As explained earlier, our event-driven strategy combines regulatory analysis with financial analysis. The process is designed to find opportunities where regulation creates short-term price moves, but without losing sight of the company’s long-term fundamentals.
We start with the regulatory event
Our screens are not company-based, but regulatory-based. We first identify an event — for example, a merger review, an investigation, or a market study. We then analyze how that event could affect the companies involved. Sometimes the market reacts immediately, other times the real impact comes later. Our job is to understand where the story is heading before everyone else does
Then we analyze the companies’ fundamentals
Once we know which companies are linked to the event, we look at their financials. Ideally, we don’t just want to ride the event — we want to invest in strong companies that also benefit from it. That way, the regulatory event gives us an extra push on top of a solid investment case.
One of the most striking examples we’ve seen recently is Corning. When the European Commission closed an investigation in mid-July, the stock surged — gaining more than +50% in less than three months
Balancing fundamentals and events
There are situations where the regulatory event is so clear that we take a position even if we don’t plan to hold the company long-term. In those cases, the financial analysis carries less weight. However, one of our key risk controls is asking: “What if the regulatory event goes wrong?”
Since no one is right 100% of the time, we prefer to invest in companies that are fundamentally healthy. That way, even if the event doesn’t deliver the expected boost, the downside is limited — or sometimes close to none.
Our methodology
To systematize this approach, we’ve developed a methodology that identifies the best stocks linked to regulatory events where the market is uncertain. That uncertainty creates pressure on the stock price — and if our regulatory analysis is correct, it puts the odds in our favor.
The table below outlines the types of questions and checks we go through before adding a stock to our portfolio.
| ANTITRUST INVESTOR STOCKPICKING | |||
| REGULATORY EVENT | |||
| CARTEL | |||
| CONDUCT | CRITERIA ANALYZED | ANSWER | COMMENTS |
|---|---|---|---|
| When there is an inspection | |||
| Cartel | Does the company’s name appear in the press release? | ||
| Cartel | Do we know the duration of the cartel? | ||
| Cartel | Is it a few competitors or the whole industry? | ||
| Cartel | Did the cartel end several years ago? | ||
| When there is already a fine | |||
| Cartel | Are damages claims unlikely given the product/conduct? | ||
| Cartel | Did the share price fall more than 5% when the fine was announced? | ||
| Cartel | Can the company still grow and absorb the financial impact of fines and damages? | ||
| Cartel | Were provisions for fines sufficient? | ||
| Cartel | Do the fines materially impact cash flow and EBIT? | ||
| ABUSE OF DOMINANCE | |||
| CONDUCT | CRITERIA ANALYZED | ANSWER | COMMENTS |
| Abuse of dominance | Is the company dominant only in this product/market? | ||
| Abuse of dominance | Does the investigation concern current or past conduct? | ||
| Abuse of dominance | What specific conduct is under investigation? | ||
| Abuse of dominance | Would an adverse decision significantly hit revenues? | ||
| Abuse of dominance | Is the risk of structural remedies high? | ||
| Abuse of dominance | Would a no-penalty/minimal-remedy outcome reinforce its position? | ||
| Abuse of dominance | Could rivals gain market share after the decision? | ||
| Abuse of dominance | Do we know when a decision is likely? | ||
| Abuse of dominance | Is there a commitments proposal? | ||
| M&A | |||
| CONDUCT | CRITERIA ANALYZED | ANSWER | COMMENTS |
| M&A | Is the transaction notified? | ||
| M&A | If not, is there a binding agreement between the companies? | ||
| M&A | Does it require EU, UK, US and/or national approvals? | ||
| M&A | What are the theories of harm? | ||
| M&A | Is a Phase II review likely? | ||
| During Phase II | |||
| M&A | Is there a risk of prohibition/block? | ||
| M&A | Would possible remedies impact more than 10–15% of revenues? | ||
| M&A | Would the company gain or strengthen a competitive advantage (moat)? | ||
| M&A | Has the market already priced in approval? | ||
| M&A | If the deal fails, are the fundamentals still strong? | ||
| M&A | Any other pending legal or corporate issues? | ||
| MARKET STUDY | |||
| CONDUCT | CRITERIA ANALYZED | ANSWER | COMMENTS |
| Market study | Is the market concentrated? | ||
| Market study | Has the regulator studied this sector before? | ||
| Market study | Do the issues create an advantage for any one company? | ||
| Market study | Are the problems market-structure or conduct issues—or is the regulator only fact-finding? | ||
| Market study | Would potential remedies affect all companies equally? | ||
| Market study | Would remedies impact more than 10–15% of revenues? | ||
| Market study | Would the company lose a competitive advantage (moat)? | ||
| Market study | Are end users/customers hostile or mobilized? | ||
| Market study | Do we know when remedies or final outcomes will be published? | ||
| Market study | How has the market reacted since the announcement? | ||
| COMPANY FUNDAMENTAL ANALYSIS | |||
| METRIC | CRITERIA ANALYZED | ANSWER | COMMENTS |
|---|---|---|---|
| Business & Industry | |||
| Business & Industry | Do we understand how the company makes money? | ||
| Business & Industry | Is the business model attractive? | ||
| Business & Industry | Who are the main competitors? | ||
| Business & Industry | Is the industry expanding or cyclical? | ||
| Business & Industry | Is there positive or negative regulatory/political momentum? | ||
| Competitive Advantages | |||
| Competitive Advantages | What differentiates the company from competitors? | ||
| Competitive Advantages | Does the company have market power? | ||
| Competitive Advantages | Are there barriers to entry? Patents, networks, capital? | ||
| Risks | |||
| Risks | What are the company’s key risks? | ||
| Risks | Are there any potential “black swan” events? | ||
| Risks | How would the company be affected if the regulatory event turns negative? | ||
| Financial Analysis | |||
| Financial Analysis | Is the balance sheet healthy? | ||
| Financial Analysis | What do revenues look like in recent years? | ||
| Financial Analysis | Is leverage high? What are the debt ratios? | ||
| Financial Analysis | How are profits, margins, and key ratios? | ||
| Financial Analysis | What do cash flows and future outlook look like? | ||
| Valuation | |||
| Valuation | What is the current share price? | ||
| Valuation | Is the stock overvalued or undervalued? | ||
| Valuation | What is the EPS trend? | ||
| Valuation | What is our valuation outlook? | ||
| Valuation | What do analysts say about the regulatory event? | ||
