The Pros And Cons Of Activist Investing

Activist investing has been a strategy of a number of shareholders to amass power in a company. They buy stock and look for ways to replace management. Billionaire Carl Icahn is one of the most famous activist investors today.

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There are naturally pros and cons to activist investing. Below are some of them.

PROS

Activist investors control management.

Shareholders normally don’t have that much on an influence on management. As such, the direction of the company isn’t really in the hands of shareholders. Activist investment means that investors can see their vision of the company come to fruition. Management has the choice to either follow them or be replaced.

Activist investors bring in new ideas.

New investors can come in and shake up the entire company with new ideas. While traditional practices will still be observed (for the most part), activist investors may have ideas that could lead to the expansion and growth of the company.

CONS

There might be problems when it comes to selling.

There are times when activist investors buy huge amounts of stock. This may drive up the share price. But when the time comes to sell the shares, the precedent increase may result in a plummeting of stock prices.

Activist investors prioritize themselves.

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Many firms have fallen into the trap of allowing activist investors to buy huge stocks and expect something in return, or perhaps a natural concern for the company. But because of the huge amount of investment activist investors pay for, what they expect is to get back the investment at any cost.

Jon McKee Queen is an expert manager, trader, and investor currently working with private equity firm Amatex Capital. The firm was founded in 2015 with the goal to explore unique investment and arbitrage opportunities in Ukraine. The team has experts in corporate finance, investment banking, and legal matters with decades of experience in Ukraine. Amatex Capital practices the American-style investment strategy of 'activist investing' that brings about significant improvements to the assets in which they invest. For similar reads, visit this blog.