In the face of a gloomy economy where consumer spending is tepid, some of the smartest minds in the investment world have recently made big bets on the sleepy railway transporters. First it was Warren Buffett buying a big stake in Burlington Northern ( BNI). Bill Gates' investment vehicle also has a large stake in CN Railway. Both have been winning bets, appreciating 27% and 6% respectively in the last year.But both of these transporters' gains have been eclipsed by Jacksonville-based CSX ( CSX), which has racked up a 45% increase in its share price in the last 52 weeks -- mostly coming in the last three months.
Cramer Interviews CSX Corp. CEO
- A battering ram approach that is publicly critical of targets can be very successful in an event-driven context but does not always work in activist situations. Negotiation, diplomacy, cajoling, humor and tact are just as important when meeting with an activist target as the threat of "going negative" in a public battle. TCI's successes in the activist realm will increase as they demonstrate their abilities in these softer skills.
- Avoid inconsistencies. This applies to politicians and activist investors alike. Your words can be easily used against you by your opponents in a debate, so don't give them any ammunition. Activist investing requires a lot of up-front work in selecting targets and the kinds of actions you think would create value if implemented. If you advocate changes that come across as potentially weakening the company in the long-term (such as taking on significant debt), expect a tough time convincing your fellow institutional and pension fund investors to go along with your prescriptions.
- CSX didn't exploit this, but TCI initially disclosed in October that it held "shares in other US railroads but has not had to launch similar campaigns there because managements have been more co-operative." If I was a CSX shareholder without holdings in CSX's competitors, this would be a red-flag. It says to me that the company has mixed motives -- even if it doesn't. Activist investors need to avoid any perceived conflict of interest and should therefore avoid investing in competitors.