#PotStock Thread: Had a chat with a fund guy & was enlightened to something That I never considered when looking at bought deals for LP’s in Canada & was staring us all in the face, yet I was distracted by variables associated with The Who what, when, why’s of the deal...
Suppose I was a fund “Wolf Capital” & I was working on a bought deal for #PotStock company X. Now X is trading at its 52 week high as are many other in the sector, but I want to do a deal as do they. I know as a fund ready to fire $10m at stock in a bought deal 15% below market..
As any fund, there are managers that are familiar with the company, research on sector, & the future valuations. More importantly they have seen what happens when Wolf Capital has done previous deal below market & market reactions. As we near the deal being closed & ink drying...
They go short! They also tell important people in their “book” to go short ahead of the announcement. Wolf Capital also has short positions through cutouts ahead of announcement because it lowers the deal cost basis as a whole. The day the deal is announced the stock tanks 16%...
So now that bought deal that the company & the clients it represents has a lower cost basis for said deal, but (and here’s the Key) we have succeeded in shaking out newcomers to the market, created some panic & picked up even more cheap stock. Our research has a pps 🎯 of $3...
The managers & their network all cover around 15-20% below the deal price on a bloody day & stock goes sideways, but the price slowly climbs past our bought deal price in time & everyone is happy. “We” have double dipped on what we feel was a sure thing? It’s 100% manipulation.
While this is a hypothetical possibility, it’s important to remember that if there is an opportunity to make money & mitigate some long term risk some will take it. Is it a scumbag unethical move? Of course... Now look at some bought deals from before & see if the theory holds up
