How do firms like Eliott & other top HFs generate and validate their ideas?
Hello,
I'm not particularly interested in investing in public equities as a profession or joining a fund like Eliott because I know I won't make the cut, but what really has me intrigued is how do they develop investment theses. It's not like PE where the majority of deals are just sourced from advisors and all the main MFs are competing for the same deal, there's a huge set of public equities to pick and choose from.
Are there any good blogs, substacks, or podcasts that go deep into their (or any other HF's) methodologies with specific investments? Where can I read more about this? Like why did they invest in BP or Southwestern - what made them come to the idea of first investing in these companies in the first place and how did they validate their investment thesis.
public companies = all information is public
then you check their reports and find things that management could change to increase the firm's value
then you assess your legal leverage (bylaws/case law/etc.) to see if you can rely on those to pressure mgt
those inefficiences are also seen by other investors but because they are not activists, they can't push those changes so it's not that they see things that others don't. It follows a bit the fundamental investing playbook, you see in companies things that others don't see so you invest anticipating that the market will also see and adjust the price. But as an activit investor, you don't need to wait, you can invest directly and push for your changes.
as a retail investor you may see that X division drags a bit the general profitability of the business and because of this the stock suffers. Management says it's a great business and takes time (overconfidence/not acknowledging mistakes/status quo), you sell or short the stock which depressed its prices. Then, Eliott also sees this, jump in the company, and push for an immediate divestiture of that business. The stock increases because one factor that was depressing it gets removed (which is also why you see huge stock increase when Elliott announces a stake, many other investors were aware of some inefficiences on X business so the spike in stock price is quicker (on top of the fact that Elliott had successful involvements in past companies which increases others' confidence in its involvement)).
also when you value/analyze a company you do it as an outsider, but when you value companies from an "insider" perspective (meaning you can change numbers to reflect changes you would want), then you can come with other values which can be higher and just need to persuade mgt/force the changes.
Not much secret. Just a very deep due diligence (PE level in public companies) and business/market analysis. The downside is that there aren't as many public companies that are as inefficient to make it worth from an IRR perspective and Elliott needs to deploy lots of capital on single investments to justify the costs/time investment, so who knows how sustainable is their business model going forward.
not for elliott - more for funds in general
this is probably much more true than you would believe
lol at looking for 52-week highs and lows at being a real investment guiding principle. Stop posting this garbage about trading charts and shit every time someone asks a similar question
okay but for elliott in particular, they do seem to have affinity for garbage at 52 week lows they have no idea how to fix
interns and juniors giving you shit
as someone in a senior seat...this is how 95% of ideas originate
thank you. i'm not saying that is how ideas SHOULD be generated, but that is reality
Step 1: identify companies lagging peer set
Step 2: buy some meaningless % of stock (1-3%)
Step 3: publicly harrass management into buying back shares or selling off “non-core assets”
Step 4: profit $$$ (sell at 15% premium)
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