An activist investor’s goal is to gain influence in the leadership of a particular company by buying a large amount of the company’s stock.
The activist investor wants to improve the management and operations of the targeted company in order to increase its value and share price. Generally, an activist investor is a high net worth individual or someone who runs a hedge fund like Bill Ackman or Carl Icahn, two of the most famous activist investors, also known for their rivalry on Herbalife company.
When an investor acquires more than 5% of a company’s outstanding shares, he’s required to file the Schedule 13D with the SEC (Securities and Exchange Commission) and that can signal to other investors that the company may be targeted by an activist investor. The activist investing is kind of an aggressive form of value investing.
The value investor focuses on buying good, undervalued companies based on fundamentals in expectation of the share price increasing in the future.
The activist investor, on the other hand, wants to directly participate in the change of a company’s management to apply certain changes and pursue different strategies to improve the overall company.
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