Name: Warren Buffett: The reason activism makes sense
Uploaded: 2015-10-13
Duration: 5 min 1 s
Description: The Oracle of Omaha says activist investors sometimes make sense when the company isn't managed well but says the bulk of activism is all about the money.

[ MUSIC ] Let me switch now to a topic where some people would say we do not have an improved situation and others would say we do have. That has the combined topic of corporate governance and activists. We have seen the number of activists rise. I think you might even start off with a thought that if corporate governance was better, we wouldn't have as many activists. Would that be true? Well if every company would be managed well, there certainly wouldn't be any need for activists There might still be a few, but there wouldn't be any reason for it. But the truth is that at some companies the managers kind of forget who they're really working for. It becomes their own play pen, and at other managements they're sometimes incompetent. Now, We're not saying often. And it's the job of a board, when that occurs, to do something about it, and sometimes they don't. So there's a reason why activism makes sense in certain cases. I don't think the bulk of activism relates to that. The bulk of activism just wants a quick hit. They want the stock to go up next week and At Berkshire I've always said, we run our company for the shareholders who are going to stay and not the ones that are going to leave. And you know, the finest companies in America, many times are selling at a discount for what they are worth that moment. When I bought the Washington Post company in 1973, bought stock in it. It was selling at one fifth of what the properties were worth. Cap cities at the same time was selling at a fifth of what the properties were worth. They were both wonderful companies but the whole market was depressed. And so any time a stock is selling below what could be realized for it, it's not a reason to go out and sell sell the business. The activists want that to happen, and of course they've attracted far more money for management. So what was a relatively small little industry ten years ago has become a big business now. And do, you know they're like sharks, they gotta keep swimming. And So, as the attract more money they have to go after things. They stretch for targets and you know you're seeing that. But, there is a place for them in America. All American businesses are not being run in the interest of their shareholders with really capable management. When that happens change is needed and sometimes boards do it. But other times, they don't. What is your own personal appetite for joining with the activists? Well, it's zero. Zero. Yeah. [ LAUGH ] Publicity. They're after results, to some extent. And they're after attracting more money. I mean, these guys get paid Very often on something that's a fee based on both assets management, assets managed, and performance. And if you can get $ 20 billion under management and you charge 2 and 20, the 20 really doesn't get to be that important. The two is $ 400 million a year. I mean, so Attracting money is enormously important to anybody in the investment business. And different styles become popular from time to time and as soon as they do people rush in to say that's my style. So that they'll attract management. Carol and I had a friend that described Wall Street. In terms of the way it operates as having the innovators, the imitators, and the swarming incompetence. [ LAUGH ] Essentially that's the way money attraction is. I mean, hedge funds started out, they really didn't start out with A. W. Jones, but Carrol made them famous, for starting out with A. W. Jones. [ LAUGH ] And. And once it was, when people assuming good results are attracted with a forum as opposed of the ability of the person running it. They think the forum itself will create wonderful results. Everybody's going to take that forum. And in the last couple years a lot of A lot of forms have disappointed, and when hedge funds have disappointed, and so as forms disappoint, money runs around, and investment people run around promoting some other form, and it becomes the flavor of the day, because there's a lot of money out there, and they're willing to pay a lot of Very high fees for the promise of performance. And you don't really have to ever particularly deliver. I mean, just the promise will last long enough to get you rich, and your children rich, and your grandchildren rich. So it's nice if you perform on top of that. Right now, particularly in the last, I'd say, two years Activism is a saleable form, and therefore it gets sold, and Wall Street sells it. [ BLANK_AUDIO ]

The Oracle of Omaha says activist investors sometimes make sense when the company isn't managed well but says the bulk of activism is all about the money.