There comes a time in every hedge fund manager’s life when he must admit that he made a mistake. Sometimes that mistake was borrowing money from an investor fund to pay personal taxes. Sometimes that mistake was knocking off that hooker. Sometimes that mistake was thinking investors would be happy to hear that their one dollar at the beginning of the year was now just 17 cents. The point is, they erred in judgment, and while it’s unusual for men of their stature to admit such a thing, on the record or otherwise, they decided to step up and do just that.
For Bill Ackman, yesterday was sort of that day.
In his second quarter letter to investors, the Pershing Square founder wasted no time getting right down to it: although most of you probably think he rolls out of his perfect bed, in his perfect apartment, with his hair perfectly styled, his tie perfectly knotted, and his eyebrows perfectly– effortlessly– coiffed, only to breeze into his perfect office and sit behind his perfect desk where he comes up with the most perfect of investment ideas that have never once failed– because they are perfect; because he is perfect…Bill Ackman is not perfect. He’s a human, just like all of you, albeit a richer human with a better face, with arms toned by long days of beating employees in rowing competitions, with a tush you could bounce a quarter off of, with eyes that not only sparkle but tell a story, a story of a man big enough to cry.
And because he is not perfect he will make mistakes. Which are fair for you to hear about, although, let’s be honest–lately there’s been a false notion that he makes more mistakes than his peers and while this is supposed to be a letter of contrition, it has to be said that he manages “a large pool of capital” and makes “active investments in large capitalization, high-profile companies,” whereas other hedge fund managers invest in companies that, quite frankly, no one gives a rat’s ass about, so…you do the math. Anyway, mistakes:
We are going to make mistakes. Because we manage a large pool of capital and we make active investments in large capitalization, high-profile companies, our mistakes are often going to be much more visible than those of other investment professionals. The dollar losses are also generally going to be larger. Our mistakes are therefore going to attract a disproportionate amount of media attention. This media attention is a natural outcome of our high profile strategy. Over time, the media has been helpful in our engagements with our portfolio companies and we expect the firm’s visibility to continue to be a sustainable competitive advantage. Activist investing requires a thick and calloused skin, and recent press coverage reinforces this point.
A good example of a mistake that Bill and Co. have made would fall under the category of “retail.” Bill will be the first-ish to admit that while he has many fortés, retail has turned out not to be one of them. (In part because thick-headed management didn’t listen to his ideas at the time and if they had things would’ve turned out differently. But we’re getting ahead of ourselves.)
Speaking of investors who have more talent and intelligence and ability to create long-term value in their little finger than most hedge fun managers do in their entire body? While this letter might have started out discussing and admitting to mistakes, the bottom line is those mistakes, taken against the backdrop of Pershing 10-year, nearly impeccable record, are but a blip. To demonstrate how nearly close to fucking perfect Bill and Co are, here, have a chart detailing the perfection in painstaking detail.
Sure the table lists the “Closing Price Day Before Entry” rather than the price that Ackman actually paid – making it look, for instance, like he’s made money on Herbalife – but that’s neither here nor there. Hopefully everyone has learned a lesson here today.
Pershing Square Q2 [PDF]