Prem Watsa On Activist Investing
Prem Watsa from his 2015 Fairfax Holdings annual letter:
This is a major advantage for Fairfax in today’s world of corporate activism and short termism. Companies are being destroyed, quite often, by the short term focus of corporate activists who, in order to make a quick profit for themselves, aggressively demand that companies sell divisions or cut costs indiscriminately, or get taken over!
This activity is anathema to us and gives business a bad name. We will never take part in it! Of course, this does not prevent companies that we have invested in experiencing these problems. Recently, we saw it with Sandridge, an oil and gas company run by its founder, Tom Ward. Some activists got together and removed Tom as CEO at precisely the wrong time.
Tom was one of the few CEOs in the oil industry who, at our urging, had hedged the price of oil for about three years at approximately $90 per barrel. While we will never know, Tom, with his entrepreneurial instincts, may have hedged more of his oil production and survived the current oil price collapse.
As it is, because of its significant debt position, Sandridge recently stopped paying its interest – and we likely will lose our whole investment. A costly error on our part as we should have sold as soon as Tom resigned!
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