How Bill Ackman Made His Billions

How Bill Ackman Made His Billions

• Raised in Chappaqua, N.Y.• Attended Harvard University• Received Bachelor of Arts degree

magna cum laude and an MBA

His early years

Source: Wikimedia Commons.

How he made his fortune

• Ackman set up his first hedge fund, Gotham Partners, with a Harvard classmate in 1992.

• Fund grew from $3 million to $300 million in less than a decade.

• Posted impressive returns in the early years.

• Bought a controlling stake in a money-losing golf course operator.

• Racked up debt acquiring other golf courses.

Source: Wikimedia Commons.

How he made his fortune

• Regulators alleged Gotham Partners used research reports to influence the price of stocks it owned.

• Investigation went nowhere.• Fund was eventually closed and client funds were returned.

Source: Wikimedia Commons.

• Ackman challenged bond insurer MBIA’s AAA credit rating in 2002.

• He took a short position and bought credit default swaps against MBIA debt as a way to bet it would crash.

• When MBIA did, Ackman sold the swaps in 2008 for a huge profit.

• Ackman founded Pershing Square hedge fund with $54 million in 2004.

• Fund holds large positions of stocks in a few sectors.• It’s valued at $13 billion today.

How he made his fortune

• Ackman mostly takes large positions in companies and then agitates for changes to improve returns.

• He took losses on investments in Borders and Target.• Ackman sold his stake in J.C. Penney last year after resigning from the

board and generating a more than $600 million loss.

Bets that didn’t pay off

Source: Wikimedia Commons, The Motley Fool.

Ackman’s biggest bet

• December 2012: Ackman announced a $1 billion bet against nutritional-supplements maker Herbalife, claiming it was an illegal pyramid scheme.

• Herbalife’s share price initially dropped.• But Herbalife’s stock surged 52% in the 12 months after Ackman

initiated his short position.• Ackman shifted some of his short bet on Herbalife into put options, a

move that could cut his risks.

• October 2013: Ackman said accepting losses when necessary makes his firm better.

• In a letter, Ackman stated, "Confidence and conviction without humility can be dangerous in the investment business.”

• Federal Trade Commission recently announced it’d begun an official inquiry into Herbalife.

• Herbalife stock down 34% so far this year.• Ackman’s fund still owns a short position.

Ackman’s biggest bet

Philanthropy

• Ackman has joined “The Giving Pledge,” committing to give away at least 50% of his fortune to charity.

• Other philanthropic heavyweights dedicated to this pledge include billionaires Warren Buffett and Bill Gates.

Source: Wikimedia Commons.

Source: Mark Hirschey.

5 lessons investors can learn from Bill Ackman

1. Use sound research as a basis for your investing thesis.2. If you don’t succeed at first, try again.3. When you make a mistake, ask yourself, “What did I learn?”4. Don’t be afraid to take a contrarian position.5. Have humility.

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