Piggybacking: a pseudo-study

Though we aren’t of the camp in die-hard support of the activist investor guild, we do think shareholder activism is sometimes necessary –anyone who’s dealt with an idiot running a company with a market cap of $500m+ will understand– and consequently applaud these guys’ moxie in communicating with management at a level (perhaps, the only) they can understand: hurled insults.  

But, we’d like to put a little rigor into forming an opinion (i.e. find out what activism can do for us), so we’re running an extremely biased (sample size negligible) and elusive (we will reveal neither n, nor the components of n, but will say that 2 ≤ n ≤ 10) experiment: tracking a mock activist portfolio over the last week of this quarter to see how we might have performed had we piggybacked during 2Q07.  

Method: Our mock portfolio contains random long-only holdings of n activist funds. Using 13F documents filed with the SEC, we compiled a list of all positions added during 1Q07, assigned each holding a number, then used a random-number generator to pick 14 holdings, which now form the mock portfolio whose performance we will track through the end of 2Q07 (Friday) as if the each of the 14 holdings were purchased the day after the 13F form was filed with the SEC.  The portfolio (options and positions associated w/ options strategies not included; cost basis reflects closing price of the security on the day that the fund’s 13F was filed with the SEC: May 15, 2007):

Company

Ticker Symbol 5-15-07 6-25-07 return

HYPERCOM NYSE HYC 5.58 5.74 3%

NORFOLK SOUTHERN NYSE NSC 55.87 53.35 -5%

WESTWOOD ONE NYSE WON 7.15 7.04 -2%

PROQUEST COMPANY OTC PQES.PK 8.79 9.65 10%

OMNIVISION TECHNOLOGIES NASDAQ OVTI 14.17 17.41 23%

MDS NYSE MDS 22 23.13 5%

ARIAD PHARMACEUTICALS NASDAQ ARIA 5.06 5.57 10%

PLATO LEARNING NASDAQ TUTR 4.21 4.57 9%

MEADE INSTRUMENTS NASDAQ MEAD 2.25 2.25 0%

SYNOVUS FINL NYSE SNV 32.09 31.03 -3%

ACADIA PHARMACEUTICALS NASDAQ ACAD 12.87 14.1 10%

COLEMAN CABLE NASDAQ CCIX 24.1 27.57 14%

ATP OIL & GAS NASDAQ ATPG 42.29 46.84 11%

TEMPLE INLAND NYSE TIN 62.31 61.7 -1%

It is not our intention that the reader should go out and purchase any of these securities. In fact, we provide reasons for why you should NOT purchase these securities:

  1. your cost basis would most likely be much higher than that of our experiment’s portfolio, and as a result we expect that your performance would substantially lag our experiment portfolio’s
  2. the turnover rate for individual holdings in any of these funds’ portfolios is generally high, and 13F’s are available to the public 15 days after the last quarter ends, so you would be acting after a considerable lag-time during which the holdings may have already been sold by the respective fund manager(s)
  3. We’re telling you not to; this is our third and final warning

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