Benzinga - Hedge fund manager Bill Ackman spends a lot of time learning from his mistakes and in a recent interview he discussed how his bets have served as learning opportunities.
Reliving Gotham Days: Following a debacle, there may not be a formal postmortem but certainly, there were a lot of lessons learned, Ackman said in a 20VC podcast that was published earlier this week.
The fund manager noted that when Gotham Partners, his first fund, collapsed he learned some pretty valuable lessons. Tracing Gotham’s origins, he said it started out with investments in liquid public securities and then received a mandate from investors to invest.
“The asset-liability mismatch is what caused us to wind down,” he said.
“The lesson from the Gotham experience was of the importance of liquidity, that you shouldn't have an open-ended fund, like a hedge fund where people can redeem capital and were liquid assets.”
It was then that Pershing Square Capital Management was set up to invest only in liquid large-cap public companies, he said, adding, “It's served us really well.”
“I always like to say experience is making mistakes and learning from them. I spend a lot of time learning from mistakes,” Ackman said.
Missed Opportunities: Ackman also said his firm would not just discuss securities they bought that went down in value but also about missed opportunities.
“We talk as much about a missed opportunity, a situation that in light of our knowledge, experience, expertise, et cetera, that we should have exploited and made a fortune on, and perhaps made only a small fortune or we made nothing because we didn't do it,” he said.
Missing Alphabet Inc. (NASDAQ: GOOGL) (NASDAQ: GOOG) can be as important a mistake or maybe even a bigger mistake, the fund manager said.
Recent Mess: Ackman said the most recent mess that was debated as a team at Pershing was Netflix Inc. (NASDAQ: NFLX). He noted that Pershing Square took a billion-dollar position in the streaming giant’s stock after it fell about 50%.
“So we took about a billion dollar position in Netflix after the stock fell about 50%. And then we're a long-term investor, but we learned information within a few months of the initial investment,” he said.
As the next quarter's results called to question the fund’s entire thesis on the company, it exited and lost about $400 million, he added.
Hedging The Way To Gains: Ackman said he had a very early view regarding the economic implications of COVID-19, which enabled Pershing Square to make a fortune hedging the pandemic.
“I had a very similar view about interest rates and we were completely ahead of the curve and the mistake was not making that a bigger bet,” Ackman said. The fund should have made $10 billion on hedging interest rate risk but it made $2.8 billion because they were a “little timid,” he said.
“Some of the mistakes we've made, we had a pretty variant view that we were quite confident in, but we didn't put enough capital behind our confidence," he added.
Photo: Courtesy of Wikimedia Commons
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