Bill Ackman is the founder of Pershing Square Capital Management and one of the best-known hedge fund managers in the US. Under Ackman’s direction, Pershing Square has grown to over $13 billion in assets; Ackman himself is worth nearly $3 billion.
In this article, we’ll take a closer look at Bill Ackman’s investment career and the 10 pieces of Bill Ackman investment advice that all investors should know. So, let’s get started!
Bill Ackman Investment History
Bill Ackman began his Wall Street career in 1992, when he co-founded the hedge fund Gotham Partners. Just over 10 years later, in 2003, he founded Pershing Square – the hedge fund he still leads today.
Throughout his career, Ackman has been known as an activist investor. He typically takes large positions in companies and then pushes the management team to make changes that he believes will benefit shareholders. In one instance, Ackman successfully pushed Wendy’s to spin off its fast-growing Tim Horton’s brand and then sold his shares for a massive profit.
Ackman’s aggressive tactics have led to big losses in some cases though. Famously, Ackman shorted Herbalife because he believed that the company was an illegal pyramid scheme. Ackman ultimately lost nearly $1 billion after a years-long campaign against the company.
Bill Ackman Investment Advice
Bill Ackman’s investing style is aggressive and to some extent requires being able to buy up significant portions of companies’ shares. However, Ackman is also a value investor in many ways. His investments largely focus on companies that he believes are undervalued or are underperforming.
With that in mind, let’s look at 10 pieces of investment advice that Bill Ackman has shared over his career.
1. Read up on Investing
The first thing that Ackman tells new investors is that they need to learn about the market. “Read everything Warren Buffett has ever written and watch every YouTube video he’s ever appeared in,” says Ackman. “That’s a great way to learn about investing.”
Ackman points out that, unlike most businesses, investing is a business you can learn all on your own through books, videos, and practice. That makes it uniquely suited for individuals who are willing to put in the work it takes to get off the ground.
2. Look for Companies That You Can Own Forever
One of the simplest rules that Ackman lays out for new investors is to buy companies that they can own for decades. “You…really want to invest in businesses that you can own forever. You don’t want to constantly have to be shifting from one business to the next,” according to Ackman.
That means thinking not just about where a business might be in the next year or two, but where it will be in 10 or 20 years. So, you need to think about things like long-term business trends and where the management team is headed rather than short-term price movements.
3. Stick to Businesses You Understand
While some of Bill Ackman’s investments have been based on complicated investment theses, he stresses the importance of investing in businesses that you understand. “There are lots of businesses in which you don’t understand how they make money,” he says. “Even if they’ve had a great track record, I would avoid them.”
If you don’t understand how a business makes money, it’s nearly impossible to value it correctly. Rather than risk getting it wrong, look for a company that makes more sense to you.
4. Be Confident, But Not Arrogant
Ackman tells investors that there’s a fine line between confidence and arrogance: “There’s a difference between arrogance and confidence. If you’re arrogant in investing, you’re going to get killed. If you’re not confident, you’ll never make an investment.”
The key to successful investing, according to Ackman, is to strike the right balance. You should be confident enough in your investments to stick with them even when others think you’re wrong. However, you should also be willing to listen to contrary points of view and adjust course based on new data.
5. Go Against the Crowd
Ackman has spent his career making investments that are unpopular or that go against traditional wisdom. He encourages other investors to be similarly willing to break away from the herd. “When the stock market is going down every day your natural tendency is to want to sell. When the stock market is going up every day your natural tendency is to want to buy. But in bubbles you probably should be a seller. In busts you should probably be a buyer.”
Developing the ability to do your own thinking and not follow the crowd requires discipline and patience. Ackman also points out that in some cases, it can be many years before your investment thesis is proven right.
6. Don’t Let Failures Discourage You
Bill Ackman has had his fair share of failures. In 2018, he took a $1 billion loss when he closed out his short position against Herbalife.
The key, says Ackman, is to learn from your failures and then move on from them. “In order to be successful, you have to make sure that being rejected doesn’t bother you at all.”
7. Keep Emotion Out of Investing
Like many successful investors, Ackman points out that it’s critical to keep emotion out of investing. “I’m not emotional about investments,” he says. “Investing is something where you have to be purely rational and not let emotion affect your decision making – just the facts.”
Of course, remaining steadfast in the face of investment decisions can be difficult. It’s important to practice good discipline and to write down your investment thesis so you have a clearly defined plan to refer back to.
8. Ignore the Short-Term
Ackman’s focus on value investing means that he is thinking about the long term – and he encourages investors to do the same. “Short-term market and economic prognostication [are] largely a fool’s errand,” he says. “We should invest according to a strategy that makes the need to rely on short-term market or economic assessments largely irrelevant.”
In practice, that means thinking about a company’s fundamentals, business structures, and growth opportunities while ignoring things like technical analysis and short-term market trends.
9. Small Returns Add Up
While Ackman’s most famous investments are those that returned huge gains, he’s quick to point out that small returns are what most investors should be after. “You don’t need to make a hundred percent a year to have a fortune,” he says. “You just need to invest at an attractive return of 10-15 percent over a long period of time and your money will grow very significantly.”
For investors, that means you don’t need to take huge risks in order to succeed in the market. Focusing in low-risk, moderate-reward opportunities can pay off handsomely over the long run.
10. Don’t Be Afraid to Speak Up
Another thing Ackman tells investors is that there are few things more important than open communication. “A lot of people in the interest of politeness or fear of confrontation or it’s just uncomfortable do not speak the truth.” But if you do speak up, says Ackman, “you’ll have much better relationships.”
Having an open line of communication is particularly important with those you consult when making investment decisions. You should be able to speak your mind about an investment idea of theirs and they feel comfortable challenging your ideas before you dive into an investment.
Conclusion: Bill Ackman Investment Advice
Bill Ackman has run one of the country’s most successful hedge funds by using a combination of activist and value investing. While Ackman’s style isn’t easily replicable by everyday investors, his advice resonates with any investor interested in finding value in the market and investing for the long term.