The basic issue is that right now everything is dumb. You can complain about that, or you can embrace it. In investing in 2021, “my channel checks and fundamental modeling suggest that this company will grow earnings faster than the market expects so I will buy it with a price target 20% above today’s price” might sound smarter than “this company’s chief executive officer just tweeted a picture of a dog at Elon Musk so I’m going to buy out-of-the-money call options expiring Friday because the stock will go up 200% today,” but the latter approach happens to work better right now.
This is all well and good if you’re a retail investor on Reddit; you just buy the right memes at the right time and get rich. (This is really, really not investing advice!) You are essentially a passive observer; your job is to notice which companies are doing the dumbest things and then buy them. (Read the previous parenthetical!)
But other people are active participants in this dumb economy and can nudge companies to be dumber so their stocks will go up. This most obviously works for the chief executive officers of companies. If you are the CEO of a public company, I want you to consider very seriously going to an investment conference with no pants on. Your stock will go up, your shareholders will be happy and your cost of financing will go down. “Why would my stock go up because I don’t wear pants,” you ask me, and I say, shh, shh, it just will, don’t ask why. “I have my dignity, I am not going to go to an important business conference with no pants on just to amuse some apes on Reddit,” you say, and I say: You are not as committed to maximizing shareholder value as I thought you were.
There is a traditional view of corporate social media in which a board would tell its chief executive officer to be cautious and anodyne on Twitter. There are many things that can go wrong with an unhinged Twitter presence, and not a lot that can go right, is what your lawyer would probably tell you. But the last few years have altered that calculation, and now the things that can go right are like “raising billions of dollars of retail capital when you need it most, at all-time-high valuations.” Arguably it’s a breach of fiduciary duties not to be weird on Twitter all the time.
But a similar analysis works for professional activist investors. If you are an activist and you are writing a letter to the CEO of an underperforming company saying “you should sell off your non-core divisions and return the cash to shareholders,” I want you to tear up that letter and instead write one saying “you should order Teslas for all of your employees, put a picture of a Shiba Inu on all of your products, and announce that your non-core divisions will now mine crypto.” Is this a good use of shareholder money? Man, who cares, the point is that the stock will go up 200% and you’ll be able to sell your position at a huge profit.
Buy some stock in a struggling company and, instead of going out and pitching your plans to BlackRock and Vanguard, get on Reddit and say like “if my board slate is elected we’re gonna take XYZ Co. to the moon and squeeze those short sellers, rocket emoji rocket emoji rocket emoji, not a proxy solicitation, read my SEC filings for full disclosures.” Draw a picture of an ape riding a rocket and slap it on your proxy statement. Call your activist fund Diamond Hands Capital LP.
Basically you want to buy stock in a company, push it to become a meme stock, and then sell the stock at a huge profit to people on Reddit.
If you can make your stock go up for dumb reasons, you can sell stock for a lot of money and use the money to do good things that make your stock go up for good reasons. Though honestly that is not too relevant to the activist investor, who can just sell when the stock goes up for the dumb reasons. “Do crypto and electric-vehicle memes” is to 2021 activism what “do stock buybacks” was to 2016 activism. They’re a little short-termist! But they’re what the market wants.
I suppose the value added by the activist here is, like … credibility? Again, I think that if you are the CEO of a public company you should absolutely go around getting in Twitter fights and not wearing pants and talking about crypto. But if you go to your board of directors with this strategy they will say “what?” and you will say “this is what shareholders like these days” and they will say “what?” and you will say “look at these comments I found on Reddit” and they will say “what?” and it will not necessarily be the productive conversation you want. Whereas if an activist sends a company a letter saying “do the crypto thing” then that is tangible evidence that your shareholders — your real, professional, institutional shareholders — want you to start memeing it up. What are you waiting for?