Different styles of investing: Bill Ackman

Fallen Angels: Investing in Good Companies That Have Gone Astray

Activist Investing and problem solving for the win

Enter Assertive Ackman – the visionary

Didn’t feel at home in either Buffett’s contrarian view or Wood’s momentum game? Maybe you’re a problem solver, someone who sees opportunities for improvement wherever you look? Someone who doesn’t thrive on just buying and sitting back?

– Are you an attentive observer who takes matters into your own hands?

Opportunism is a philosophy that encompasses many different strategies. One of them is activist investing, and one of the most prominent in that game is Bill Ackman.

He has a habit of sniffing out poorly managed companies, buying into them, and demanding a seat on the board. Occasionally, legal action has even been threatened if that doesn’t happen. His sometimes aggressive approach has given the US Securities and Exchange Commission (SEC) a bit of a headache. Not that he cares.

During his career, he has, among other things, successfully orchestrated a complete overhaul in the leadership of Canadian Pacific Railway, resulting in a return of $2.6 billion when Ackman’s hedge fund, Pershing Square, felt satisfied and exited.

When the year 2020 rolled in with the pandemic in tow, Ackman made a now almost historic bet that the bottom would fall out of the stock market. He was right – at least initially – and when he closed his position, he was almost $3 billion richer.

“With better leadership, enormous value can be created” – Bill Ackman

Market outlook

The market is not perfect, but there are hiccups and creaks both within the market and between different markets. In those creaks lies the return – but you have to be quick on the ball because opportunities disappear quickly when the market catches up.

“The market benefits from short sellers because they are like the canary in the coal mine. They are the early warning signal of a problem in the business“

At first glance, opportunism is quite similar to both contrarian and momentum philosophies. However, the difference can be said to lie in the level of investor activity. While Buffett traders and Wood players in the stock market prefer to take a position and wait for reality to catch up, the opportunist, in some respects, steps in and makes reality happen.

According to Aswath Damodaran, the opportunist primarily looks at prices and price differences, and not necessarily much else. They don’t get bogged down in investing solely in stocks; it can be a bit of everything: derivatives and futures contracts – which can be bought and sold at different prices on different markets – currencies, real estate, or bonds. You can buy into companies or short them, or simply, like Ackman, march into the boardroom and turn everything upside down. However, the latter is difficult for a retail investor to do.

But it doesn’t always go well, even if you are powerful enough to shake up the board. The aforementioned Ackman, for example, had to swallow a loss of half a billion dollars in 2010 after failing to shake up the department store chain JC Penney without success, Forbes writes.

“When I’m concerned about the direction a company is heading, I’m not afraid to voice that concern“

Advantages and disadvantages

You know when you sit next to someone struggling with something that you find so simple and obvious? That frustration is hardly less when you get to the company level with big money involved and you see a management team that isn’t fully leveraging the business’s potential. Stepping in, taking over the helm, and hopefully getting the ship back on course can be a good idea for your wallet.

But if it doesn’t work, it can be embarrassing, to say the least. And it can be costly. Bill Ackman, for example, tried to bring down the health food company Herbalife, with activist legend Carl Icahn among the owners. Ackman shorted a hefty bunch of Herbalife shares, arguing that the company is a “pyramid scheme”. This made the aforementioned Icahn see red. He accused Ackman of being a “liar” and a poor investor, while Ackman countered that Icahn is unreliable and “exploits ordinary people”.

Herbalife initially crashed 20 percent after Ackman’s short, but the price recovered. After six years and mostly gains, Ackman finally threw in the towel and took the loss of a billion dollars.

Icahn then? He made a billion dollars on the Herbalife investment. Ackman and Icahn buried the hatchet in 2014, with a slightly awkward hug on stage during a CNBC investor conference.

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