Are activist investors a force for good that keeps management and boards honest? Or are they simply quick buck artists intent on creating short-term value at the expense of building long-term sustainable companies?
Short-termism is a major alpha wound that hurts the performance of active investment managers. Short-termism leads to higher trading costs, makes it harder to properly evaluate the management of businesses, imposes time constraints that prevent investment strategies from reaching full flower, and increases bias. New research demonstrates this pressure is coming from clients rather than from investment managers themselves.
Crises create challenges and spark debates that give us mirrors for introspection. Among the many important issues that arose from the 2008 financial crisis is the ever growing focus on short-termism in financial markets.
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