Bill Ackman is a well-known activist investor, and manages Pershing Square Capital Management, a large hedge fund, announced yesterday at a conference that he has acquired about 150 million shares of Citigroup (NYSE:C) over the last several weeks.
Citigroup is an ideal stock for speculators, traders and hedge funds, as the inherent volatility in the stock makes it perfect for those who like to have large swings in share price to bet against, which Citigroup will experience for several years at minimum.
This is one of the reasons why Citigroup shares are all over the place, as they move up and down with those moving in and out of the stock to acquire and sell positions.
There is little certainty with Citigroup in the short term, and until their fundamentals are sound, we’ll see this type of activity from hedge fund managers like Bill Ackman, who thrive in volatile situations as those connected to Citigroup.
Other large financial institutions like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) like these types of circumstances, especially Goldman Sachs, who may the best in the world at generating revenue and profits in the midst of volatility.
So when you hear hedge funds and trading units of companies buying up Citigroup, it’s not because they’re investing in a company they believe in, it’s because they are so weak and unstable, which adds to the already enhanced circumstances surrounding the company.
This doesn’t mean Citigroup isn’t improving some as they divest of non-core assets and eventually emerge from government control, but it does mean in the near term, as measured probably in a couple of years, they’re going to have a wild ride, and at the price their shares are at, just a small movement of their share price will generate significant gains or losses.
In other words, Citigroup is the type of playground these types of money managers and speculators thrive in, and that level of opportunity doesn’t come along every day for them.