Money Masters | Group 12

17 April 2022

Sir Talha Farrukh

Money Masters Report

Bill Ackman
“Investing is a business where you can look very silly for a long period of time before you are
proven right.” – William Albert Ackman.

Introduction

Bill Ackman (William Albert Ackman) is an activist American investor and hedge fund
manager. He is the CEO and Portfolio Manager of Pershing Square Capital Management, L.P.,
an SEC registered hedge fund management company founded in 2003. He did his graduation and
MBA from Harvard. Prior to Pershing Square, Ackman co-founded the investment company
Gotham Partners with David P. Berkowitz, a fellow graduate student at Harvard University.
Before Gotham Partners, Ackman started in real estate investment banking career at Ackman
Brothers & Singer, Inc. Mr. Ackman is also the member of Harvard Business School Dean's
Advisor board.

Investment Philosophy

The hedge fund mogul has a set philosophy when it comes to investment-making decisions. He
believes it is necessary to remain purely rational, keeping emotions aside, about making
investment decisions. According to him, the focus should be on the facts. In addition to this, he
conveys that if an investor holds a long-term view, experiencing short term losses should not be
too concerning, especially if the firm has a sound financial outlook - even if it looks silly to other
people. Its short-term performance should not be a major concern. He is a headstrong individual,
confidence reflecting his behavior when it comes to investments. He advocates that investor
should embrace their decisions, and try different strategies by conducting robust research. He
encourages one to keep learning, making mistakes and gaining experience, as according to him,
experience leads to success. Conducting due diligence before making investments is important to
Ackman, whether it is via reading the financials, reports, books on investments. He emphasizes
on the significance of conducting a fundamental analysis, as the market is almost impossible to
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predict. He believes it is important to work with the information and facts one has, rather than
relying solely on predictions and extrapolations.

Investment Principles

The first principle requires the business he is investing in to be simple and predictable. It should
be understandable in not in terms of how the product or service works but what is the business
model and how does the company generate its revenue. Ackman emphasized that you should
know if your company dominates a market and if it doesn’t it should manage its dividends and
retained earnings for growth accordingly. Moreover, Ackman emphasized on choosing
companies with minimal extrinsic risk. If a shortage or excess of a single commodity or any such
factor can seriously hurt the business of an otherwise good company, that company carries a lot
of extrinsic risk and should be avoided. Another basic principle in his diary is to prefer
companies who have significant free cash and in debt companies have a bleaker future outlook
for a fundamentalist investor. Furthermore, he thinks that it is better to choose companies that
have a high barrier to entry for competitors for example apple’s field has high barrier to entry
simply because an apple user struggles to make the switch due to device integration. Ackman
pays much importance to the governance of the companies he invests in, and their competence is
highly relevant to the success of the company he believes. Ackman believes that it is valuable to
invest in a company that gives 15% return on invested capital for a sustained period of time that
is preferred to be 10 years. He thinks that ROIC is a better measure than ROE. It doesn’t factor
in the debt. Lastly, he is hard on leveraged companies and emphasizes that a balance sheet
should be analyzed properly to ensure that most of the free cash flow generated is from operating
cash. He understands the importance of taking debt for growth opportunities but insists that it
should be minimized and an ideal debt level might be defined.

Investment Strategy

Bill Ackman follows an activist investor strategy. He buys the common stocks of public
companies, pushes for changes so that the market can realize the values of the companies.
Ackman buys stocks trading at a discount, and sells when the companies reach their appraised
value. He maintains a concentrated portfolio of 10-15 companies per usual, taking larger
positions in big companies. Ackman refrains from managing entire actual firms, instead focuses
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on managing the investments. Recently, as of January 2022, Ackman's fund has bought 3.1
million Netflix shares, worth over $1.1 billion.

Conclusion

Ackman describes himself as a "activist investor," looking for major firms with a lot of potential
but financial challenges that he can solve so that the price of stock appreciates and he can profit
from the value rising returns on these shares.

Bill Ackman is still a very media-friendly and contentious figure, and his investment strategy has
even gotten him into trouble with the Securities and Exchange Commission. He retains, though,
the dichotomy of going short against the companies he dislikes while doing everything he can to
save the ones he likes. However, recently he has decided to give up on using aggressive activist
drives to publicly embarrass company boards and executives in order to cause change and boost
stock prices.

With his contentious selections, Ackman is one of the most well-known investors, and one who
must undoubtedly be highly followed to keep up with his ability to move the market in the
direction where he invests.

References

Fincash. (2022, April 13). Top 6 Bill Ackman quotes for Successful Investment. Fincash. Retrieved April 17,
2022, from https://www.fincash.com/l/investment/bill-ackman-quotes-for-successful-investment

Fontanella-Khan, J. (2022, March 29). Bill Ackman to abandon public battles for quieter
investment approach. Subscribe to read | Financial Times. Retrieved April 15, 2022, from
https://www.ft.com/content/7c294c5d-44e7-41fd-8af5-42f4fa3567fd

Rex, D. (2020, September 1). 8 principles of Bill Ackman's success. So Dad it Hurts. Retrieved
April 17, 2022, from https://sodadithurts.com/2020/09/01/8-principles-of-bill-ackmans-success

William A. Ackman. Pershing Square Foundation. (2021, May 12). Retrieved April 15, 2022, from
https://pershingsquarefoundation.org/people/william-a-ackman-2/
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