TABLE OF CONTENTS

What is an Activist Investor?

Activist investors are investors that buy large percentages (>5%) of a public company with the goal of influencing the company's operations. Many activist investors specialize in turning around companies with weak or average performance by forcing shareholder votes that change the company's leadership and/or cause the company to sell assets or divest from unprofitable business lines to increase profits. 

Investing alongside these institutional investors can prove to be lucrative, as you're leveraging their experience managing companies to enhance earnings. Activists have one goal in mind: increasing the stock price to make more money. 


How to use the activist investor scenario?

  • Not all activists are created equally. Some are much more effective than others. 
  • LevelFields conducts analysis on the activists to determine their success rates before adding them to the AI tracking system. 
  • This way, the AI knows which activists to track and which events to flag as bullish events.


Ideal Hold Times

The activist investor scenario can be used for both short-term (1 day) and mid-term (3-18 month) trades. Often, the shares of the company rise on the news that an experienced investor is going to push for greater profitability. This results in a positive 1 day move on the share price.

Large gains are to be had when the activists actually start rolling up their sleeves and getting to work. A classic pattern can be viewed when examining the activists that got involved with Salesforce.


Salesforce's Monster Turnaround

In the chart below of Salesforce (CRM), you can see the stock had been selling off and was down over -60% from its high. 


What caused the turnaround? An activist investor (note #9) came in and began pushing for changes. 


Video: The Salesforce Case Study



Salesforce Major Events

The classic script for change is to cut costs, sell assets, and reward shareholders with cash back. And that is just what they did.

Below is the series of events that followed which turned around the stock by +60% in just a few months. Each event below occurred because of the activist and was quite predictable. Not only does the activist scenario scenario supply a buy and hold for cumulative returns, it also provides advance notice of coming events that are tradable 1-day events as well for additional income, as shown below.



In summary, the activist pushed for mass layoffs at Salesforce to save money. This included firing one of the CEOs. They then used to savings to reward shareholders with buybacks of the stock, raising the stock's value per share.

A second activist investor bought shares of Salesforce later, and the layoffs and buybacks continued thereafter. These moves changed the trajectory of the company and the share price over a 5-month period, resulting in the price of CRM rising +60% over this time period. 

Activist Investor Scenario: Typical Gains

Over the course of the previous year, events within the activist scenario averaged a 5% 1-day price move and much larger gains over subsequent months, as shown in the scenario description.


The activist investor scenario is an easy one for short,swing and longer term investors and requires virtually no work. To sign up for alerts for this scenario, visit the LevelFields home page and turn the alerts switch to on inside the scenario card.

How to Get Alerts for the Activist Investor Scenario


Related Articles:

How do I sign up for Alerts? 
What are the best scenarios for beginners?

 

 

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