Individual investors frequently follow the so-called "smart
money" into trades. The most famous smart money investor is
probably Warren Buffett. Given Buffett's returns, trying to ape
his investment style seems like a pretty good idea.
But Warren Buffett isn't the only celebrity investor; he's
just the most famous. There are plenty of other hedge-fund
managers who garner lots of attention from the media and
investors. Most of those other investors don't have a track
record as long a Buffett's, since unsuccessful money managers
rarely stay in the business, or the public eye, for very
One of the newer (relative to Buffett anyway) celebrity money
managers is Daniel Loeb. Loeb started Third Point Management in
1995 with about $3.3 million dollars. The company now boasts
assets under management of close to $10 billion and returns of
about 25 percent per year.
Unlike Buffett, who likes to find good companies and tends to
make himself an ally of whoever is in charge, Loeb tends to take
a more antagonistic approach, choosing to attack, frequently in
scathing letters, any executive or management team that he
believes is hurting shareholder value.
Loeb is perhaps most famous for revealing that then Yahoo (
) CEO Scott Thompson did not have the computer science degree
that appeared in his company biography. The source of the error
is still somewhat murky, but the end result was that Thompson
left the company after just five months on the job and Loeb and
two other men Loeb picked were awarded seats on the company's
board, ultimately helping to pick current CEO Marissa Mayer.
Loeb is also currently engaged in battles with Sony (
) and auction house Sotheby's (
), both of which he believes could take steps to unlock more
value for shareholders.
Third Point bought 2.5 million shares of generic drug maker
) during the first quarter. Loeb hasn't fired any shots at the
company yet, but given that the stock is now his largest holding,
and the stock has leveled off since peaking in February.
I won't pretend to know what Loeb's plan for his investment in
Actavis is, but the goal of all hedge-fund managers who take long
positions in stocks is for them to go up. Whether Loeb plans an
activist campaign, or is just expecting the stock to make a run
higher, the reason he bought the stock is that he expects to sell
it at a higher price at some point down the road.
For its part, Actavis acquired Warner-Chilcott in 2013 and in
the process of acquiring Forest Labs (
). Unlike the biotechnology and name-brand drug business, where
companies can charge a premium for a few name-brad treatments,
the generic drug business is all about volume. Since generic
drugs are, by definition, off patent, any drug company that wants
to can sell these drugs. That means margins tend to be thin, and
much of the focus is on volume. The acquisitions of
Warner-Chilcott and Forest give the company more products to
sell, which, provided the company can make itself as efficient as
possible, should help it be more profitable once it finishes
integrating the two acquired companies.
Traders who want to play along with Loeb in betting on some
upside for Actavis could consider a July 190/195 bull-put credit
spread for a 65-cent credit. That's a 14.9% return, which is
136.35% on an annualized basis (for comparison purposes only).
This position will return a full profit so long as the stock is
above $195 at July expiration, giving it about 6% downside