Q: Are activist investors worth following?
A: “Whale watching” is popular with some investors. Regulatory filings will show you what large and well-known investors - including hedge funds - are buying or selling. But don’t assume the “smart money” is always right.
One of the best examples showing how even big-time activists aren’t always right is Bill Ackman of Pershing Square. The hedge fund manager is trying to explain why one of his major investment vehicles has lost a quarter of its value in the first quarter. Ackman bet big on drug company Valeant Pharmaceuticals (VRX), which is down 66% so far this year.
That’s not to say activists are all bad for investors. There was a roughly 6% jump in stock prices around the time activist investors have said they’re getting involved, according to a study of data between 1994 and 2007 by Duke University, Harvard Law School and Columbia Business School. These companies also showed higher returns on assets five years after being targeted by activists. Activists aren’t showing any signs of letting up - five companies in the Standard & Poor’s 500 are 15% or more owned by activists, says S&P Global. But investors should know that doesn’t mean they’ll be right.
USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.
