On Thursday, Bloomberg reported that Bill Ackman's Pershing Square has built up a stake of unknown size in ADP, sending shares up more than 10 percent for the day. Though it's unclear why investors would react this way to Bill Ackman choosing to buy a stock, it's good news for Pershing. All things considered, now would be a good time to sell that stake.
Some might say it's a bit early for Ackman to take his ADP profits, seeing as the position has only been public knowledge for a few hours as of press time. But that shouldn't discourage him. Double-digit returns have become a rarity on Team Pershing, so they should take this opportunity and run with it. A bird in the hand, etc.
There is, of course, a chance that selling now would leave Ackman to miss out on future gains. Who's to say ADP won't rise another 10 percent? Well, we don't have to bore you with a full rundown of Pershing Square's recent portfolio changes to make the point. Instead, here's a chart of Valeant (blue) and Chipotle (green) starting the day after he dumped the former to concentrate on the latter:
Is this an unfairly selective and limited view of Pershing? Of course it is. The point stands, however, that Ackman hasn't had the best luck as of late choosing stocks to invest in for more than 24 hours. But in that time-frame, he's great. Chipotle rose 6.4 percent the day after his position became known. Since then: eh. Similar story for Valeant.
One might also protest that such a strategy would be necessarily short-lived. The pattern of famous-hedge-funder-buys stock/stock-goes-up relies in part on the idea that Famous Hedge Funder will help the company whose stock he's bought (or at least the idea that others will believe this, and so on). If Famous Hedge Funder develops a reputation for selling shortly after buying, the pattern probably won't hold.
But who knows? Ackman's recent luck didn't keep investors from buying ADP Thursday. And even if the Famous-Hedge-Funder Investor Excitement Arbitrage strategy is short-lived, it'd be a nice break from the usual routine. Ackman needs a new start. He's had some epiphanies recently and sees the world in a whole new light these days. So why not?