Chit Chat Stocks - BILL ACKMAN: His Best and Worst Investments (HLF, CMG, and More)

Episode Date: November 6, 2024

On this episode of Chit Chat Stocks, we dive into controversial hedge fund manager Bill Ackman. Is he a great investor? The next Warren Buffett? Or overrated due to his salesmanship and media appearances. We dive into his investing philosophy, track record, and case studies, discussing: (04:18) Bill Ackman's Background and Early Career (07:17) The Rise and Fall of Gotham Partners (10:16) Transition to Pershing Square Capital Management (13:13) Performance Analysis of Pershing Square (16:16) Investing Principles of Bill Ackman (19:23) Case Study: The Herbalife Controversy (31:26) Case Study: Valiant Pharmaceuticals (41:02) Valiant Pharmaceuticals: Lessons Learned (44:33) Chipotle: A Turnaround Success (53:03) Lowe's: Strategic Management and Growth (01:01:14) Current Holdings: Analyzing Ackman's Portfolio (01:06:40) Conclusions: Insights from Ackman's Investment Journey Tickers mentioned: HLF, CMG, LOW ***************************************************** Subscribe to our YouTube channel: https://www.youtube.com/@ChitChatStocks  Follow us on Twitter/X: ⁠https://twitter.com/chitchatstocks  Follow us on Substack: ⁠https://chitchatstocks.substack.com/  ********************************************************************* Sign-up for a bond account at Public.com/chitchatstocks  A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. As of 9/26/24, the average, annualized yield to worst (YTW) across the Bond Account is greater than 6%. A bond’s yield is a function of its market price, which can fluctuate; therefore, a bond’s YTW is not “locked in” until the bond is purchased, and your yield at time of purchase may be different from the yield shown here. The “locked in” YTW is not guaranteed; you may receive less than the YTW of the bonds in the Bond Account if you sell any of the bonds before maturity or if the issuer defaults on the bond. Public Investing charges a markup on each bond trade. See our Fee Schedule. Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. See https://public.com/disclosures/bond-account to learn more. ********************************************************************* FinChat.io is The Complete Stock Research Platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠finchat.io/chitchat  ********************************************************************* Sign up for YellowBrick Investing to track the best investing pitches across the internet: joinyellowbrick.com/chitchat ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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welcome to chitchat stocks on this show host ryan henderson and brett shaffer analyze businesses and riff on the world of investing as a quick reminder chitchat stocks is a ccm media group podcast anything discussed on chitchat stocks by ryan brett or any other podcast guest is not formal advice or recommendation now please enjoy this episode welcome into chit chat stocks my name is brett schaefer and as always joined by ryan henderson we have another fantastic episode coming to you today and we are talking if you saw the title another famous investor on one of our regular series covering investing philosophy and what we can learn from some of the best investors out there in the past which you can find on any of our

podcast page feeds. We have done Stan Druckenmiller, Pat Dorsey, Norbert Liu, and other investors this year. So you can check those out if those interest you as well. They are less timely and more evergreen. We hope people can listen to those and learn along with us today. And we did the timing on this one, maybe not a hundred percent because of the presidential election, but we're not going to talk about any of that. We're going to talk solely investing stuff. We're discussing Bill Ackman. He is one of the most, perhaps the most controversial investor in the world. Some people like him. Some people hate him. He dives into, I guess, any topic he wants to go into. Today, we're going to really discuss only his fund, his investing style, and some of his

best and worst investments out there. But Ryan, you're joining me today. What are you most exciting to discuss about Bill Ackman? Ooh, it was fun to look at some of his worst investments. And I'm not trying to like, you know, dunk on him or anything like that. Cause he's, when we look at the returns, it's actually been pretty solid, but there's so much discussed about Bill Ackman,

so much out there in the news. He is so vocal, probably one of the most vocal fund managers in the world that it's easy to forget that he like, at its very basics, was just a really good analyst. And to actually dive into the investment returns was fun. And we can discuss whether or not he really does belong in sort of the upper echelon of the greatest investors of all time or whether or not his mistakes have cost him too much. But I guess to kick things off, why don't you, for anyone who does not

know Bill Ackman at all, which is probably unlikely, but if they just love listening to the show and they'll listen to anything we talk about, describe who Bill Ackman is and what his current fund is as well. And we'll go in through, I'll talk a little bit about his history also. Yeah. So he's a 58-year-old hedge fund manager. He likes to do crusades on various stocks and stuff he likes on financial media outlets, podcasts, put out lengthy Twitter threads on a variety of topics, not limited to investing, and really just espouses his opinion on anything. He used to be an activist investor, which we'll get into with one of our case studies. And this type of stuff relates to his investment style. He has mellowed out and I guess stayed

away from true activist or activist short selling, stuff like that. And he's changed from being a long short fund to a long only fund, I believe, in the last few years. But he is not afraid at all of drama or controversy. In fact, I think he enjoys being in the middle of the scrum. and taking a side on stuff, especially when it is something that has really, really intense opinions on both sides. He is known for his famous, quote, hell is coming rant on CNBC during the COVID crisis, which if you listened to that interview and that full phone call, he was very accurate. But the way he talked about it and the hyperbole that came out of his mouth, it caused people to, I'd say, think of him as a drama queen and maybe lose respect or his reputation went down

because of that, even though his idea was very correct and he made a ton of money during COVID. And I think that sums it up. You know, he's a great analyst, but an even better salesman of his ideas. And he sometimes, as we'll get into, he runs into trouble because he's too good of a salesman on himself. He convinces himself on certainty when reality there's, you know, probabilities with scenarios, and that's where he runs into trouble. So that sums up, I'd say, not his investing philosophy, but a little bit of his background. But Ryan, why don't you get into more? You kind of looked at what he was doing at Harvard back in the day and how he got into the investing world before starting Pershing Square. Yeah, I guess just as far as background

goes, I forgot to jot this down, but his parents were both well off. I think his dad was a prominent real estate developer, and he seemed to have a pretty good upbringing, went to Harvard for undergrad. And he was, it seems like, interested in finance from kind of the very start. So while he was attending undergrad at Harvard, he worked as an analyst at a hedge fund where he made a name for himself by predicting the collapse of the junk bond market in 1989. After Ackman graduated from Harvard Business School in 1992, he then started a fund of his own called Gotham Partners, along with his fellow Harvard grad, David Berkowitz. I don't really hear as much about him, and I'm not sure what the relationship was like there, how much of

it was Ackman doing the investing, David doing the fundraising kind of thing. I'm not sure, I guess, what the roles were, but they started it together. It was called Gotham Partners, And it's kind of hard to find a whole lot of information on Gotham Partners. The letters are not public online, or if they are, I was unable to find them. So if you have them, please feel free to send them along to me. But it seems like he was quite successful in his early years. I believe it was seven limited partners that helped him get started. He raised $3 million in assets under management and reportedly posted double-digit annual returns throughout most of the 90s.

So strong start. He went from basically $3 million in assets to $300 million in assets over a decade. So, I mean, he really had a very successful period in the 90s, but he – and we'll talk about this throughout pretty much his whole career, but he has always kind of seemed to have this interest in being in the limelight, like trying to get – like become sort of a celebrity in a way. I think one of those was – and this didn't really end up hurting him, but he made – in 1995, so three years into running his hedge fund, he and a – or his fund and a real estate company made a bid for the Rockefeller Center, which really kind of put him on the map. Yeah, not just a random building. It has to be the Rockefeller Center because there's a name attached to it. So if this stuff just ended up being coincidences, it would be highly unlikely where he goes after stuff that's the most famous, the most notable, stuff like that. And this is perhaps his first one.

Yeah. So, I mean, that was kind of maybe, yeah, like you said, the first one. But then in the early 2000s, Ackman began to make some ill-fated investments in golf courses. It might actually have started a little earlier, but this is when it, I guess, started to catch up to him. So eventually, Gotham Partners took a controlling stake in this private golf course operator and actually rebranded the company Gotham Golf. And they kept adding that to the balance sheet in order to acquire new golf courses. This ended up being quite the money-losing endeavor, and a lot of these golf courses were not profitable for him. And eventually, actually, the debt burden became so large that he needed to take some action in order to help the business.

And keep in mind, the investors signed up as a part of a public equities hedge fund for the most part, or at least just public investments hedge fund. So it's already kind of pushing investors in a direction they don't want to go. Did they really sign up to be the owner of some private golf courses? I don't think so, and we'll see that here in a second. But basically, Ackman tried to engineer a merger between Gotham Golf and a real estate company that they also had a controlling stake in at the time, which had a bunch of cash on the balance sheet. So in theory, Gotham Golf could have acquired this real estate company, used the cash to pay down some of the debt, and I don't know. Maybe you could talk about some synergies in there or whatever. But the minority shareholders in the real estate company were like, no, this is ridiculous.

we're getting the short end of the stick here. You're just taking our cash and basically saving this golf course business that you own. So they took it to court and the Gotham minority, or sorry, the real estate company, the minority shareholders there won. And in that time, Gotham partners were pretty, I think they'd become pretty wary and they were all trying to get out. So, which takes some time because the golf courses are very illiquid. You can't just like sell stock um you know you have to find real buyers there so basically they ended up losing um they ended up having to shut down i'm not sure what the returns were there i assume they were positive if you posted double digit returns over a decade um but but you also

could have blown up on this last thing is what you're saying yeah and it's hard to really know it's i also think it's important to uh maybe put some matters to rest here a little bit about what happened with icon and ackman or maybe this was kind of the beginning of it um but it kind of plays into it as well so you may have heard about the feud between billionaire carl icon and uh bill ackman especially you may have seen their encounter on cnbc which brett's going to talk about in a sec because this was early on and it comes back to maybe bite him a little bit in the future so from what i have read here i do kind of 100 stand with ackman it's actually for me it put icon in a little bit of a bad light i already kind of we knew that his i mean his own

icon enterprises has had short reports come out this year and and there's some negative news that have come out about him in general but basically around this time ackman had found an opportunity for icon and they entered into a contract that said if you buy the company and sell it for more than 20 gain in less than three years ackman gets 50 of the payout for basically i don't know essentially like a finder's fee um people have called it schmuck insurance but they entered into a contract for uh ackman to get this payout well uh icon did sell it for i think it doubled in like three years they found a buyer um and at the time the way ackman describes it is It was a low point in his career. His fund had basically just dissolved. It was not really well thought of on Wall Street or anything like that. And Icahn just said, I'm just not going to pay you. And Ackman took him to court. It took seven years, but eventually they paid him. Icahn was forced to pay him, I think it was $9 million in the end.

And so he did win, but that was the beginning, I guess, of a feud between Carl Icahn, which you're going to talk about here in a second, comes back to bite him. After the resolution or the dissolution, I should say, of Gotham Partners, Bill Ackman does go out on his own in 2004 and start his own fund, which it's kind of the oldest story in the book here, which is start a fund. there's a blow up, start a new one. The returns are going to look a lot better. So we don't know what the returns were for Gotham Partners, but we do have the returns for Pershing Square, which we're going to go into. And he has been running that, I would say, quite successfully for the last 20 years. Yeah, let's get into these returns. They have a chart that they lay out in their letter to shareholders. And I'll include that, I should note, in the free newsletter we'll include with this episode. It's not going to be in your podcast

page, of course, but we have the link to the sub site that you can subscribe to and get all the visualizations that we'll have and maybe share throughout this episode. So if you look at the return since January 1st, 2004, Pershing Square, and I hesitate to be 100% confident on the numbers they throw out because they have some very complicated fund structures that I frankly don't care about. But going through one of the numbers they list, and I'm not sure exactly what LP this is, they have generated the Pershing Square a 15.7% annual return since January 1st, 2004. And in the same time, the S&P has returned 10.1%. Now, the difference there is a cumulative 1,900% return for Pershing Square investors versus S&P 500 index investors of 630%. But since January

1st, 2013, Ackman's Pershing Square has only posted 12.3% annual returns versus the S&P 500 returns of 14.3%. It's a good lesson on how being right slightly better than the market over the long term can lead to fantastic results. Now, you don't need to go looking for home run 100% returns every year. That's virtually impossible. I'd actually say over a long enough time horizon, and it is definitely impossible. But if you're just slightly better, you can generate a lot of wealth when it adds up over a multi-decade period. But then you get into some of these mistakes, and if you have a long-short strategy, you can really get into trouble when some stuff doesn't work out in your favor, especially when you are concentrated.

He is trailing the market over the last 10 years, but I don't know if that's a huge, say, red flag or anything like that because it's just slight underperformance. Now, some people might say, well, it's a very long time horizon, but if you go even longer, they've done quite well for investors despite some of the mistakes we're about to get into in this episode. Next though, let's go just through their general Pershing Square investing philosophy. They have eight core investing principles when finding a company to own. I will say, I don't know if Ackman actually follows these principles or whether he didn't back in the day. And then he might not, he might have over the last five to seven years, but back in some other stuff, I don't know if he actually

followed these, but here are the eight. First, simple, predictable, free cashflow generative business. Second, formidable barriers to entry. Third, limited exposure to extrinsic factors that we cannot control. Four, strong balance sheet. Five, minimal capital market dependency. Six, large market capitalization seven attractive valuation eight exceptional management and government or excuse me governance not government election on the mind i guess discussion questions for you ryan what stands out for you what do you like what do you not like about these yeah i wonder if he's like iterated on these over the years and this is his most recent investing like principles because some of these it seems like were like i'm going to talk

about valiant pharmaceuticals here in a second he says limited exposure to extrinsic factors that we cannot control that was a big part of the downfall for valiant pharmaceuticals so i would assume that he maybe added that after uh selling which we'll talk about in a little bit but um Yeah, it seems like there were definitely – in general, I like what he's talking about. And I will say the simple, predictable, free cash flow generative business, you think about some of his best investments, they were not these hidden stocks that no one talks about. Maybe in the early days they were, but we're going to talk about some of his winners. They're businesses that everyone knows about and he just bought them at the right time and held them over the long term. So I do think – I do agree and like a lot of these principles, but yeah, there's maybe some that we're – that he should have maybe stuck to a little harder.

Yeah, and if we look at six, large market capitalization, that doesn't really matter to us, but it might matter to them just because they're a larger fund. I think that third one is weird, limited exposure to extrinsic factors that we cannot control. I think that might be overrating anyone's ability to do that, because if you are an outside investor, there's not a single company that has stuff that is like not outside your control unless you are literally running the company. So I don't know if I even necessarily like that one, because I would rather just say, look, partner with good management teams and good governance. because that'll lead to hopefully you know better results over the long term i mean you could well so i in general ackman has taken he has more control i should say than the average minority shareholder in a lot of cases um but yeah the like covid affected everyone like there there are factors that are like no company can get rid of um i think this one probably was added

After like Valiant or maybe even after Herbalife, where it's just like risk of lawsuits or just risk that they can't really put it in there. Whereas if you're like underwriting Costco, the risks probably aren't quite as high or like a simple business where it's a diversified shareholder base and there isn't as much risk or much political risk, I should say. I think he might be pointing to political risk there. Yeah, that could be true. What's interesting is this does relate to almost all the other investors we look at where people are looking for predictable cash flow, formidable barriers to entry because of the moat, and that leads to predictable cash flow and pricing power. You have robust balance sheet and good management teams.

Those are the three big things we look at. And the reason we do is because the best investors ever, they all kind of have the same philosophy. they just say it in different ways. All right. First case study, Ryan, you ready for that? And you have anything else before we get into it? No, let's do it. We're going through four case studies here, two of his worst investments, two of his better investments slash best investments. Let's start with case study number one, Brett, this is yours. Herbalife, probably his most controversial. Well, yeah, because Ackman's bet against Herbalife was a chaotic drama that began in 2012. It was at the Soane Conference. He pitched Herbalife as a short

and claimed the company was a pyramid scheme. It was a 300 plus slide presentation. First, I can't imagine sitting through all that fluff. I looked at the presentation, I got through about 150 of the slides, and I thought a lot of these are redundant. Let's just do 30 or 40 and get done with it. But at the time, Herbalife was the largest multi-level marketing company in the nutrition and vitamin sector, perhaps the largest one in the world. And its business model, if you don't know what MLM marketing is, or excuse me, multi-level marketing, it is a business model where you sell nutrition products to distributors or your first line of customers who would then, quote, theoretically consume the product while also

working hard to sell Herbalife products to others and recruit them to the Herbalife network to then sell the product and consume it to other people. You understand me here, Ryan? It's multi-level, but it doesn't it's not a pyramid right because it's a fine line yeah and so i to just to kind of define that line there between what is multi-level marketing versus what is a pyramid scheme in multi-level marketing they look similar but the majority of revenue ultimately comes from consumption of the products and sometimes the lines are blurred people actually have to use it In a pyramid scheme, the majority of revenue comes from the recruitment of others, where in this case, they kind of use the product to do so. And it's unclear how much of it is really getting consumed.

But I will say from the outside looking in, it seems like they generate the majority of their revenue off of recruiting others. but yeah and the pitch from acne here was that but that people were not actually consuming herbalife products for as much as they were selling meaning it was a pyramid scheme and they benefited only the top sellers and the company but they were dumping inventory on these new players so herbalife would say report revenue because they make the products and they distribute it to their first first line of people but then they just kept dumping the inventory further and further down. And there wasn't actually consumption to make it a sustainable business model. And it made sense in regards to the fact that some of the anecdotes they found,

a lot of the data they found out there, and the fact that they were nutrition products that were very basic and about three times the price, a normal one. They would have these breakfast and meal replacement shakes. It's not something that has actually caught on. But there's also a moral pitch to his thesis, where he claimed that Herbalife was defrauding and lying to vulnerable people, especially the Latino immigrant community, and the documentary Betting on Zero, which you can find, I think, free on YouTube. There are a lot of details regarding this point. The evidence I saw there was not necessarily that they purposely wanted to steal money from immigrants, but it just so happened to go more viral in that community, and the business model was, as we'll get

into, perhaps a bit unethical because of that inventory dumping dynamic. Regardless, Herbalife in 2012 was expecting revenue to grow to $10 billion annually by 2020 as it built its ginormous multi-level marketing strategy around the globe. And if we look at the data, Ackman was directionally correct on his Herbalife claims. The company has had to revise its business practices. Revenue has barely grown in the last decade and the stock has collapsed 77% since 2012. Now the company itself didn't totally collapse as he predicted, and it is still operating today. He though did not make any money through this investment. And in fact, he lost a lot of money. So why did it end up being such a loser? I'd say there would be two reasons why Ackman's trade blew up in his face. Because

we look at it here, you might say, well, remedy went nowhere. But I will say this, if you look at and I'll have this chart in the newsletter, don't know if I need to share it now, but free cashflow margins collapsed from like 10% down to 3%. And that's where all the earnings just evaporated. So he should have been right. Earnings went down, the company was stagnating, it was overvalued, and now the stock has collapsed. And at the same time, I think I have the screen share here, the S&P 500 is up 200 something percent. So even as a long short fund, this is a phenomenal potential result. Because all you're looking for is, say, you know, one of his longs that performed well, Chipotle offsetting those gains. You don't even need it to collapse for it to do

well. But there are two reasons why he lost money and why the trade totally blew up in his face. I'd say the first one, and this is a big lesson, I think any novice investor should try to learn from Ackman and basically learn what not to do is overconfidence. Throughout the documentary, Ackman's confidence was way too high. Before presentation, he talked with someone about prepping for 1 million people viewing it live, which is a bit hyperbole. I don't think no one, not that many people are interested in investing presentations, especially one on a niche MLM company. Then his PR guy asked him how he would answer a question from the audience if the stock ended up rising after his report, which was the follow-up two years later from the

conference, he said that it would be an impossibility that Herbalife stock would rise after the presentation he gave. And what's funny is that Herbalife stock didn't end up rising after his presentation because it lacked any damning details of fraud, even though he was, again, directionally right about this business. I thought that was quite interesting because he said it's never going up again. That's what he kept telling this guy. It doesn't matter. He's like, it's never going up, but then immediately it did go up and he had to answer that question. And it really kind of spiraled out of control for him. Second is Carl Icahn buying the stock. In the documentary, we learned that Carl Icahn took out a 13% position in Herbalife to go long. So going opposite of

Ackman. And after this was after, after Ackman shorted the stock, and I believe he even upped it to 20% of the company for a while. Icahn seemed to be doing this just to spite Ackman, who he despises after that thing that Ryan talked about earlier. And I think the lesson here for Ackman is do not make powerful enemies. Even if Icon was right or wrong in keeping that money from him, you just got to try to be more respectful for someone that can screw you over. There was even this famous CNBC phone call discussion where Icon called Ackman a loser and a liar live on air, among other things.

Well, I don't necessarily respect Ackman for all the hyperbolic statements. I once again lost respect for Icon here after the documentary. He even said something along the lines of, quote, we may have the mother of all short squeezes on our hands and essentially just asked people to pile into Herbalife with him and ruin Ackman's short. I mean, this is the same behavior. Mother of all short squeezes is what AMC apes talk about, the conspiracy short seller theorist. uh and i don't know if icon you're worth 20 billion dollars do you need to do this i didn't i didn't really understand that situation especially because he could have figured out it wasn't necessarily the most ethical company and i'm not sure

it seemed like i don't know for sure whether he believes it or not that he was kind of talking out of both sides here yeah and it yeah i lost a ton of respect for icon after this and okay it probably didn't affect his returns he could have bought i assume all of herbal life just to spite ackman and it seems like he bought his stake purely to spite ackman so there first of all there that just goes to show some of the risk embedded in short selling right If there's someone bigger out there than you, they can set the asking price. They can be the demand that's needed for the stock to perform well for you to basically get hurt. I will say a bit of – if I were someone invested with Icon, I would be thinking, what on earth are you doing?

Like are you doing this purely out of a grudge that you have? um and especially now icon enterprises is down i believe well it's been it's been a terrible performer yeah yeah 90 over the last 10 years um you know did he need to waste money on these kind of things uh i would say probably not um the other thing here both of these guys are overconfident and it's i thought it was funny that icon in this is like i couldn't tell if was the most arrogant or overconfident guy i'd ever met it's like they're just like it's a you're both overconfident like uh and you kind of saw that here but the a question to you i know that's not the point of this episode but what did you think of herbal life i thought it was definitely

a scammy company but ackman overplayed what was happening like it wasn't it wasn't solely built to be a pyramid scheme, but it ended up being similar to that regard. And it wasn't unsustainable business model because the inventory was actually just kept being dumped on people and new recruits. And there wasn't actually general consumption of these nutrition products. So the company was very much misleading investors, but Ackman again, kept saying, look, this is going to crush the company. We are finding allegations of extreme fraud and stuff, and the company is going to collapse and just because a company is unethical like they were found they've paid a 200 million dollar fine and kind of changed their business practices a little bit but that's that's nothing

to short a stock over there has to be a better catalyst i think or you just have to have it on as a short that you don't you aren't public about well yeah i think i think he believed he was the catalyst yeah that's true i don't think you can have that i i don't i i think that's a bad way to go about shorting but hey he knows but i mean what happened is ackman lost hundreds of millions of dollars here icon actually made one billion dollars on his position what's funny is he's probably one of the only people to make money on herbal life ackman didn't make money long-term investors haven't made any money and if we look at the data from that documentary None of the distributors made much money.

And Ackman ended up being correct. I mean, it was a shady business. The business model was not sustainable. They had to pay a big fine to the FTC. They had to change their business practices. And yet he lost a bunch of money. I think this is a big lesson in timing your shorts correctly, not being public with your shorts.

And if you claim fraud is occurring, you better know you are right and have that evidence to back you up. Because if the fraud is happening and it doesn't come out for seven years, you can get totally blown out of your position like ackman because it's going to be expensive it can be expensive when a short goes against you for a temporary time period so let's move on to the next one go ahead i will say herbal life seemed like a pyramid scheme yeah yeah oh yeah like and so whatever ackman wasn't wrong i i was his analysis made sense but i think a little bit of humility he may have served him well financially here um do we want to go with your best investment here

do we want to skip to my other worst yeah let's go to your first one first do you want to go to a good one or a bad one or do you want to just get the bad stuff out of the way first because i think i don't know whatever you want to do let's go uh let's maybe get the bad ones out of the way so we can end on a positive note yeah because this is right around valiant as you're about to go through was just after herbal life and this is where as you can see in the stock returns or excuse me just the portfolio returns for pershing square he was crushing the market for a while and then he went through this period of underperformance and the main reason was valiant and herbal life and then it's a lot too later he had a big comeback with some successful

investments over the last five to seven years. This episode is brought to you by our friends at Yellow Brick Investing. Yellow Brick is an aggregator of the best stock pitches across the internet. By tracking thousands of blogs, newsletters, fund letters, podcasts, and more, they collect and summarize the best stock pitches and bring them to you in a single place. If you're a regular listener, you know that we use Yellow Brick every single week here on the podcast to discover new investments or just find reports on companies we've already heard of. Try it for yourself. Simply go to joinyellowbrick.com slash chitchat and search a company or ticker you are interested in. You are bound to find a great report on just about any company. That's

joinyellowbrick.com slash chitchat. Heads up folks, interest rates are falling, but you can still lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds on public.com. You might want to act fast because your yield isn't locked in until the time of purchase. Lock in a 6% or higher yield with a bond account only at public.com forward slash chitchat stocks. Yeah. So Valiant Pharmaceuticals was not as catastrophic, I'd say, as at least the investment in golf courses. Financially, I'm not sure whether was worse than Herbalife. I guess I probably could have done the math there, but basically, yeah, this is one of his worst investments and it really impacted returns for him over the last

decade and is specifically in 2015 and 2016. But first off, let's describe the situation. So in 2014, Ackman became interested in Valiant, but instead of buying Valiant shares outright, and I thought this was a little wonky, but whatever, he purchased shares of Allergen and worked with the then-CEO of Valiant to acquire Allergen. So that's a bit scummy, I got to say. Yeah, I kind of think so too. Yeah, I'm not a fan of it either. Anyways, he then – now, here is maybe the part where you could say it was ethical.

He then redeployed his winnings from the acquisition into Valiant shares. So you could say like, okay, he ultimately ended up buying Valiant. It was just one way to get there. he now owns the risk that's involved with it as well. But he could have easily just taken the winnings and not done that. Anyways, unfortunately, well, I guess before we get into the stock returns, for a little more context, Valiant was what I believe is referred to as a platform pharmaceutical business. From what I understand, essentially, this means that you use debt to acquire drug manufacturers or certain drugs, certain pharmaceutical manufacturers,

and then you reduce the R&D spend. Usually, you'll up the cost of the drug as well. During the patent period or something like that. Private equity, I guess, for drugs. Yeah, it makes sense. Not quite private equity, but yeah, juices profits. Yeah, so you take something that, I guess, I don't know exactly, but it seems like it's already working.

It's proven to work. You have that patent period, and then, you know, hopefully have some predictable cash flow. But what went wrong here, Ryan, for Ackman? Yeah. So I read this Forbes article that was pretty helpful. It says basically right after buying, Valiant was soon under fire for boosting drug prices and pushing them through dubious methods that were not completely disclosed to investors. There were questions over the company's accounting practices as well. Ackman publicly defended the company, but the stock price crashed. Pearson, who was the CEO at the time and who Ackman was seemingly fond of, was soon gone from the CEO position as the company struggled under mountains of debt.

He had saddled on it. Federal prosecutors and regulators also started investigating the company. So, yeah, I mean, rough that that happens immediately after. First of all, I think this goes to that third principle of his. If you're raising prices on drugs, you are asking for regulatory scrutiny. Just really. I mean, you are. This is what happened with Martin Shkreli, if I'm not mistaken.

So his is maybe a little more to the extreme. But it's just there's – what does Charlie Munger say? No one wants to be the guy that just raises toll prices. like that's true yeah it's a great business but you're going to be hated so i just anyway with the price collapse instead of i don't know selling shares are continuing to hold ackman doubled down it was through some option trade strategy but it basically gave him similar exposure to just buying the stock here's part of what he said in his 2015 letter he says valiant stock price is currently impacted by

the high degree of uncertainty created by shutdown, political scrutiny, negative press coverage, and he also said technical trading factors. And he made this a big point of his. And he said, some of the technical trading factors are a large amount of tax loss selling, which will likely continue until the end of the year, which is what I say every time my stock is down. People are just taking tax losses. um redemption related sales from funds whose performance was affected by the decline in

valiant stock price number three window dressing where investment managers who held valiant stock sell it before year end so they do not need to show their investors the actual losses incurred and for the inherent complexity of the company that requires substantial due diligence before new investors establish their investment more or less he was i don't know this kind of upsets me Because it was just – it felt like him saying everyone else is short-term. I, on the other hand, am long-term. I'm going to buy, which I guess if you believe in your conviction and you think that there are these temporary headwinds, I guess that's what you should do. But I think over the years, I've tried to become more, I guess, aware of that other people might have great data and they might be great analysts too.

And maybe that's causing the price collapse as opposed to simply just other people are short-term and they don't understand the business. Anyways, he remained steadfast in his belief that he was right and the shares were undervalued. He followed his process. 2016 letter. The stock continued to collapse, by the way. It says, since our last update in August, Valiant has bolstered its management ranks, improved dermatology average selling prices, which raised prices uh improved average selling prices works too uh stabilized its sales forces and experienced acceleration in salix script trends i'm not really familiar with that so

anyway not as familiar with the story in general but uh just going through the quotes from him here despite these positive developments financial results uh continue to be challenged as certain unexpected events impacted valiant in q3 and weakness in valiance u.s diversified product segment continues to weigh on near to medium term earnings this was the second year of him holding the stock and continued drawdowns here and it remained basically a few months after this he finally sold his stake in early 2017 after the stock had collapsed 96 he does give some rationale now for it, but it seemed nowhere in there does it say our analysis was wrong. Here's the quote from him selling the stock. It says, at the time of the sale, Valiant represented about 3% of the

company. If the stock price had increased even very substantially from here, the impact on our overall performance would have been modest and would not compensate us for the human resources and substantial mindshare that this investment had and would have continued to consume if we had remained a shareholder furthermore while valiant has made significant progress and we expect management to continue to do so there's still a lot of work to be done clearly our invest our investment in valiant was a huge mistake so he does say it was a mistake uh financially it was it made it very difficult for the business the in 2015 the fund lost 16.7 percent and in 2016 It lost 10.2%, so two really rough years in a row driven by Valiant.

The thing that just kind of irks me a little bit is that it was never – it was always – the business is making progress. We were right about the business, but there's all these external factors that affected it, and we just don't want to commit as much resources and effort to it. So it just kind of – I don't know. It felt like maybe he was avoiding answering some of the – taking ownership, I guess, for the losses. So two lessons I take away here, like with Herbalife, there was some overconfidence. There's just kind of this overall, the market's wrong, I'm right attitude that that is the kind of thing that will lead to outsized returns, obviously, but it can really hurt you, especially when like this company had a lot of short reports.

um i just i think anytime you have a holding that is someone writes a short report on read it try to read it like you aren't a shareholder um and just try to read it as fairly as you can because typically they do tend to raise some good points to management management should not be the crux of your thesis at first he loved the original ceo then they replaced him and he said he bolstered the executive team so he loved the new ceo and it's like neither one really worked the ceo alone i don't think can save maybe a flawed business um so while it should be while it's obviously a very important factor in the thesis it should not be the crux of it that's kind of my two takeaways i don't know any thoughts from you

uh yeah maybe i don't know if the management thing maybe just don't invest in shady management teams what's interesting is i thought valiant filed for bankruptcy but apparently they just changed their name to bosh health companies and the stock it hasn't really done much when did he sell out in like 2017 yeah it looked like stock was in between 10 and 20 then and now it's at nine dollars and 30 cents hey i can't wait for it to go up to 30 and then have a nice little tweet well my psychological long portfolio has done well for anyone that doesn't know he had a tweet on herbal life basically saying that he was correct all along but he did get rid of his short at the exact wrong time before the stock went down like 90 and he called it a psychological

short so that's why we call stuff psychological longs and psychological shorts because he likes to say stuff like that all right now it was fun anything else around before that no we've been we've been sour not necessarily sour but we've talked about the two kind of worst investments that he's had he is still in my mind a very good analyst and he writes good letters as well i should say uh the letters he always goes through a lot of his holding so if you have any shared ownership with him i recommend at least checking out his write-ups because it's And always nice to read some of his analysis. Let's talk about some of his best investments.

I'll kick things to you, Brett, with Chipotle. Yeah, so this is my favorite one that has gone well. I mean, Herbalife and Valiant are more fascinating, but he had conviction in this idea when everyone hated it. He could control the situation at least a bit from a management perspective and has, frankly, turned into sort of a never-sell position, although he has trimmed along the way. But he has still held shares since starting in September 2016. 2016 he even has what i think is a very funny picture which was definitely with his assistant at a chipotle which i called hey guys i'm a billionaire at chipotle just hanging out he just has somehow random people in line at lunch and i had to have been his assistant

that goes he has to go hey give me a photo here we're going to put this on twitter and it's going to be great because i shop at chipotle everyone does doing you know channel checks it's just it's really funny i don't know what it is about this photo but it's almost like modeling his hair's perfect he's kind of it's uh but that's kind of besides the point let's get into it in september 2016 there was a wall street journal article and essentially it said activist investor william ackman bought a big steak and chipotle mexican grill the burrito chain whose stock has tumbled in the face of a series of food safety questions mr ackman disclosed a 9.9 percent stake worth about $1.2 billion as of Tuesday's close, which will make his Pershing Square

Capital Management the second biggest holder of Chipotle shares. And in the last 12 months before disclosing this purchase, Chipotle was down around 43% from highs. They were in the midst of those E. coli and salmonella things, happened in multiple restaurants, and the reputation had soured. If we look at some other quotes from the articles, the company has been giving away burritos and offering free children's meals to lure back customers. But analysts at Morgan Stanley have said a full sales recovery could take years, citing their surveys showing about 25% of the chain's customers having stopped going or aren't going as frequently. Now, after going through the Herbalife and Valiant drama, trust in Ackman's investing

Ackman was low. I have a bunch of the Wall Street Journal article comments here, but I'll just read one of them that said, quote, my condolences to holders of Chipotle stock. Ackman's buy almost assures that the company is in a death spiral towards zero. His meddling will only hasten the decline and stop any turnaround in its tracks. They misspelled Chipotle, I will say. Chipotle, as a lot of old people like to say it. But look, guess what? The stock has done great since 2016. It has generated 27.5% compound annual growth rate since Ackman disclosed his 10% position in the company. How did they turn things around? Well, they increased food safety at their restaurants and they knew it would take time. And honestly, that Morgan Stanley report was

sort of right because traffic to the stores was down for multiple years, but they had a good balance sheet. They had a good basically business model and product, and they had a lot of runaway to expand their stores. They fixed their quality control issues. It took time, but the brand has now definitely recovered from the days when people would always bring up its food safety issues. And anecdotally, it's now a thing of the past. And then they brought in Taco Bell CEO, Brian Nickel, who was subsequently left to Starbucks actually quite recently. This was a key to fixing things as well. He had succeeded mightily at Taco Bell, reinvigorated that brand. When he got there, Chipotle doubled down on food safety, cleaned its restaurants, digital orders, limited time menu

items. They entice customers with marketing on their fresh ingredients, catering to young customers by doing things through social media, building their loyalty program, among other things. And they came up with very, I would say, some of this stuff can be a little cheesy, but they had innovative marketing tactics like with the Halloween one that was out recently. They call them burritos with B-O-O. And people seem to like that. They partner with major athletes to promote the food is health conscious. So you have these famous athletes. They're like, look, I eat Chipotle because it's healthy when I'm an athlete. That leads to people that are, you know, gym goers, athletes, youth athletes wanting to go there as well. And it wasn't one

thing, but a lot of little things that added up and rebuilt momentum for Chipotle. Because we look at their comp sales, December of 2016, which is, I guess, full year 2016, it dropped over 20%. percent. Then the subsequent years, it was 6.4 percent, positive 6.4 percent, positive 4 percent, positive 11 percent, positive 2 percent during COVID, which was a down year because of the pandemic and in-store sales being down, then positive 19 percent, positive 8 percent, and positive 7.9 percent. I mean, just phenomenal growth in operating margin has expanded due to this operating leverage. I mean, when he invested in 2016, operating margin was below 2 percent, And now it's at 17.3%.

Well, hey, that's going to be, I mean, no matter, as long as you buy at a reasonable price, that's going to turn into a good investment. And I said that Ackman had a little bit of a control in steering Chipotle's direction. This is because he got two seats on the board and I think probably hired Nickel, got him to join the team. Other investors such as ourselves cannot really have control here. But when an activist joins and you think this is the type of situation they do well in, which is Ryan's going to talk about too.

Chipotle is right up Ackman's alley of what he's been successful in. Restaurants, retail concepts, any sort of large multinational brand that has a long runway for reinvestment. And another thing that helped is Chipotle's earnings multiple has expanded quite a bit. So it's been all around a fantastic investment. But what's interesting is that they've trimmed a lot along the way. If you use one of my favorite tools on FinChat, which you can go pretty easily on the historical 13 Fs and just got to go back to the 2016 period. You can see when they bought. Then you can see that along the way, as it has done well, they have trimmed a ton. Now, I'm not sure if this is because there was redemptions for the hedge fund. I'm actually

very unclear on their fund structure and it's way too complicated for me. And I don't, it's too boring. But their initial stake was $1.2 billion for 10% of the company. Today, 10% of Chipotle is worth around $8 billion. But as of the last 13F, Pershing Square's stake is only worth around $1.8 billion. According to Finchette, the entire Pershing Square portfolio of publicly traded stocks is worth $10.4 billion. So here's the first discussion question I have for you, Ryan. Do you think they regret trimming Chipotle or is it the correct move to keep it from becoming like 50 or more of the entire hedge fund portfolio well just on the 13 f stuff uh i believe they have probably you can find their aom publicly 13 f's are only u.s holdings they do have a big

stake and i believe it's universal music which is not it's not a u.s listing so um that's included there as well so it's a little bit higher than that amount but do i think ackman regrets trimming chipotle probably but his other investments have done pretty well since basically since 2017 he's been he's had quite an impressive track record so um i don't think it's like the end of the world for him it's not like he redeployed it into a valiant pharmaceuticals um but yeah probably i would bet it i don't know does it is it like it depends if it was redemption based there might not have been that much they could have done yeah that's true like saying it wasn't redemption based i think they would have been upset by trimming too quickly now i'd understand

trimming it now over the last couple of years kind of that post-covid period but i i was surprised how aggressively they trimmed right away after kind of saying the narrative, hey, this is a, they didn't say never sell, but it's like, hey, look, this is a permanent holding. It's fantastic business. They kept saying that, but they were trimming and trimming and trimming. I think it's a lesson that we learn from almost everyone. And this might be the bull market talking, but trimming is almost always a mistake if it is only because of valuation and the business is still firing on all cylinders.

Yeah. Yeah, I agree. All right. Here's a fun one for you, Ryan. I got another discussion question. Do you think you would have gotten long Chipotle after the E. coli scandal? All right, folks. If you're a regular listener to Chit Chat Stocks, then you know that we use FinChat.io daily. FinChat is the complete stock research platform for fundamental investors. They have robust financial data on more than 100,000 stocks globally, including company-specific segment and kpi data want to see google's clouds quarterly revenue growth finchats got it like to

track paypal's take rate they've got that too and they recently added sell side conferences and insider transactions to the platform best part is it's completely free to sign up however if you want to get unlimited data you can use our link finchat.io slash chitchat to get 15 up any paid plans the link will be in the show notes probably not uh but i feel i would feel more confident doing it now like having watched chipotle's brand recover if if the valuation were equal for what happened like with mcdonald's recently i would have felt comfortable being able to say the brand can recover like i wouldn't have had as big of worries they can improve the food safety um and i think maybe that's what a lot of people did is they're like well you know we've

seen high profile e coli crises before and companies recover from them so now i'm more comfortable doing i don't know if i would have been able to do it in 2016 uh well i'm saying time travel yourself now back then no i know but i'm saying having the precedent of chipotle today you can look back and say well that's cheating ryan i think you're uh i think you're saying no then no i mean maybe there was something in 20 between before 2016 that was like it but you look at mcdonald's today where they're having that ecoli crisis with the slivered onions on the whatever the quarter pounder it's really easy to look back at chipotle where it feels pretty similar. And you can say there was temporary concern, especially in the affected areas, but

eventually the brand recovered. They have a footprint everywhere, which is great marketing. People still want it. If you can just say that it's contained and you can really get the message across that it's safe once again, through your marketing, I think you're going to be fine. So maybe not in 2016, but I think I'd be more comfortable being able to do it today now that we've seen it happen a couple of times. All right. I still think you're cheating, but I don't think I would have done it.

I think there is a lower, lower than 50% chance I would have invested. I don't, I don't know why, but I just feel like I would have been something I kind of tossed and said, I can't trust him sort of deal. I don't know why, but it's really hard in hindsight.

Yeah. I don't really own any restaurants to begin with. So yeah, It would be – it would have to be pretty cheap. I don't remember what it traded at, but yeah, I probably would have been quite skeptical. I'm seeing in 2016 about – wait, no. Yeah, 2016 it went down to eight times gross profit and then six in 2018. It's not that cheap looking, but I think you had to kind of say we're at very depressed unit economics.

Yeah. Yeah, that's true. It seems like of what he looks for with those principles that you talked about. So per the 2018 letter, he says Lowe's was one of four new investments in 2018. Lowe's is a high quality business led by a new high caliber management team that has committed to meaningfully narrowing the performance gap with its direct competitor, Home Depot. We initiated our investment after the company announced a CEO search process in May. Lowe's announced that Marvin Ellison, a former senior executive at Home Depot, would become ceo we believe that marvin has the relevant experience leadership qualities and skill set

to allow lows to achieve its potential which uh yeah i think he went on to say more and he talked about the lowest business model a little bit and it uh marvin ellison has proved to be a pretty good ceo the performance gap maybe not quite as much um here's more from the 2018 letter he says the new plan calls for Lowe's to achieve a 12% operating margin over the medium term compared with its current operating margin of 9% and Home Depot's operating margin of 14.6%. Achieving these targets will generate significant profit improvement, which when coupled with the company's large and ongoing share repurchase program will further accelerate future earnings

per share growth. I will say on these two things, he nailed it. And Lowe's margin expansion has gone from, like I said, 9.2% to, at its high last year, 13.4%. It's at about 12.5% over the last 12 months because there's been a bit of a downturn in demand, but still, the general direction of that guess was 100% correct. Combined with their levered buyback program, their EPS estimates proved correct as well. So they have reduced share count by 41% over the last 10 years, basically 4% annually, and it actually accelerated from sort of 2018 onward. And earnings per share in that time has grown basically by 17%, so really strong annually, I should say. So he nailed it on the estimates here.

The one thing I will say is he comped it to Home Depot and said narrowing the performance gap. If he's just talking about the earnings and the margins, it's been – he's been right on that. In terms of store productivity, so like sales per square foot, they are still quite far behind from Home Depot. They haven't really – maybe they've narrowed the gap a bit, but they still have a long ways to go before they'd be able to catch them. However, they did exit the position in 2023. So here's part of his commentary. He says, Pershing Square Holdings exited its investment in Lowe's in 2023 because the investment manager believes Lowe's future returns have become less certain amidst the macro environment. Lowe's was a highly successful investment as the share price, including dividends, increased 175% from our average cost at announcement date to our average sale price.

He was right. Over five years, 175% return, really strong. And kind of ironically here, he was right. The macro environment affected earnings per share. Earnings per share are down over the last 12 months compared to the trailing 12 months prior. However, the stock has actually improved since he sold, it looks like. So it's still up quite a bit despite the kind of downturn in demand spurred on by interest rates. So still a good investment nonetheless.

I think that that right there is kind of the blueprint of a successful, typical Ackman investment. It's a known company, very popular. He has some sort of a variant view on an aspect of the business that could affect the returns and it played out just as he thought. yeah he's good at investing in storied brands that have been around for a while then are a bit of a turnaround phase they're in a rough patch and you make sure that you have a good management team there to say get them back on the right path um he did that with canadian pacific as well as chipotle and then hey it can work out for you if the unit economics recover to what they have been over the previous time. So yeah, it is interesting. Let's look at his current holdings as we wrap things up here, Ryan. I don't know if we want to share the screen, but I can just see by this pie chart, and you can find that on FinChat. They actually have a nice little tab

there that goes through what they call super investors. We got in descending order of highest position, Hilton, Chipotle. What's this one? Restaurant Brands International, which owns Tim Hortons, Burger King, Popeyes, and Firehouse Subs. We got Google slash Alphabet, which I think actually, since he owns both of those, is his largest position. He owns both the A shares and the B shares. We have Howard Hughes Corp., Canadian Pacific Railway, I believe is the name, the ticker there is CP. That's actually one of his other best investments, but we're running out of time. We didn't really have enough time to go through all of these today. Canadian Pacific, Kansas City, I guess. That was one of his best investments from a while ago and he just got back

into it. And we also have BN, which would be Brookfield and Nike. So discussion question, Ryan, what stands out for you here? What surprises you? Yeah, I guess I should say Google is probably one of his best investments and it's kind of simple, but it's done really well it's one of his largest holdings today i mean nike stands out for sure um he has not as far as i know done anything with retail like apparel brands um everything has been there have been a lot of retail concepts lowe's chipotle if you want to call it retail i mean it's restaurant but starbucks we've talked starbucks was one that he kind of came in i don't know if it was pure activist but almost similar to chipotle they were struggling a bit

And he was like, all right, let's get things back on track. Yeah, QSR is similar there. So I don't know. Apparel seems a little bit of an oddball for him there. That would probably be the one that stands out to me the most. He's been with QSR or Restaurant Brands International for quite a while, and I believe it's done pretty well also. all of these have just kind of all the ones that are there today have just kind of barely outperformed the market,

if I'm not mistaken. Yeah. Well, QSR is not that good. Last five years, it's only up 5% cumulatively excluding dividends, but not that great. Since if you go back to 2015,

it's a little better. 2015, 2016. Yeah. But yeah, I guess it depends when it kind of initiated that position. I believe it was, We found it in like 2015, but I could be wrong.

Still, it has underperformed. Yeah, Nike is probably the one for me. What about you? I'd say Nike or – and I want to make sure that's Brookfield. It is. They're so confusing. Yeah, Brookfield Corp. That confuses me a little bit.

And actually, given his hate or supposed hate for complicated balance sheets and not wanting to be... Let's look at these things again, his philosophy. So simple, predictable, free cash flow generative businesses. I don't know if that fits. Webinette exposure to extrinsic factors that we cannot control. Strong balance sheet, minimal capital market dependency. I don't know if Brookfield fits those

because they need capital markets coming into them. What? I said simple, probably not. yeah exactly exactly so that one confuses me a bit because i think it might give even though it's done fairly well over the long term it's been a great performer i don't know if that fits his tenets and the one that makes sense the most to me and it fits into his high conviction when there is this giant narrative about the brand being tarnished is alphabet slash google because he basically said look there's this narrative that they're losing in ai we think they're fine

And they're actually set up to be an advantageous player in these new products over the long term. And so far, so good, even though it's only been, I think, less than two years since he started his position. Okay, second discussion question. Do you think he will increase his stake in Nike and potentially pursue any sort of activist campaign? I don't know if he has the funds. I could see this one. He might not be launching it. Yeah.

Let's look at Nike's market cap. Let's see. Wow. Still quite large. Yeah. $116 billion. That used to be a giant market cap. Yeah. They might not be large enough to get a giant, to get a big enough position there. I would not be surprised if this turned out like Netflix where he was buying what he thinks is a falling knife because he got in and out of Netflix at the wrong time, but not sure. Not sure. What do you think yeah probably not i think he just kind of treats it maybe more like a lows like applauds applauds the developments publicly if they're doing well and uh kind of stays to the sideline with me i guess let's talk conclusions here what can we learn from ackman what are some

of your takeaways from this episode i i think it's hard to have takeaways because of his can i call it erratic behavior or maybe so confusing investing style the fact that he's done well but made these giant mistakes and has had a bad not bad but underperformed for the last 10 years um i think my takeaway and what to learn like from what not to do from him is this is not his investing style, but focus on your investing portfolio. Focus on what you know. Don't dive into things that are complicated and out of your circle of competence. Like, look, Buffett's really good at financials and insurance. Ackman is extremely good at doing like semi-activist stuff with restaurants and different retail brands, along with Hilton there with hotels. Stick with what

you're good at stick to your bread and butter don't get out of it and things besides your investment analysis can affect your returns yeah i agree what about my one of my biggest ones here is probably i didn't even write this one down but don't hitch your wagon vocally to one stock like don't become don't just make something a huge holding for you and be super vocal about it like it's okay if you write a blog post or you share your analysis um and you it's a position for you but don't be overconfident that you're 100 right and be super public about it because it's a double-edged short because then all of a sudden you feel like you have to defend yourself publicly we saw this with

like he goes out to the stone conference he said that it's an impossibility that the stock drops or the stock rises after this like all of a sudden you're probably clinging to it because you've been vocal about it and you don't want to be proven wrong i just think if you if you don't do that it's probably easier to sell it's probably easier to get out of that and just say it's not worth the headache um and i think you know he's probably learned some of these lessons like um i said here being willing be willing to admit when you're wrong uh it's difficult when you publicize your research but i think he tried to do this with netflix he ended up being wrong on it but he would he have been able to do that 10 years ago

where he thinks you know what this actually uh my analysis was wrong what i was expecting did not come to fruition i will say he bought it on like the one quarter in the last 10 years where they've had like a sequential decline subscribers um which is kind of just unfortunate timing for him but yeah be willing to admit when you're wrong on the positive side be willing to wait for the right entry point he did this with chipotle i believe i assume he understood the chipotle business prior to initiating this 10 position um so yeah i don't know wait for the right entry point even if you know the company even if you like the company you don't have to buy it today um you don't have to compromise on the valuation uh there are other

options out there and i would also say just because it's big doesn't mean that it's efficiently priced. That's kind of something I've probably learned from him as well. That's a good point. That's a good point. All right, let's wrap things up here. Honestly, a confusing investor. And as a little tease, the one we're doing after this is David Gardner, who is a lot more simple in his strategy and I think adheres to it a lot better. Do you have a better or worse opinion on Ackman's investing after doing this episode? honestly probably worse i kind of thought he would the gotham partner stuff throws me off because i don't know what the returns look like there and i can find so little information about

that and it just felt like it gets swept under the rug that this fund folded like how does that impact his returns over the last 30 years and you know if there's a chance that he's underperformed like does he deserve i guess all the attention that he that he draws to him like with all the name and the notoriety around bill ackman i would assume that he has just crushed the market without looking at the returns you know what's interesting is he is so close to being his returns being absolutely phenomenal now i'm not you said that gotham thing so we'll exclude that from the time being but as i mentioned you before the episode it's like those people in the NFL that are running towards the goal line and then drop the ball without anyone touching them

before they cross the goal line. It's almost like he shoots himself in the foot constantly when if he just stuck to his basics and his investing strategy, he would do even better. And maybe he's learned from it now, but as we've seen, he's maybe has other interests besides investing nowadays. So I don't know. I don't know. It's a confusing guy. And I'd say my reputation or my opinion of him as an investor i don't know it's probably the same i don't think it's that like i think his analysis can be great but i think his portfolio management there's just been tons of mistakes over the years yeah yeah i agree i mean over overconfidence is kind of a theme to both sides and it's worked out for him in certain situations like being confident about uh chipotle

in the face of pressure when people thought it was declining, but obviously worked the opposite with Herbalife. So, yeah, if you stripped out Herbalife and Valiant, he has crushed the markets in starting person square. And he has still crushed the market, it looks like, but, yeah. It would be better. The thing is, you can't take those out. They did happen.

All right. Full disclosure. Sorry, not full disclosure. Let's hit the disclosures out of the way. and as a tease again the next investor we will cover is david gardner in december of 2024 but yeah let's get out of here we're going long we are not financial advisors anything we say on this show is not formal advice or recommendation ryan i or any uh podcast guests may hold securities discussed in this podcast may have held them in the past may buy sell or hold them in the future

thank you everyone for listening to this episode i hope you learned something about bill ackman but also maybe got confused like we did uh and either way he's a fascinating character to cover and someone whose holdings i guess people will always be interested in so thank you once again for taking the time to listen to this episode we'll see you next time Thank you.