| In all my years investing in the stock market there's | | | | the institutional investors will start buying it until it |
| one thing that I've come to understand with absolute | | | | reaches nearly $45 or $50 a share, which is the price |
| certainty; and that is... there is nothing absolutely certain | | | | that the new company is going to pay in order to buy |
| about stock market investing! As soon as you learn a | | | | out the old company. Many times this buying activity |
| surefire way to make money, everything changes and | | | | will occur before you as an individual investor can get |
| you have to learn something new or get lost in the | | | | wind of it (and profit from it!). |
| dust. | | | | But if you do happen to hear about it or deduce it |
| A great way to make money in the stock market is to | | | | yourself, the ride up can be exhilarating! |
| invest in mergers and acquisitions before they happen. | | | | People who buy stock at low prices in the hope that |
| But before you do that you have to know several | | | | the stock will rise due to a merger are called |
| things about mergers and acquisitions. | | | | arbitrageurs. They hope to profit from the arbitrage |
| One reason why mergers are so lucrative from an | | | | between the original price and the merger target price. |
| investment point of view is that most times when one | | | | They often have an advantage over small investors in |
| company buys another company they have to pay | | | | that they can buy in bulk without the high trading costs |
| significantly more than the current stock price in order | | | | that individual investors usually have to pay which |
| to convince the company to sell. If a stock is currently | | | | makes arbitrage profits higher for them then they will |
| trading at $20 a share for instance, a company may | | | | be for you. |
| have to offer $45 or $50 per share in order to | | | | Finally, there is significant risk in this sort of an |
| convince the company to sell out. That's quite a jump | | | | investment strategy because mergers and acquisitions |
| in share price virtually overnight and if you own that | | | | don't always go through even when they've been |
| stock while it's at $20 you stand to make a lot of | | | | announced. Many times two companies start haggling |
| money very quickly. | | | | over different things and the merger talks fall through |
| It's hard as a small investor to take advantage of | | | | and the stock price sinks back to its previous level or |
| these things because merger leaks often filter to large | | | | sometimes even lower. That is the main risk involved in |
| institutional investors first. This has one significant | | | | this sort of investing and is something that you are |
| effect... the institutional investors run out and buy | | | | going to want to account for in a significant manner. |
| massive chunks of stock immediately if they think the | | | | There may be a lot involved in speculating on mergers |
| merger is going to take place. This excess buying | | | | and acquisitions, but the fact remains the same... all it |
| drives the stock price up close to the target price for | | | | takes is a few guesses correctly and you can stand |
| the merger. | | | | to make a lot of money very quickly. It's a heck of a |
| Taking our original example, if a stock is $20 a share, | | | | game! |