A friend of ours who works for a well-known activist firm summed it up perfectly when he said, “We are living in the era of the activist halo.” From 300-page PowerPoint presentations to incredible revelations about the amount of salt that should be included in pasta water to investors who own 20,000 shares asking for Board seats, there has been a proliferation of “activist” activity.

Some of this is good, some of this is bad as Wall Street is just like Hollywood – take a fundamentally good idea and ruin it with ten successively dismal iterations. As a “guideline,” it’s not for us. Successful investment is all about the “investment.” Activism is about the time horizon. We always welcome being right sooner than later, but the beauty about investing for a living is the ability to be left alone and think, pick good combinations of business model, valuation and people, and then let compounding work for you without the “need” to be public and hire lawyers. It’s solid indoor work with no heavy lifting.

But the fun thing about investment life is that it is usually better to live by guidelines—an indication or outline of policy or conduct—rather than hard rules, given that the only “rule” outside of unimpeachable ethics and integrity, is that the future remains uncertain.

So we have joined with our new partners at SpringOwl Asset Management, formed a legal “group,” and have filed what is now a very public 13-D with the SEC, which includes our letter to shareholders. We now own 7% of the shares outstanding.

How in the world did we get here? Let’s start with a little background. Cove Street is unabashedly a “suggestivist” firm. That means that we do not hesitate—when it is warranted—to privately make suggestions to management teams and board members regarding the proper way to allocate shareholders’ capital. Think of it as being at a dinner party and your significant other says something flagrantly unattractive about you. The correct posture (or so I have been told) is to wait until you are in the car on the way home until you let them have it. This also applies to business.

Over the last 2 years that is exactly the strategy we used to engage with the senior management team and members of the Board of Forestar. We saw/see a very cheap stock but with serious capital allocation flaws and governance issues that are “easily” remedied. We sent a number of letters that questioned the company’s decision to become an oil and gas operating company (well before the oil price cratered) as well as a number of its corporate governance policies. We also had a number of phone discussions and face-to-face meetings in which we tried to constructively discuss Forestar’s compensation practices, real estate strategy, and capital spending plans.

We got pretty much nowhere, and in fact we lost per share value through dilutive transactions…until we filed our 13-D with SpringOwl. Then the knee-jerk reactions starting coming public with a directionally correct bias—a motion to unstagger the board (though it would take 3 years), a share repurchase (not sure if now is the time), firing the oil and gas guy and looking hard at that direction (way late and not near fast enough), and hiring Goldman Sachs (again) to review “strategic alternatives.”

But what is missing is arguably our most important point—the same group of people that have run this stock into the ground are the group that shareholders are supposed to be counting on to now make the right decisions at a crucial juncture for the company. We think that is a very low probability.

At the end of 2014, we more or less “got the Heisman” on any suggestion of change on this front…and we were essentially forced to take our message to all shareholders.

I think this letter from another investor in another company is a very long but well said version of the following: this is not what we set out to do, but it is doable and it is in the best interests of our partners. We have paired with the folks at SpringOwl who have both skin in the game and a lot of prior experience in the corporate governance arena, which minimizes our learning curve and time commitment. Judging from the overwhelming number of supportive calls and emails we have gotten since we filed, I think we are very much on the right track here.

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