Human beings love stories.
Among the biggest storytellers on Wall Street today are activist investors. They often present themselves as being on the “hero’s journey” – plucky investors battling entrenched management to restructure the company in question into a brighter future.
Yet, it should shock nobody that the reality is often much different than the fairytale. Rather than providing a healthy check on poor governance, “shareholder activism” too often looks like financial impatience masquerading as strategy.
The typical activist playbook is to acquire a small stake in a public company and then begin to make demands: divisions to be sold, cash to be returned to shareholders, and replacement of management. If the company disagrees, the activists escalate their fight into the public domain.
A recent fight in the real estate data industry illustrates the point. CoStar is one the sector’s most successful companies. Its management has delivered 58 consecutive quarters of double-digit growth and built the company into a dominant position in its core market segment.
Central to its long-term success has been a willingness to invest. In 2022, CoStar sought to drive growth by competing fulsomely in real estate marketplace space. This came through an acquisition of Homes.com, making CoStar a key competitor of sector giant Zillow.
The Homes investment was expensive and has not yet produced revenue at the scale that some critics would prefer. Despite this drag, CoStar’s earnings continue to rise – up 19% year-over-year in 2025.
Regardless of strong earnings, activist hedge funds Third Point and D.E. Shaw have publicly demanded radical changes at CoStar. They have insisted on the abandonment of the Homes strategy and a replacement of the CEO.
In response, CoStar has asserted that activists' arguments "demonstrate a fundamental misunderstanding" of how the business works.
They have a point.
Building a two-sided marketplace in residential real estate is a multi-year undertaking. Zillow itself spent nearly a decade burning cash before establishing the network effects that make it formidable today. This phenomenon repeated itself in sector after sector with heavy innovation and technology requirements.
Investor demands that CoStar immediately monetize or even abandon Homes.com seem more driven by a desire for a short-term payday rather than long-term company success.
For at least a decade, policymakers and commentators have lamented the short-term orientation of much of American capitalism. Now Washington is weighing in.
In September 2025, President Trump wrote that CEOs should focus on "properly running their companies" rather than constantly feeding Wall Street's appetite for fresh numbers.
Securities and Exchange Commission Chair Paul Atkins then voiced his support for giving U.S. public companies the option to report earnings semi-annually rather than quarterly. This would align the United States with practices in the European Union and the United Kingdom.
In surveys by McKinsey and FCLTGlobal, roughly half of executives admitted they would delay new projects to hit quarterly earnings targets, even knowing it would sacrifice value.
In the current system, every quarter becomes a referendum on strategies that were never meant to be judged on a ninety-day time horizon. Yet for activist investors, this is a dream. The inevitable temporary fluctuations in profitability provide them with the opportunity to enter at a relatively modest cost and extract significant potential returns.
Of course, this is not to say that activist investors never have a role and that markets do not need discipline. In both cases, they do. But markets and companies also need time. Increasingly, activist investing supplies the former while eroding the latter. This is where the SEC proposal for semi-annual reporting could make a meaningful difference.
The companies that have built the most enduring value in American markets did so by pursuing investments that looked uncertain and expensive in the short run. In addition, they, for the most part, did not have to deal with activists holding 2-5% of shares which constantly demanded that the company overturn the apple cart.
Companies such as CoStar, which have produced year after year of double-digit earnings growth, need the room to grow and the space to innovate. It should be much welcomed that President Trump and the SEC are now looking to incent long-term value creation over short-term extraction.
