Bill Ackman – Life, Investment Strategies, And Philosophy

Last Updated on June 19, 2022 by Quantified Trading

Bill Ackman is a well-known US investor. Who is he? How does Bill Ackman invest? What are Bill Ackman’s investment strategies and philosophy? These are some of the answers we try to answer in this article. At the end of the article, we have collected many quotes taken from his books and writings (quarterly letters). Ackman has a great investment track-record and is full of investment wisdom. Read and learn!

Who is Bill Ackman?

Bill Ackman, alias William Albert Ackman, is an American billionaire investor, renowned hedge fund manager, and philanthropist. He is regarded as one of the best hedge fund managers of all time, and he makes his bets via his fund called Pershing Square Capital Management.

Bill Ackman’s childhood and education

Bill Ackman was born in 1966 in Chappaqua, New York, and is of Jewish descent. He studied social studies and graduated in 1992, but he later went on to finish an MBA from Harvard.

He married in 1994, and got three kids, but separated in 2016. A few years later he got a new child with his fiancee.

Bill Ackman’s investment career

Ackman rose quickly to fame after graduation:

Bill Ackman and Gotham Partners

After education, Ackman laid the foundation of the investment firm Gotham Partners in 1992 with his fellow Harvard graduate David P. Berkowitz. The investment firm began its operation with small investments in public companies through the stock market.

But Ackman’s real journey in the investment world began with his landmark bid for Rockefeller Centre in 1995 in partnership with insurance and real estate from Leucadia National. Despite losing the important bid, the buzz built around his company, Gotham Partners, drew the attention of investors from across the country. His company got massive media publicity due to this bid.

As a result, his company came into the limelight for the first time and people began taking notice of Ackman.

Because of the bid and the publicity, Gotham Partners became a company with $500 million in assets under management (AUM), as investors started showing faith in Ackman’s innovative investing techniques. Ackman continued working in Gotham, but it “blew up” in 2001 after a series of ill-placed bets, among them a company that invested in golf courses. Presumably, the portfolio had a lot of illiquid assets, and Gotham Partners decided to close shop.

After a couple of years hiatus, he started a new hedge fund in 2004:

Pershing Square Capital Management

In 2004, along with his former business partner Leucadia National, Ackman started a hedge fund management company Pershing Square Capital Management in New York, which changed his fate forever.

Most of his investors from Gotham Partners didn’t follow Ackman into the new fund, and Pershing started with a rather modest 54 million USD under management (all things are relative). But Pershing turned out to be a success, and in 2010 they had 7 billion in assets under management.

As of writing, Pershing Square has about 18 billion in assets under management.

Bill Ackman’s philanthropy and social works

Apart from being an investor, Ackman has also been involved in several social and welfare activities.

  • To support innovation in economic development, education, healthcare, human rights, arts and urban development, Ackman and his wife founded the Pershing Square Foundation in 2006.
  • He is also a signatory of The Giving Pledge, under which he has committed to donating at least 50% of his wealth to charitable causes.
  • Since its inception, Ackman’s foundation has committed more than $400 million in grants for social services.
  • Moreover, in 2021 he donated $26.5 million shares valued at $1.36 billion to South Korean e-commerce company Coupang.

Pershing Square Capital Management returns and performance

After Ackman founded Pershing Square he has had great success: annual returns since inception is 17% (taken from Pershing’s investment letter):

Compared to the S&P 500 the annual returns are spectacular, although the last ten years have shown lower returns than over the whole period, both absolute and relative to S&P 500. The reason for that is the very poor four-year returns from 2015 until 2018. Ackman made a comeback in 2019, and especially in 2020 when he made some correct bets during Covid-19.

When looking at the track record a couple of things stand out:

  • Some years have huge double-digit returns, and
  • The losing years show only modest losses

Risk and reward seem pretty good!

But how do Pershing Square and Bill Ackman make these great risk-adjusted returns? We have to look at Bill Ackman’s trading and investing strategies to understand what they do:

What are Bill Ackman’s trading and investing strategies?

First and foremost, Bill Ackman is recognized as an “activist investor” and this has led him to be scrutinized by the SEC. What is an activist investor?

When you are a shareholder activist, you try to use every right as a shareholder to change direction, strategy, increase value, etc. This implies taking a very active role both in the Board of Directors and/or in the management. This often leads to a lot of noise – both internally and externally. Because of this, Ackman has frequently been in the media, and very often facing stark criticism.

A lot of noise came about after his investments in J.C. Penney, Procter & Gamble, Herbalife, Valeant, and Target after he tried to change the companies’ strategies. This has taken its toll on Ackman, and in his investment letter for 2021 he wrote that he and Pershing have “permanently retired” some of the noisiest activist activities: short-selling.

Besides “activist investing” Pershing has always tried to invest in companies that will do well over many years. We can perhaps call this “Buffett investing”: buy quality companies when they are fairly valued and hold them for a long time. Pershing will focus more on this investment strategy in the future because, as Ackman argues in the 2021 letter, it makes “our job easier and more fun, and our quality of life better”. This means investing in companies that are easy to understand and have a predictable business.

Pershing Square and Bill Ackman have a concentrated portfolio

Bill Ackman has always had a pretty concentrated portfolio with 10-15 positions, with a few big and bold bets (because he has been an activist investor). Just like Warren Buffett, Bill Ackman believes that excessive diversification actually leads to “deworsification”. When you have a strong conviction, you have to go for the jugular.

Running a concentrated portfolio means that you sometimes might take hits that take a huge toll on your returns. However, despite some epic failures in Valeant and Netflix, Pershing Square has managed to keep losses moderate.

Learn from mistakes

A loss is not a loss if you learn something. This might sound like a cliche, but Bill Ackman has several written that one of the most important things in investing is to learn from mistakes and admit failure (you have to be humble enough to concede your mistakes and do a course correction). For example, he sold Netflix at a huge loss when he realized that his initial hypothesis was wrong.

Avoid short-term noise and macro bets

Ackman is of the view that you should be confident enough about your investment decision. You should not stray away from your decision owing to disrupting inputs from various sources due to short-term turbulence in the market. According to Ackman, those seeking short-term gain without any loss must stay away from the stock market.

Bill Ackman believes that economic prognostication is largely a fool’s errand and involves short-term market swings that are impossible to predict.

Moreover, short-term noise might make you lose patience with your investments. Perhaps needless to say, but ups and downs are part of the investment which no one can escape.

Always keep a long-term approach

Bill Ackman has said that “long-term investment not only reduces the risk associated with short-term turbulence in the market but enhances the chances of profitability manifold.” As mentioned above, it’s essential to avoid being forced out of positions due to short-term noise and macro news which you have no control over.

Bill Ackman argues you should make a well-thought strategy before investing in the stock market because this reduces behavioral biases due to the short-term volatility in the market.

What is Bill Ackman’s net worth?

According to Forbes and many other sources, Bill Ackman is estimated to have a net worth of about 2 billion USD. Supposedly this makes among the 500 richest people in the US.

Bill Ackman quotes

We end the article by giving you some of what we consider the best quotes from Ray Dalio, all taken from reading his books and interviews. Read and learn!

Investing is a business where you can look very silly for a long period of time before you are proven right.
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I’m not emotional about investments. Investing is something where you have to be purely rational and not let emotion affect your decision-making – just the facts.
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If I believe that I am right, I will take it to the end of the earth until I am proven right.
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Short-term market and economic prognostication is largely a fool’s errand, we invest according to a strategy that makes the need to rely on the short-term market or economic assessments largely irrelevant.
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Experience is making mistakes and learning from them.
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What matters is what you do when you’re wrong.

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In order to be successful, you have to be sure that being rejected doesn’t bother you at all….I’m always prepared to do the right thing regardless of what other people think.

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I love what I do. I don’t do it for the money. I work on behalf of investors that I like and want to do well for. I’m a competitive person.

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Investing is a business where you can look silly for a very long period of time before you are proven right. 

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Experience is making mistakes and learning from them.

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I’m not emotional about investments. Investing is something where you have to be purely rational and not let emotion affect your decision-making – just the facts.

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Ultimately, investors are only as good as their track records.

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I think most investors overdiversify because they’re lazy. They haven’t done enough research into any of their companies.

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Investing is one of the few things you can learn on your own.

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I’ve seen very few people in the world accomplish anything unless they were optimists.

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In the investing business you need a – a high degree of confidence but you also need a high degree of humbleness and you have to balance those two… Humbleness comes from mistakes.

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We invest generally in very good companies that have lost their way. And with better management, enormous value can be created.

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The untold secret of McDonald’s is that when you sell a restaurant to a franchisee, sales typically go up a lot because the franchisees do a much better job managing the store.

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