Investing Caffeine

Ackman Builds Fortune Through Optimism and Confidence

Source: Portfolio.com

Bill Ackman, 43 year old famed hedge fund manager and activist, was profiled by Jesse Eisenger in a May 2009 Portfolio.com piece with a title that has special meaning to me…The Optimist. I would never be presumptuous enough to compare myself to Mr. Ackman, but my firm, Sidoxia Capital Management, shares something in common with him – the name of my firm is actually derived from the Greek word for optimism (aisiodoxia).

Some confuse his confidence with arrogance, but regardless of your opinion, he has a track record to back up his bold assertions. For example, his six year investment in MBIA Inc. (MBI) netted Ackman about $1.1 billion in profits. At the end of 2008, his firm (Pershing Square Capital Management) managed $4.4 billion.  His brainpower has been sought after by the upper echelon of Washington finance – Ackman has rubbed elbows and provided his views to the likes of Lawrence Summers (director of President Barack Obama’s National Economic Council) and Timothy Geithner (Treasury Secretary). Those who have invested for long periods know there is a fine balance between confidence and hubris as Ackman recognizes:

“The investment business is about being confident enough to know that you’re right and everyone else is wrong. Yet you have to be humble enough that you recognize when you’ve made a mistake.”

Another common trait with all good investors is the ability and willingness to put yourself out on a limb. As legendary investor Benjamin Graham states, “You’re neither right nor wrong because others agree with you. You’re right because your facts and reasoning are right.” This is exactly the approach Ackman took when he researched MBIA. While the rest of the world was following the real estate herd as they were about to fall off a cliff, Ackman realized the calamitous situation brewing and warned others of the pending disaster. Being a contrarian is hard-work, and requires detailed analysis for the necessary conviction, a key ingredient for successful investments. Lots of blood, sweat, and tears were certainly used in Ackman’s long-lasting review and attack on MBIA Inc. that began in 2002, punctuated with a 66 page report entitled “Is MBIA Triple A?”

                     Click Here to Watch November 2008 Interview With Charlie Rose

There is another universal bond between all great investors – failure. Ackman is no exception and suffered his fair share of bumps along the road. Most notably, the forced closure of his hedge fund and investment firm Gotham Partners in 2003 was an unpleasant experience. His concentrated fund that held Target (TGT) investments was down -93% in early March 2009, according to Portfolio.com. Throughout all the trials and tribulations, Ackman remains as he likes to call  it, “resilient.”

Life is never easy for the great investors, or as Don Hays says, “You are only right on your stock purchases (and sales) when you are sweating.” Ackman has had to sweat out a volatile ride ever since he first dove in to purchase Target Corp. shares. As the article in Portfolio.com points out, at one point Ackman had nearly lost $2 billion with his bet on Target and suffered a hard fought loss in a proxy battle with the Target board.

Investing bystanders should do themselves a favor and carefully track Ackman’s moves. The outcome of his Target investment is unknown; however I’m confident and optimistic that Bill Ackman will ultimately build on his long-term track record of success.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

 Wade W. Slome, CFA, CFP®  

August 5, 2009 at 4:00 am 1 comment