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News broke this week that billionaire investor Carl Icahn had taken a position in the maker of Botox, Allergan (AGN) - Get Allergan plc Report . This move sent Allergan shares soaring higher on Tuesday morning, offering traders who were quick to pounce a nice one-day profit, but the gains didn't last, and the stock actually closed the session slightly lower.

When an activist investor, especially one as controversial as Carl Icahn, buys into a stock, there is a large group of investors that blindly buys into the stock based simply on this information. While some investors may be comfortable with that strategy, the average investor shouldn't be managing his or her money in that fashion.

But before we get into the details on why this sort of trading is a bad idea, let's take a look at why Carl Icahn may have started this position.

Allergan's share price has fallen 24% so far this year due to the company's failed merger with Pfizer (PFE) - Get Pfizer Inc. Report . The deal was blocked by the U.S. government, which is now imposing tougher restrictions on inversion deals. In a number of Icahn's investments, he has focused on a company because he believes management can make a few changes to increase the stock's overall value.

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Although we don't know what those reasons are at this time, one could assume it would have something to do with possibly breaking the company up and selling small parts to a number of different larger pharmaceutical companies, since the Pfizer deal didn't work. Icahn also buys shares to gain seats on boards. If this is the case, he would have more influence on future deals.

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Another reason may be that Icahn believes in Allergan's business and thinks the stock will rise on its own moving forward, but that's not usually Icahn's style.

So, if the idea is to increase value based on selling the company in parts, should you follow Icahn? Yes and no. Selling small pieces of Allergan could increase the value of the stock, but it may take years for this value to be fully realized. Furthermore, we could see the government again deny a merger.

In the long run money could be made, but there could be a lot of ups and down in the meantime, and you have to ask yourself whether there are easier ways to make money in the markets. Perhaps buying a drug ETF would be wiser, as it limits your single-stock exposure and risk. Something like iShares U.S. Healthcare ETF (IYH) - Get iShares U.S. Healthcare ETF Report or PowerShares Dynamic Pharmaceuticals (PJP) - Get Invesco Dynamic Pharmaceuticals ETF Report would do the job.

Lastly, investors need to remember that Carl Icahn is playing with billions of dollars of other people's money. His risk tolerance is much higher than yours and he can afford to take massive losses. So don't blindly follow him or any other big-name investor into a new investment without doing your own research.


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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.