There’s a lot that investors can learn from following Guru investors like Bill Ackman. If one were to try to learn how investment gurus think and manage their money, as a retail investor. It would be hard to mimic exactly how hedge fund Guru Bill Ackman invests his Pershing Square Capital Management, L.P’s fortune. That’s because retail investors can’t totally apply what Mr. Ackman does best – investment activism!
Yet, there’s a lot that you can learn from Bill Ackman – especially when it comes to doing your homework before investing.
The Ackman Investment Style
At the heart of it all, Ackman may be called a deep value investor who does extensive research before establishing a position in any company.
It is that extensive research that gives him confidence to then practice another trait of his investment philosophy – Activism. The public battles with management teams at Herbal Life (HLF), and the spat with the board at Valeant Pharmaceuticals (VRX) are symbolic of the activist Ackman.
From an initial investment of $54 million in 2004, Ackman managed to create value of nearly $14 billion for shareholders by September 2014. His total return stood at 626.7%, while the S&P 500 netted roughly 100%. However, for a variety of reasons, the past 3 years since 2015 haven’t been kind to Guru Ackman, as Pershing Square’s returns prove: -20.5% (2015), -13.5% (2016) and -4% (2017). Compare that to the nearly 19.5% returned by S&P 500 in 2017.
Still, over the long haul, Ackman has returned significant value to his investors. His keen sense of analysis gave him to predict what was to come in 2008. He acted by shorting names like Ambac, MBIA, Fannie Mae and Freddie Mac, which netted his shareholders billions in return.
Ackman doesn’t believe in portfolios with more than 8 to 10 holdings. The latest 13F (Dec 31, 2017) for Pershing Square confirms that too, with a total of just 7 positions held in Q4 2017. The total market value of his portfolio was $5.87B – a 15% increase from the $5.11B the previous quarter.
As a learning point for investors wishing to imitate Ackman, it might be worthwhile remembering that, where portfolio construction is concerned, often less is more. Names like QSR, ADP and MDLZ form Ackman’s top-3 holdings, accounting for nearly 62% of his portfolio.
Another learning point, from analyzing Ackman’s portfolio, is that this Guru seems to favor Consumer Cyclicals. That sector accounts for nearly 50% of Pershing Square’s portfolio. Based on the overall construction of Ackman’s portfolio, it would appear that the second, third and fourth most favored sectors are Technology (17.5%), Consumer Non-cyclicals (17%) and Financials (11%) respectively.
Takeaways from Ackman
Anyone that wants to invest like Bill Ackman would be well advised to keep their holdings manageable, resisting the temptation to create portfolios with 30+ names.
Be sector-specific in your investments. Above all, like Ackman, you should do a lot of research first – both fundamental and technical – before initiating a position. And like Ackman, never hesitate to bail out on an investment if it doesn’t give you what you hoped for.
While Pershing Square has been down on its luck lately, the key principles discussed above have been very successful for Bill Ackman and his investment team over the long haul.
The author does not own any of the stocks mentioned in the article