Bill Ackman’s Perseverance and Due Diligence


william ackman of pershing squareOne of my favorite investors is Bill Ackman. Many pundits claims that the big investors have more resources, get access to better data and therefore have an unfair advantage over the little guy. First off I think this is not true because as Warren Buffett stated that if he had $1 million he could return 50% a year. However, if he had $10 million he would not be able to generate such high returns. The reason is that he could not invest in the same nano-caps, which the market has been mispricing.

Even if one wants to say that this is true but the “big guys” still have an advantage in terms of more resources I would agree. But Bill Ackman is successful not because he can call up the CEO of a company to talk. He has produced phenomenal returns because he performs intense amount of research, which normal investors could not even fathom.

One book which describes this is Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street’s Bluff. Although I have not read the book it is very high up on my list of books to read. The book describes the enermous amount of research which Bill Ackman performed on his short of MBIA.

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Here is a quote from a  Bloomberg Article, which at first appears to be a typo:

It was the $109,000 photocopying bill that hedge fund manager William Ackman says made him realize how much he’d read and underlined before betting against bond insurer MBIA Inc. in 2002.

His law firm charged him for copying 725,000 pages of financial statements and other documents, 140,000 of them about MBIA, to comply with a subpoena. Following New York and U.S. probes of his trading and reports, Ackman persisted in challenging MBIA’s AAA credit rating for more than five years, based on his own research.

But that is no typo, Bill Ackman read through 140,000 pages regarding MBIA, which led him to believe that the company was straying from its core business of being a muni-bond insurer, to getting into synthetic CDOs. This lead to Ackman’s short in 2002, which took six years to pay off, when the company finally crashed. During that period, Ackman also had the intense patience to hold onto his short while MBIA accused Ackman of spreading false rumors.

Ackman was defiant. On January 25th, 2008 before the company appears to have any risk of bankruptcy, Bill Ackman asked if Fitch Ratings should really have a Triple AAA rating on MBIA:

Does a company deserve your highest Triple A rating whose stock price
has declined 90%, has cut its dividend, is scrambling to raise capital,
completed a partial financing at 14% interest (now trading at a 20%
yield one week later), has incurred losses massively in excess of its
promised zero-loss expectations wiping out more than half of book
value, with Berkshire Hathaway as a new competitor, having lost access
to its only liquidity facility, and having concealed material
information from the marketplace? Can this possibly make sense?

With the exception of David Einhorn with Allied capital, I know of no other investor who conducted this much due diligence into a company, and had the perseverence to hold onto their short for six long years.

Ackman has had his share of mistakes, but his intense research process and perservence have paid off in the long run. Bill Ackman stated he was bullish on Tiffany’s at The Ira Sohn Conference on May 25th, 2011. Since then the stock is up ~21% vs ~2% for the S&P500. Ackman’s Pershing’s flagship fund has returned 290.8 percent net of fees since the fund’s inception in 2003.

Bill Ackman will be speaking at the upcoming Value Investing Congress in NY, which will take place October 17th and 18th at the Marriott Marquis Hotel. I attended the last conference, and it was not only great for investment ideas, but one of the best networking venues for analysts, HNWIs, people in business development, financial media etc. I am going to be attending this year and covering the conference again.

Bill Ackman’s speech will be one of the highlights of the next Value Investing Congress.

There is a special deal; Value Walk readers will receive a discount of $1,900 off the regular price, however it expires on July 29th So act quickly, this will be the largest discount offered for the conference. As the conference gets closer the discounts decrease significantly.

Discount Code: N11VW4Just follow the link below and use the discount. Buy a holiday gift (or rather an investment that will likely yield rewards) for a loved one, friend neighbor or even yourself. But act soon before the huge discount expires: Value Investing CongressDiscount Code: N11VW4

The full line-up as of today is as follows:

Bill Ackman
James Crichton
Adam Weiss
Alexander Roepers
Joel Greenblatt
Whitney  Tilson
Glenn Tongue
Jim Chanos
Leon G. Cooperman
Michael Kao
Guy Gottfried

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