
Paul Singer, Doomsday Investor - pm24601
https://www.newyorker.com/magazine/2018/08/27/paul-singer-doomsday-investor
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chollida1
I've been on both sides of the table here.

I worked for a company called Corel early in my career and we were taken
private by a private equity firm. We had about $95 million in the bank and
they bought us for around $130, so they used our own money to buy them. When
the takeover was done the money was taken to pay back the banks for the short
term loans.

The company changed and I left. I thought Vector was the worst PE firm ever.
Now to be fair they don't have a great reputation at all due to their buy,
strip, merge and flip tactics have caught up to them.

On the other side of the coin we've published short reports on companies and
had that set off a wave of harassing phone calls about how we were the worst
people on earth and why did we want to ruin everyone's life.

And this was a case where we were right, the company finally did admit that
the items we highlighted in our short report were correct.

If you come out on the "I don't like these types of funds and their tactics"
side, then ask your self what is the appropriate measure when you find a
company that is under performing, or is down right corrupt with its books, or
is just coasting.

What should the correct response be?

1) Build up a position in the firm so the fund has skin in the game?

2) Then ask for changes to be made?

3) Then ask for the management who was responsible for the under performance
to leave so this doesn't happen again?

To me that all seems very reasonable and is the typical playbook of a firm
like Elliot.

The very reason passive investing works is that there are firms out there in
the market buying the good stocks and shorting the bad ones.

It seems a bit much to on one hand claim people should be passive investors
which requires active investors to price the market and on the other hand get
mad when an active investor points out flaws in a company and correspondingly
asks a company to fix those flaws.

TL/DR

It's shitty when someone comes along and points out your flaws. It's often the
low level employees, who aren't really at fault, who pay the highest price. On
the other hand you can't just expect to become CEO and be able to run a
company into the ground without someone complaining.

~~~
brazzledazzle
On the other hand the way they handled Argentena and Peru was pretty
monstrous. Even taking both sides into account this isn’t like forcing
employees to find a new job because you tanked their company. Innocent people
were hurt by something they had very little control over. You don’t get to
choose where you’re born. It really drives home the point that while these
people might be acting as checks on the system they are fundamentally
vultures. No matter what they tell themselves and others their performance of
that role is incidental at best—a coincidence used as cover for being a
bastard.

~~~
aglavine
I'm from Argentina. Our government was the monster at that time.

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cascom
Do activist investors serve a valuable function to the market, and their
investors? Yes

Do activist investors sometimes pursue strategies that are less than
scrupulous, and perhaps values a quick buck over the long term success of a
company? Yes

Are management teams sometimes really looking to execute on a long-term
strategy that can’t be measured over a couple of quarters? Yes

Are management teams sometimes incompetent, corrupt, and absentee? Yes

If you want to read some scathing activist letters check out Dan Loeb’s,
sample below:

[https://www.sec.gov/Archives/edgar/data/1040273/000089914004...](https://www.sec.gov/Archives/edgar/data/1040273/000089914004000756/i2555408d.txt)

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throwaway5752
_From the outside, it can seem as if Elliott is causing the drama, but the
firm argues that it simply identifies preëxisting problems and acts as a check
on the system._

It's safe to ignore this. Their only goal, I assure you, is to beat their
benchmarks and maximize their fee income.

~~~
whatok
What are Elliott's benchmarks?

~~~
throwaway5752
No idea, this is general comment about all hedge funds. I'm not an investor in
the fund, but based on a quick search they're a 2/20 fee structure so they
better outperform the SPX.

~~~
whatok
Hedge funds generally do not track benchmarks as the point of them is to
provide diversified return streams. Over a specific time window, any hedge
fund worth its salt should outperform vs SPX but really shouldn't be month to
month.

~~~
throwaway5752
Yes, and their long term returns support this. My phrasing was regrettable,
but my feeling is that they are doing a post hoc rationalization for what
maximizes their profit (or are describing themselves as an amoral agent in a
complex system, at best).

~~~
whatok
Obviously their entire reason for existence is to make money and no one
believes anything different. I think that they also provide a valuable service
to the markets and that Paul Singer (at least at this stage in his life) sees
himself as an activist beyond the investment world.

I don't agree with all of their methods but think that they're a necessary
boogieman in order to prevent shareholders from getting ripped off. Definitely
the most aggressive in their space and they attract a lot of attention for it
but no one ever seems to ask about why these companies were run in such a poor
fashion to begin with.

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olivermarks
Surprisingly mild NY piece given Singer's reputation as a lowest of the low
vulture capitalist. [https://www.newyorker.com/business/currency/argentinas-
ratio...](https://www.newyorker.com/business/currency/argentinas-rational-
default)

~~~
aglavine
I'm from Argentina and I'm glad Singer helped to put a stop to our disastrous
government at that time. That said, probably to act in this situations should
be a UN prerogative, but UN is outdated in its institutions design. A country
like Venezuela is an example of this.

~~~
olivermarks
Have you read 'confessions of an economic hitman'?
[https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit...](https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man)
I became a lot more cynical after reading that

~~~
aglavine
Not read, but it doesn't look a serious piece of work. I'm not naive. Of
course Singer's people probably wants to win a lot of money and of course you
have lobbyists trying to make fast money everywhere. But that's not the main
problem we face.

The main problem is the lack of control to dictatorships. You can have a
disastrous government like the one we had here or Trump's. But it is damage-
controlled by a democratic system. Dictatorships on the other hand are
unhinged, lasts forever, and flood the democratic World with their migrants.

UN institutions were designed for a PostWar scenario that doesn't exists
anymore.

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pitt1980
so what makes a company a target for activist investors?

what are various steps a company can do to avoid being a target?

Are shares still held by the founder an important factor? Is it realistic for
the founder to hold shares looking that far down the road for the day an
activist investor starts evaluating their company as a target?

When activist investor look at Amazon, is the number of shares personally held
by Bezos a relevant factor to their analysis?

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dash2
Stepping back a bit. My impression (from afar in the UK) is that US
capitalism, which used to be dynamic and innovative, has slowly become like a
shark tank in which the sharks have eaten everything else and are now trying
to eat each other. I know that's very vague and high level... but is it fair?
What's up with you guys... are you OK?

~~~
bawana
Instead of sharks, I would generalize it to the entire food chain. Early in
the history of capitalism, corporations grew organically. They were
essentially 'herbivores' . But they have since realized that there are many
more calories (dollars) to be gained by moving up the food chain and consuming
organisms which are doing that work. Ultimately, too many predators and not
enough workers.

~~~
epx
Agar.io :)

------
bawana
All this bs happens because we are allowed to used capital derived from
financial profit to reinvest in financial transactions - leading to a vicious
inflationary cycle of increased valuations without increased value. The
solution is to have two currencies. Financial currency (money derived from
financial transactions (option redemptions, stock sales, hedge fund
investment, etc) that can only be invested in the REAL world of products,
services. OTOH, REAL currency (money derived from the sale of products[NOT
FINANCIAL PRODUCTS] and services[NOT FINANCIAL SERVICES]) can be invested in
anything. This simple gate will restore the synchronization between the
financial and the real world. How did it come to pass that markets like the
FOREX have an order of magnitude more 'value' that the non-financial product
and non-financial service output of the entire world?

~~~
toss1
Interesting idea, although it seems that it would more likely wind up forcing
the creation of money-laundering schemes than doing real good.

While it wouldn't really solve the activist investor issue, I favor a strongly
time-based capital gains tax system, designed to favor long-term investment,
over short-term financial extraction. The rate table might resemble: <1 minute
= 95% cap gains tax rate

<1 hour = 80%

<1 day = 70%

<1 week = 60%

<1 mth = 50%

<1 qtr = 40%

<1 year = 30%

<2 yrs = 20%

<5 yrs = 10%

<10 yrs = 5%

>10yrs = 0

Obviously a mere first-draft, subject to tuning. But the general concept
should be clear - the short end would eliminate the volatility, unfairness and
flash-crashes created by submillisecond trading. The encouragement to the
longer end would get everyone to think longer-term. The 0% for decade+
holdings would prevent a lot of silliness around inheritance (e.g., you
inherit a few shares from your grandfather, and have no records or reasonable
way to figure the cost basis, but are required to assert one).

Of course, I doubt it would happen because it isn't in the short-term interest
of the bankers.

~~~
bawana
yes this reminds me of the 70s when marginal tax rates on short term income
was as high as 90%. But the problem here is that the money from tax goes to
worthless, fat, lazy, stupid, ancient, corrupt, ineffective politicians.And
the trickle down to the people is as weak as the urinary stream from those
decrepit politicians with prodigious prostates.

~~~
toss1
Yes, some of it goes to the politician's waste, but the trickle-down via
government is FAR better than the trickle-down from merely expecting the
extractive class to create jobs and maintain a robust middle class.

Heck, when the tax rates were that high, we had: * the GI bill, enabling all
vets to go to college for free, * built road systems like the Interstate
highway system * built schools * built libraries * WENT TO THE MOON.

Seriously, if you want to complain, you will find waste in absolutely ANY
large organization, corporate, philanthropic or govt. -- it just comes with
scale -- there's economies of scale and inefficiencies of scale.

But it does not follow from the existence of nontrivial
inefficiency/waste/fraud/etc. that large organizations and their projects are
therefore worthless; only that improvements might be sought.

~~~
bawana
Back in those days, tax rates were raised to pay ofr projects. I am opposed to
increased tax rates that are not specifically earmarked for a purpose. Yes we
went to the moon, but that was driven by cold war politics. Yes we had other
good things too - the GI bill, infrastructure investment, etc. I'm all for
that. Perhaps my vitriol got us off topic. I just feel that taxation is not
the optimal way to redistribute financial profits. It's not sufficiently
granular. And when we try and codify the granularity - we get a complicated,
byzantine tax code that tries to accomodate all the 'nooks and crannies' that
no one can really grasp. Rather, I would like to see a 'wall' in Trump lingo
against the recycling of financial profits into more financial instruments
which is just speculation. And an incentive for the reinvestment of financial
profits into the REAL economy. Sure the ROI is greater in financial markets,
but that is in large part because greater profits create greater demand for
financial instruments which just raises their price.

~~~
toss1
ok, fair enough, so this is more a regulatory than a tax approach.

I'm not against it, but I wonder at it's effectiveness, as regs are subject to
many of the same loopholes, exclusions, and workarounds as taxes, along with
regulatory capture (see FCC and Net Neutrality).

Neither is perfect, and I think we need both.

E.g., rags/taxes to cap CxO pay multiples -- so they have to bring up the pay
of the average worker if they want higher exec pay. Regs for minimum wage
above the poverty line...

either way, I think we need to get the masses of idle capital back into the
middle class if we want a robust country and society.

