Core of Event-driven strategy – Value + Catalyst + Momentum

Summary: Value (why) + Catalyst/event (why it/why not) + Momentum/timing (why here/why now) => make big money, BUT not quick money

Value – base for excellent risk/reward

– “absolute”: intrinsic value

– “relative”: peer comp for sanity check

– price discrepancy with inefficiency detected (complexity, controversy, contrarian, ignorance) to seek richer risk/reward

Catalyst/event – 1) condition in place for rising market interest and above average trading activity; 2) free “call”opportunities and other cheaply priced optionality to enhance risk/reward

I. “hard” event (M&A)

II “soft” event (macro or micro, i.e. corporate/sector, events)

– earnings cycle/volatility

– earnings seasonality

– earnings surprises

– management changes

– product changes

– regulatory development

– recapitalization

– shr repurchase/special dividend

– acquisition/divestiture

– restructuring/turnaround

– monetization of “hidden assets”

– Insider transactions

Momentum – to time the entry/re-entry point better

– tail (structural/secular tailwinds)

– trend (in active trading mode)

– trade (natural reaction in normal way)

– pivotal point(s): why stock is here vs. what it is supposed to be in a normal behavior?  => sign of events or trades already known, hopefully still in ascent stage though, to professional investors or insiders

– “key price”, i.e. peer group stock price confirmation before suggesting counter-trend trade has turned into a reversal new trend

– profitable trade from beginning to afford patience and wait


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