Shareholder Voting Rights: Separation of Ownership and Consumption. (Yale Law Journal, Vol. 123, pp. 100–165, 2014)
^ "Phil Goldstein: The Bulldog's passion for value investing". Opalesque TV. 21 Jan 2011. Retrieved 15 Jul 2018.
^ Carried Interest: "Activist Investors". Retrieved 6 May 2015.
^ "Takeover Bids for Chrysler, GM, Ford" Kirk Kerkorian#Automobile industry. Retrieved July 12, 2012.
^ "Activist Investors – The Complete List". Fintel.io. Archived from the original on 5 October 2017. Retrieved 15 September 2017.
^ Rojas, Claudio. "Eclipse of the Public Corporation Revisited: Concentrated Equity Ownership Theory". The University of Oxford. Archived from the original on July 28, 2017. Retrieved June 27, 2017. ("A common misconception, that all shareholder activists are focused on short-term returns, is rooted in an antiquated phase in US capital markets history – particularly, the highly opportunistic transactions of 1980’s ‘corporate raiders’. In recent years, however, shareholder activism has noticeably shifted towards longer-term value creation."
^ Activist Insight: "New Shareholder Activist Index Reveals Rewards of Activist Investing" "Archived copy" (PDF). Archived (PDF) from the original on 2015-06-23. Retrieved 2012-12-12.. Retrieved December 12, 2012.
^ Wood, John; Dysart, Theodore. "Assessing the Merits of an Activist Investor's Point of View". Transaction Advisors. ISSN 2329-9134. Archived from the original on 2015-07-23.
^ "20 Places You Should be Sharing Your Content". 2018-06-14.
^ Smith, Michael P. (1996). "Shareholder Activism by Institutional Investors: Evidence from CalPERS". The Journal of Finance. 51: 227–252. doi:10.1111/j.1540-6261.1996.tb05208.x.
^ Logsdon, Jeanne M.; Van Buren, Harry J. (2008). "Justice and Large Corporations". Business & Society. 47 (4): 523–548. doi:10.1177/0007650308316524.
^ "Shareholder Activism: Wir sagen voraus wen es trifft!".
Further reading[edit]
Icahn calls for Time Warner breakup, buyback / CNNMoney.com
Third Point Management's letter to Star Gas CEO, Irik Sevin
Qwest Withdraws from Bidding – Denver Business Journal / MCIpetition.com
Academic Literature Summary
The Rise of Activist Investing and How to Respond
A&M Activist Alert
Predicting Shareholder Activist Targets, Nordantech.com