A Guide To Watch Showtime’s Billions – Introduction
Billions is one of the best investment-focused series I have watched recently. The series provides insights into the inner-workings of Wall Street. In the show, Bobby Axelrod, a successful hedge fund manager is haunted by the attorney general who has vowed to bring him down. The attorney general’s wife works for Axelrod which complicates the situation. In this article, I will highlight a few terms that you should know when you are watching the show.
- Activist investor
An activist investor is a type of investor who buys large stakes of companies that are performing poorly. After buying the company, the investor talks with the board to have the problems he has identified resolved. Often, activist investors will ask a company to sell some of its assets, buyback shares, and even the CEO to step down. Some of the best-known investors are Bill Ackman and Carl Icahn.
In the financial world, you will often hear investors talk about bips or basis points. One basis point is just 0.01%. You will also hear analysts talk about a quarter of a percentage which means 0.0025. Therefore, whenever you hear that a stock has gone up by 5 bps, it simply means that it went up by 0.05%.
This is a strategy that many hedge funds use to take advantage of mergers and acquisitions. Many companies are seeking to buy companies for diversification and growth purposes. When a company announces that it will seek strategic alternatives, it basically means that it wants to sell itself. Therefore, investors expect the acquirer to pay a premium for the company. When a company announces that it will acquire a company, its stock will either go down while the company being acquired go up. Therefore, investors take advantage of these situations to make money through what is known as arbitrage.
- Event-driven strategy
There are many types of hedge funds. They include: activist, event-driven, quantitative, passive, and macro among others. Event driven hedge funds are those that make money in certain events. Arbitrage based hedge funds are event-driven hedge funds. Other event-driven strategies are hedge funds are ones that take advantage of mispricing in stocks especially after earnings report, dividend payouts, or bankruptcy notification.
- Family Office
In the world of hedge funds, a family office is a fund that manages the manager’s money. It does not seek money from outside investors. In most cases, this happens when a hedge fund manager shuts down his main hedge fund. A good example of a family office is Point72 which is managed by Stephen Cohen who was forced to close his main hedge fund, SAC Capital.
- High Frequency Trading
This is where a hedge fund manager or a trader uses complex algorithms that analyzes the market to find opportunities. High frequency traders spend a lot of time developing algorithms to trade during certain periods.
- Insider information
In the finance world, it is a crime to trade using inside information. For instance, if you have a friend working at an investment bank, it is a crime to buy a company using information that he tells you. For instance, if they are working on an M&A that is not public, he should not tell you these details.
- Lock-up period
This is a period when insiders and venture funds cannot sell their stock in a company after an IPO. This protects outside investors from investing in flawed companies.
- Market Correction
This is a period when the market goes through a temporary reversal. For instance, if Dow was on a gaining streak, it can fall for no apparent major reason.
- Muni bonds
These are bonds that are issued by municipals or counties to finance their developments.
Billions is an excellent series to watch if you are into the world of trading and investment. This is because you will learn a lot about the inner-workings of the financial market.