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Investment Opportunities

Don’t Bet on This Top Wall Street Hedge Fund

  • One of Wall Street’s most high-profile hedge fund managers delivered an eye-popping 58.1% return last year.
  • But, as Nicholas Vardy explains, his fund is not a safe bet for wealth creation.

Bill Ackman is one of Wall Street’s most high-profile hedge fund managers.

His company, Pershing Square Capital Management, once managed as much as $20 billion. Ackman boasts a personal fortune of $1.7 billion.

Today, you can buy Ackman’s largest investment vehicle – Pershing Square Holdings (LSE: PSH) – with the click of a mouse.

And once you hear about Pershing’s eye-popping 58.1% return in 2019, you may be tempted to do so.

But based on what I have learned about Ackman’s psychology… investment style… and long-term track record… I can only come to one surprising conclusion.

I wouldn’t touch Pershing Square Holdings with a 10-foot pole.

Let me explain…

The Story of Bill Ackman

Ackman graduated from Harvard Business School in 1992. (I recall seeing him, a tall, distinctive-looking guy, at several parties at the Harvard Business School.)

Unlike his classmates, Ackman was not willing to toe the corporate line at Goldman Sachs and McKinsey.

After graduation, he promptly went to work for his father, a real estate developer. And within a year, Ackman launched his first hedge fund.

Ackman quickly developed a reputation as an activist investor.

He acquired significant stakes in companies with hidden value. Once on the board, he demanded changes that drove up the stock price.

Ackman also sold stocks short, betting against a company. He then publicized his position to make a collapse in its share price a self-fulfilling prophecy.

Like many small funds, Ackman’s got off to a strong start. He beat the S&P 500 for seven straight years.

His investment fortunes turned south about a decade later.

Managing billions at Pershing Square, Ackman bet big on pharma giant Valeant – now Bausch Health (NYSE: BHC) – comparing its business model to Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A).

Ackman also bet $1 billion against Herbalife (NYSE: HLF), arguing that the nutritional shake company was a Ponzi scheme.

Both these bets were disasters.

Until last year’s turnaround performance, Pershing Square was down for four straight years. And Pershing Square’s assets were down to roughly half their $20 billion peak in 2015.

Why I Wouldn’t Touch Pershing Square With a 10-Foot Pole

Retail investors rarely get to tap into the expertise of a genuine Wall Street hedge fund bigwig like Ackman. But I see three compelling reasons I would never invest in Pershing Square.

First, there is Ackman’s personality.

Ackman is a remarkably cocky guy, even by the elevated standards of Harvard Business School grads.

Ackman once played a doubles charity tennis match against tennis legend John McEnroe.

Ackman, a tennis player in college, violated the unstated rules of charity matches by trying to defeat McEnroe.

McEnroe also turned up his game. Predictably, the three-time Wimbledon champion went on to crush Ackman.

This incident revealed two things about Ackman. One, he is competitive. Two, he is arrogant to a level that borders on delusional.

Contrast this with George Soros, whom I wrote about last week.

Soros – the greatest pure speculator in history – saw his willingness to admit his mistakes as his greatest strength. In contrast, it’s hard to see Ackman ever admitting he is wrong.

Second, there is Ackman’s garbled investment strategy.

After decades as an activist investor, Ackman changed his investment stripes. He has started embracing Warren Buffett’s long-term investing style, even calling the “Oracle of Omaha” his “professor.”

In practice, Ackman started to swing for the fences with blue chip stocks.

At the end of 2017, Ackman took a significant contrarian position in Chipotle‘s (NYSE: CMG) stock. Ackman was betting that the food poisoning crisis at the burrito chain would fade.

Today, Ackman’s stake in Chipotle makes up almost one-fourth of Pershing’s portfolio.

The downside of such a concentrated strategy?

You not only have to bet big. You have to be right. Most importantly, you have to exit when your bet starts going bad.

Alas, admitting when he’s wrong is not Ackman’s strength.

Third, Ackman has a lousy track record.

Ackman may have bulletproof self-confidence, but he has a shockingly lousy investment track record.

A rival hedge fund manager says he’s looked at Ackman’s returns. And he’s convinced that Ackman has never made any money for investors.

Whether that assertion is true or not…

Pershing Square Holdings’ public track record does not paint a pretty picture.

The bottom line?

Today, you have the chance to invest with one of Wall Street’s top hedge fund managers by buying Pershing Square Holdings.

But take my advice…

Don’t fall for the bait. Don’t bet on Bill Ackman. Don’t buy Pershing Square Holdings.

Good investing,

Nicholas


Interested in hearing more from Nicholas? Follow @NickVardy on Twitter.


About

A widely recognized expert on the exploding asset class of exchange-traded funds (ETFs), Nicholas has been a regular commentator on CNN International and Fox Business Network. He has also been cited in The Wall Street JournalFinancial TimesNewsweek, Fox Business News, CBS, MarketWatch, Yahoo Finance and MSN Money Central. Nicholas holds a bachelor’s and master’s degree from Stanford University and a J.D. from Harvard Law School. It’s no wonder his groundbreaking ETF content is published regularly in the free daily e-letter Liberty Through Wealth.

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