Activist investors

Activist investors including hedge funds are becoming more active in recent years. What activist investors are doing for making more returns from their investment is relatively straightforward. They start their project with buying a significant amount of one company's stocks to gain some influence on this company, then they will push the company for better shareholder rewarding schemes by communicating with the management board or influencing the board room; once they succeed, the share price will rise and these activist investors make profits.

Often the median size companies are more likely to be targeted by activist investors, because it is easier to gain influence in these companies' board rooms than in those large companies' board rooms. However, it does not mean the large companies are not going to be targeted. For example, Apple has known as the target of some activist investors, including Jana Partners, who has liquidated two hedge funds to  focus on activism. This is definitely a very profitable investment strategy, but is not good for the companies in the long term.

Better shareholder rewarding schemes means cash will flow from company's hands to its shareholders' hands, the company may lack cash for making necessary investment to prepare itself for possible future competition. Furthermore, not all shareholders are benefited, some shareholders are interested in the company's future and looking for returns in the future rather than immediate returns. Because of the activist investors, these shareholders have to change their previous prospects and investment strategies.

In addition, such aggressive investment is not good for the economy. The listed companies partially support the economy, such investment may make them fail in the future because their future developing abilities are weakened by the rewarding schemes, this can affect the economy to some degree. Moreover, it can prevent some good companies from being public. Companies which are making profits and have huge amount of cash are more likely to be the activist investors' targets, because it is easier for these companies to provide better shareholder schemes. These companies may prefer staying private, because they do not want to be manipulated by activist investors.

Overall, activist investors are driven by short term investment returns. When activism becomes more and more popular, it might be better for some companies to stay private.