Activist Investing in the Era of Mass Murder

I don’t usually write about gun control, but in this case I’ve found the nationwide response to the Marjory Stoneman Douglas school shooting in Florida notable.

Blackrock recently announced demands that gun makers to respond to the Valentine’s Day shooting that left 17 dead and a nation again debating gun control. The massive asset manager, which effectively controls percentage points of the entire global economy, isn’t playing around. Nor were Delta, United, and others playing around when they ditched their respective NRA discount travel programs. It is perhaps unsurprising in this case, but nonetheless notable, for large companies to weigh in on such a controversial issue, but it’s telling in thinking about the distorted relationship an industry has with policymakers and with the broader market.

First off, follow the money.

The Trump era has been nothing short of a disaster for gun sales, with FBI NICS data released in January showing the largest ever year-over-year decline, sending shares of American Outdoor Brands tumbling (formerly Smith & Wesson before they rebranded to become more family-friendly and less associated with, ya know, their famous handguns).

The market is speaking in two ways– first, gun nuts aren’t buying as many guns because they’re no longer paranoid about That Muslim Slash Socialist Barack Obama taking their guns. (A salesman at Cabela’s once told me that he heard– on the internet- that Obama was training a Hitler Youth-like army to disarm Americans and that was the reason for the widely lamented circa 2016 shortage of .22 long rifle ammunition.)

The stock market is responding accordingly, and gun stocks are probably not a great buy these days. American Outdoor Brands (NASDAQ: AOBC) has lost more than three quarters of a billion dollars in market capitalization (i.e. total value of share price times shares outstanding) since the summer of 2017 and the slightly larger Sturm, Ruger & Co. (NYSE: RGR) lost less at $304.5 million. The larger and more diversified Vista Outdoor (NYSE: VSTO) lost more value  from its peak price last summer($1.82 billion, but peaked in the summer of 2016, since which time it has lost 65% of its value), and continues to lose money.

In the context of the broader market, these three gunmakers lost 39-68% of their capitalization while the S&P soared about 20% and Amazon shares are up 300% in two years (yes, you read that correctly, and it’s stupid, but the stock market is stupid). That’s pretty bad. But the gun fervor that punctuated the Obama era died away as soon as Trump took office, because the perception that Obama and the gun-grabbin’-libruls would come and take everyone’s guns away evaporated, as most nebulous conspiracy theories eventually do.

The second way the market is speaking is that investment managers like Blackrock and well-known consumer brands like United, Delta, banks, Enterprise Rent-A-Car, Symantec, and others, are responding to widespread consumer demands to ditch the NRA. It is not in Blackrock’s interest for these stocks to lose most of their value, nor is it in the interests of these companies to lose millions of customers. Or tax breaks, which the Georgia state government has threatened to rescind on Delta, treading into dubious ethical territory, in response to Delta’s decision to break with the gun rights organization.

But sometimes it’s important to stand up to an industry that is tiny in comparison to its massive lobbying power. The NRA’s millions of dollars raised from donors paranoid about losing their second amendment rights are disproportionately powerful; similarly, the $15-20 billion gun industry in the United States is tiny in comparison to, say, the airline industry (Delta Airlines alone is twice the size in terms of its market capitalization). Everytown for Gun Safety recently took out a giant ad in the New York Times calling out lawmakers who have received millions from the NRA.

So, why now? No one really knows. After we decided, as one tweet once said with brutal but accurate cynicism, that America was okay with the murder of schoolchildren at Sandy Hook, it’s unclear why this specific school shooting has prompted such a backlash. Perhaps just fatigue over the bizarre chaos of the Trump era. But, in an increasingly interconnected global economy, the private sector wields an increasing amount of power. And, on this issue if on few others, it seems to be responding to the concerns of the popular majority more than certain members of the legislative majority are.