Bill Ackman: J C Penney Is Probably The Worst Investment I’ve Made [FBN PREVIEW]

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In an interview to appear on FOX Business Network’s Risk & Reward at 1PM/ET today, anchor Deirdre Bolton speaks with Pershing Square Capital Management Fonder and CEO Bill Ackman following the Harbor Investment Conference. When asked what his biggest strategic mistake was, Ackman said, “I think J C Penney is probably the worst investment I’ve made.” Ackman also commented on Howard Hughes Corp saying, “I don’t think I will ever sell.  And that’s a pretty long time frame.” When asked if he wasn’t an investor what profession he would be interested in Ackamn says, “an investigative reporter.” Check out ValueWalk’s exclusive preview below.

Bill Ackman on his biggest strategic mistake:

“You know, the biggest strategic mistake, I would say, was a business mistake I made in my prior fund when I went from a public liquidity strategy to a private one.  That’s not that interesting, but you see a lot of hedge funds make that mistake. You know, I think J C Penney is probably the worst investment I’ve made… But I think underestimating what’s required in terms of some combination of board alignment and, you know, Ron Johnson, creative genius, but we needed a new… I think you really have to have the stars aligned.  And it may have had to have been a private company to get that done.”

Bill Ackman on being a journalist if he wasn’t an investor:

“You know, I actually like the investigative element of what we do.  So I could be a — I could be in your business.  I could be an investigative reporter.”

Bill Ackman on what was the number one thing that surprised him about his conversation with Bridgewater Associates founder Ray Dalio:

“I don’t know that there was a surprise, but he’s a very interesting, very smart, clearly a thinking person.  So that, you know, that I expected, but I had never really spoken to him before…Well, his belief in what I would call almost systematizing his strategy.  It’s about a series of rules that he learned based on analyzing – and again, I’m probably not doing a great job describing it — but looking at markets over, you know, four decades…Well, I had a fun moment with him where he was describing how you can – you know, I was explaining, well one of our — a lot of what we do is qualitative.  We’re assessing management, leadership skills, things I think of as qualitative.  As well, you can really make those, you know, into a quantitative series of rules and use artificial intelligence. And I go, well, how did you select your wife? And he was a little taken back.”

Bill Ackman on whether he thinks activists are good for healthy corporate America or seen as a predator:

“I think it’s a very, very healthy thing for corporate America.  And I think the vast majority of investors agree.  My point was, the difference between the corporate raiders of the 1980s, where they were buying control of companies and sort of imposing their strategy, whether it was levering up or liquidating, here what you have is a large investor.  Activists usually don’t own more than 10 percent of a company. And then they propose, often publicly, a plan to make the business more valuable.  If that plan is appealing to the owners of the business, and the owners — typically, the major owners are very longstanding – in some cases, permanent owners like Vanguard and BlackRock and other index funds.  If they agree with the activists, I think that’s a pretty good measure as to whether it makes sense or not And the activists can’t be successful without the support of the shareholders. So what — my point is, it’s about creating options for management and for shareholders.  It’s not – we can’t force change.  And so it’s hard for an activist to be predatory.  An activist isn’t predatory at all.  An activist is a thought leader who only succeeds with the support of the owners.”

Bill Ackman on working with Vanguard:

“You look at the performance of index strategies – you know, Vanguard, I think is one of the huge beneficiaries of capital flows in the last year.  And, you know, when you’re an index fund, you don’t get to choose what you own, right? You own the S&P 500, you own the Russell 2000.  Your only opportunity for outperformance is to make those business perform better.  So I think it makes index funds, who you think of as the most passive owners, much more receptive to corporate change in cases where there’s undervaluation or underperformance, where there’s opportunities to unlock value.”

Bill Ackman on whether he worries about being out of ideas against top competing activist:

“This is a strategy where we do very few things, right? We own 10 things.  When the Allergan transaction closes we’ll own one fewer thing.  That will free up a bunch of capital and we’re looking for places to put that capital. So, you know, can I find one or two interesting things a year? Yes, so out of, let’s say if I were just to focus on the S&P 500, if it’s just focused on the bottom decile, then, you know, that’s 50 companies.  And it’s not just relative performance to other companies, it’s relative performance to what they could achieve if the business were run optimally. But it’s a different calculation than just comparing to other companies.”

Bill Ackman on litigation:

“Right.  I mean you can sue.  And in a takeover, it’s very common to have take over related litigation.  What I’ll tell you is shareholder activism, by its very nature, any active strategy where you intend to intervene in a business, the activist has a plan.  And that plan is not known by the person who he’s buying stock from. So for — we bought a stake in Canadian Pacific, we had a plan to replace the management of the company.  We didn’t tell the 14 percent of the stock that we purchased, you know, those shareholders, what we were doing.  We didn’t tell the Allergan shareholders we bought 9 percent of the company from that we had a plan to take over the business. You are permitted, under the rules, to take advantage of your own inside information and that of your partner, as long as your partner shared that information without violating a — a duty of trust or competence. I don’t think that law is going to change.  And it’s — and laws tend to change when people are harmed.  I don’t think anyone has been harmed in Allergan.  It’s been quite the opposite, right….  90.3 percent of the stock that we didn’t buy, people made a fortune.  The 9.7 percent of the stock we bought, we paid a meaningfully higher price than where it was at the time.  So anyone who sold to us got a better price.  The, you know, Valiant did very well. I mean there are — there aren’t a lot of people complaining about Allergan.  It was one of the best performing stocks last year.  And even, you know, the management of Allergan is happy with — they didn’t sell the Valiant and, you know, they — that they have found a merger partner they’re happy with.”

Bill Ackman on whether his company should be thought of more as a holding company rather than a hedge fund:

“That’s how we think about ourselves and we do have a — there’s a publicly traded Pershing Square that trades in Europe.  I describe it to people as an investment holding company. But if you look at our holdings, you know, CP, we’re a major shareholder on the board, you know, we identified the CEO.  We helped get him a job.  He’s done the hard work, but we helped get him in place. Seifi Ghasemi, we put him on the board of directors.  The board chose him as their CEO at — at Air Products. Martin Franklin, we backed him in building Platform Specialty Products.  Howard Hughes, we created the company. We’re really business builders.  You know, so Marty looked in, you know, seems to constantly attack me personally.  I’m not sure why.  But if you look at what we do, I mean, again, there are — there are activists that are short-term.  But we are not one of them. But we are clearly business builders…I mean, you know, Howard Hughes effectively had been a shareholder for more than six years.  But I’ve said to people, I said at the conference today, I don’t think I will ever sell.  And that’s a pretty long time frame.”

Bill Ackman on what’s next for Pershing Square:

“More of the same.  You know, we’re looking for great, high quality businesses.  They typically are going to be large cap North American companies.  And they’re businesses where we see an opportunity for improvement. And the improvement very often can get done with the existing team running the business.  Sometimes we’ve been able — we felt a change in the — in the leader was necessary.  So, you know, it’s going to be the full spectrum of ideas and we’re looking for a couple of good ideas and we welcome input.  We’re not a not invented here company.  So if someone has got a great idea, a great business that needs improvement, we’re all ears.”


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