The Manual of Ideas: The Proven Framework for Finding the Best Value Investments by John Mihaljevic

Author:John Mihaljevic [Mihaljevic, John]
Language: eng
Format: mobi, azw3, pdf
Publisher: Wiley
Published: 2013-07-31T14:00:00+00:00

How Superinvestors Add Real Value to Companies

One of the facts often missed by market participants who view stocks as squiggly lines on a computer screen is that some investors do not simply try to anticipate which way a stock’s price will move. Instead, those investors view themselves as what they are legally—part-owners of a real-life business. As co-owners, investors employ corporate managers. If a CEO is squandering capital on expensive acquisitions or reinvesting in a dying business, shareholders have every right to express their views on capital allocation. If the board of directors is unresponsive, shareholders can attempt to elect their own slate of directors through a proxy fight. If successful, shareholders may decide to fire the CEO or compel him or her to allocate capital in a value-enhancing way.

Most superinvestors view themselves as employers of management, and they are generally not shy about voicing their views on how existing equity value can be unlocked or new value created. For example, shareholders may push management to repurchase undervalued shares, pay a dividend, or refrain from empire-building but value-destructive acquisitions. While investors may be familiar with activists like Bill Ackman and Carl Icahn, many superinvestors prefer to work behind the scenes, quietly cajoling management into doing the right thing.

Prominent examples of superinvestors using their status as co-owners to help companies improve their capital allocation decisions include Warren Buffett at the Washington Post Company, Eddie Lampert at AutoZone, and Ted Weschler at WSFS Financial. In recent years, Bill Ackman became constructively involved with J.C. Penney, and Canadian superinvestor Prem Watsa joined the board of Research in Motion.

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