Friday File: Pershing Square Thoughts

What went wrong with Ackman? What did I miss?

By Travis Johnson, Stock Gumshoe, March 18, 2016

I don’t know that I’ve ever seen an investor take the kind of beating Bill Ackman is taking at Pershing Square — and, of course, he brought it on himself with his very public pronouncements on his portfolio companies.

One year does not determine whether you’re a “good” or a “bad” investor, but I do hold some Pershing Square Holdings shares so I’ve been watching Ackman’s moves this past year, and though I’ve seen my holdings drop in value (some was sold along the way in stop losses) I thought it might be worthwhile to look back on what Ackman did that might have been a mistake this year, or what I might have missed as an important turning point. I think there are a few things:

First, why does anyone invest money with Ackman’s Pershing Square? It’s because he’s been an excellent investor over the past decade+, with some strong returns that were achieved in often high-profile investments — and that’s despite the fact that a couple of his high profile investments, like JC Penney and Target in years past, did not work out for him or his investors. I invested money with him because of his track record of finding value investments and using activist techniques (direct contact with and pressure on the board and company) to make those investments work, whether that is through divestments or management shakeup or acquisition or change in strategy or whatever else. In some ways he really developed his own sub-specialty as a “large cap activist” who overwhelms his targets with research and analysis.

So why didn’t that work this past year? Well, partly you might argue that it’s because “value” stocks didn’t have a great year in 2015 — and that he was coming off of a fantastic year so expectations should have been lowered… but though there’s some logic to the “what goes up must come down” argument, his portfolio wasn’t really weighted to traditional value stocks, so that shouldn’t matter, and because Pershing Square runs an ultra-concentrated fund, each individual investment often matters a lot more than does the trend or the broad market.

These are the things that I think made it fall apart for Ackman and Pershing Square, and things that perhaps should have caught my attention as red flags and made me reconsider my investment over the past year:

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