You guys probably know now I’m a fan of Bill Ackman. Today I want to share with you guys 3 things I’ve learned from him and hope learning from the billions can help us make better investment moves.
You guys probably know that Bill Ackman has turned 27 million to 2.6 billion (which is 100 times)in this Pandemic period. So today I’m going to talk in details about how he did it and what’s my takeaways.
Bill Ackman is the founder and CEO of the hedge fund management company -Pershing Square Capital Management. He got his Bechalor degree from Harvard major in Arts and later got MBA from Harvard too. He started Pershing Square in 2004 with 54 million form his personal fund and his former business partner Leucadia National. Currently Pershing Square has 8 billion AUM.
The “big short” started in March when Bill Ackman recommend on Twitter about country shut down and he also said on CNBC that “tsunami is coming”. And those broadcast has caused more attention about the virus from the general public. And after a few more days he said he earned 2.6 billion from “the big short” (100X return), and he cleared his short position and become optimistic…
That day the stock market dropped 12% and he said he began to be optimistic…
So what did Bill Ackman bought? He mainly bought CDS (Credit Default Swap) to protect his other long-term equity. The CDS they bought are on the US investment grade and high yield credit indices, and the European investment grade credit index. through CDS, he linked to 71 billion corporate debt, which is 10 time the AUM of his company. It is like a insurance to stock market increase, that he need to pay 27 million every month for 5 years until the market crash he can make money from it. Luckily, he boughts the CDS in Feburary and just paid 27 million once and then the market crash in March, and their hedges increased vaalue from zero to a peal of 2.7 billion, which were ~40% of their total capital (as their equity investment declined significantly over the same period). In March 12th to 23rd, they completed the exit from the hedges which generated the total amount of 2.6 billion. 100 times sounds a great trade, but actually his cost of the hedging strategy should be 27 million * 12 * 5.
The reason to buy the CDS is not speculation, according to Ackman, he said at that time he has 2 options: sell his portfolio or hedge his portfolio. If he sell his portfolio, as the size is too big, it would has the impact to the market and they would suffer from more loss from it. So he tried to use 4% annual cost to protect his assests. Although he earned 2.6 billion in this trade, his hedge fund just has ~4% return for year 2020 so far.
Here are 3 things I learn from Ackman:
- Anti-fragile in uncertain circumstance
Bill Ackman is a value investor, but he always think about creative ways to hedge the uncertain future. This anti-fragile approach can us become proactive rather than passive when there in the black swan events, and I strongly believe people who take actions to create their futures will win, and people who just complain all day and do not do real work will eventually lose.
2. Admit your failure and learn from
Of course Ackman is not right all the time, he has lost half of his money on Herbalife bet. A lot of people don’t want to admit their failure because they think it will lose their face. But actually do not dare to admit the failure is the factor make people lose more. Accept the failure and grow from it makes Ackman stronger and come back again with confidence and more strategies.
3. Do the due diligence before wiring the money
Do fundamental analysis to distinguish between good business, fair business and bad business. I think one reason of Ackman’s success is to do his own research and analysis and do not follow the herd. 90% people loss money in the stock market, only the ones who dive deep and fully understand what they are doing and why they are doing it earn the money. I’m using Smart Stock Screener recently for fundamental data, financial data and technical indicators, which is app available in both iOS and Android store, and comes handy when you come up with trading ideas on the way or somewhere has no access to a computer. The app is free with no ads for now, so feel free to try it and let me know your thoughts!
Reference
👉 https://ainvest.onelink.me/MpR9/u587bdyp
👉 https://twitter.com/billackman
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