Shmegeggie Foot Massagers has been around forever. Great grandpappy Elmo (Spanish for “The Mo”) sold them to the US army after long marches through the Ardennes in the first war to end all wars. The soldiers then bought them when they got home, and consumers followed suit. The company was so successful that it didn't need to be all that efficiently run.
It went public in 1965, and was a good stock for a while. Then, in the early 1990s, the company didn’t adopt to the new world of internet distribution and robot manufacture, so the stock languished. It remained the same price in 1995 that it was some two-plus decades later. During that same period, the overall stock market went up almost 500 percent, and Shmegeggie’s primary competitor, Pied a Terrible, went up 800 percent, stealing loads of market share from Shmeg.
Since this company was public and largely now owned by the public, the public had the right to have a say in how the company was managed. Endless angry letters were sent to the CEO, Elmo IV, Jr., direct descendent of Pappy Elmo the founder. Those letters were ignored. More letters followed to the board. Ignored. Then finally, a set of activist investors decided that it was time to step in...ironically, on comfortably massaged feet, courtesy of Shmegeggie.
The activist investors simply coalesced all of the common stock shares that they could find, and when the next board election came, where 3 of 11 director seats were to be voted on, the activist investors elected their own slate, or group of directors, who would begin to force the company to behave more like a shareholder-friendly, profit-seeking one, instead of a make-work project for the progeny of Pappy Elmo to simply take a salary and make tens of thousands of sore feet relatively happy.
In fact, the activism here was pretty common in situations like this...fat companies who didn’t streamline and adapt. And there is a whole cadre of lawyers who do little other than chase companies earning 20 cents a share when they should be earning a dollar. Activist investing has become so common that it is almost an industry or investment strategy unto itself now. And that’s a good thing, because some of those fat companies could stand to lose a pound or two.
Related or Semi-related Video
Finance: What are Active Investing and A...4 Views
Finance a la shmoop.. what are active investing and active management? Active
doing something, active as in trying to beat the market by trading stocks active [People riding a bike on stock market appears on board]
as in humans making decisions often with the help of computers trying to beat
their index or the overall market ie the S&P 500 that's what we mean by the
market active; investing.. active; management okay
passive just passive.. active is what hedge funds and mutual funds and any
kind of funds that have a strategy do they actively try to invest money such
that the performance of their portfolio does better than whatever index or
benchmark it's measured against and notice were not talking about after-tax [Man discussing active investments]
performance here because remember every time you trade in a taxable account
while the attacks men cometh but we won't go there right now..... Your benchmark
compare is versus the S&P 500 and you manage a broadly based mutual fund the
passive investing cousin in this investment is an index fund think ticker
SPY, that's the biggest S&P 500 index fund well index funds are not actively
managed they are passively managed they just sit there and get tweaked a little [Pile of money grows larger overnight]
bit each year or really each quarter to kind of mirror the S&P 500 or whatever
their index is supposed to mirror but they just kind of sit there there's no
human trying to beat the market they are the market index funds are the
market and yeah 99% of actively managed funds don't beat the market over any
extended period of year like five or ten years very few ever beat the market and
essentially none of them beat the market after taxes so then why would someone
invest in an actively managed mutual fund when they're paying taxes and
they're thinking about an index fund as a comparable well basically they're one [Mutual funds on a table and a lollipop appears]
of these so yeah don't be one of these guys
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