Game Over Ackman?

http://dealbook.nytimes.com/2013/08/21/ackman-ackn...

Is it just me or is Ackman currently in his Britney Spears head shaving, Lindsey Lohan fuck-you-nail-polish-wearing and Charlie Sheen bi-winning mode?

Activist investing is basically the world series of PR and this doucher has taken a shellacking of epic proportions.

Yes HF managers have mis-steps, but when your entire investing strategy is premised on people (and I'm talking the market, not investors) believing in your inane ability to identify a soft target, sneak up behind it and smash it over the head with a flower pot (see Dan Loeb), once you start losing credibility as an oracle of accretion... your whole game is up. Your victim hears you coming, your flower pot isn't heavy enough, and she's got pepper spray waiting for you.

The way I view activist investing, you have a differentiated view of value on an asset. You buy the asset (or part of it, really), state your case and advocate for your action plan... that is your catalyst for the market to acknowledge - at least partially - the value you see in that asset. If I were to try that, people would laugh me out of the room. Enter Dan Loeb, Carl Icahn or (until recently) Bill Ackman. These guys are financial Wizards of Oz (supposedly), if they get into a company, irritate the board to listen to and maybe consider (not follow) their advice on how the business should be run... then the market sees the future value in that and the stock runs up. The fact is... the activist doesn't have to be right. None of his action items need to be implemented. Just the fact that he is stirring the hornets nest will presumably be impetus enough for the board and management team to right the ship and improve the business.

I'm stating the obvious here... because it seems to me that Ackman is one banana peel away from going the way of Ralph Macchio. And for any of you that have played Mario Kart, you know those banana peels come out of fuckin no where.

Comments (23)

Aug 22, 2013

The Ackman hate has actually gotten a little too out of hand, and this is coming from one of his biggest critics. Given, his biggest whiff so far has been JCP and his only real push there was getting Ron Johnson in as chief. Back when it happened there was a hell of a pop in the share price and nobody thought it was a bad move at all. So even though it was, and even though JCP has been one of the shittiest active investments in recent memory, I don't think Ackman is actually stupid or a very poor investor. And in the case of Herbalife, his biggest mistake was running an investment predicated on the need for government intervention to make his case. That's not true activism there, that's just plain whining. He's had his share of good investments, and we still don't know what the end-game will be on HLF, and I totally acknowledge that he's been on a cold streak and would do well to be much, much quieter than he is, but I would probably trust my incremental dollar to him over, say, Eddie Lampert.

And I agree in theory on your view of activism, but mine is a bit different. I don't necessarily see being an "activist investor" as someone who's required to shake up what a business is doing in order to create value. In many cases, with an extremely strong and undervalued business, there's a case to be made where all you really want to do as an "activist" is get into a position where you can sit face to face with management and make sure they understand exactly what they have, i.e. make sure they know not to screw it up. Passive activism might sound like an oxymoron, but the best value comes from being constructive with a board or management team... not being destructive, which unfortunately Ackman tends to be, given how abrasive he is and how much he utilizes the media to support his agenda.

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Aug 22, 2013

Yeah, basically every bet he's made in retail has been a disaster.

I'd say that he is probably on his way out, but the hedge fund world is a strange one, and I suspect many of the investors are masochists *cough* Paulson *cough*.

That said, I went through the deck of his HLF short case and it seemed well-researched and convincing, but the "smart" money is saying otherwise for now. So who knows?

Please don't quote Patrick Bateman.

Aug 22, 2013

It's really going to be interesting to see what happens with Pershing's Air Products investment. That's their biggest ever and it's a single stock fund, the same structure they used for Target and we know how well that turned out.

He's clearly an extremely bright guy but considering his investing idol is Buffett and he often quotes him it's funny that he keeps going back to retail given the famous Buffett-ism "when management with a reputation for brilliance tackles a business with a reputation for poor economics it's the reputation of the business that stays intact."

Aug 22, 2013

The folks that invest with him have plenty of money and a large tolerance for risk, as well as remembering some of his past successes, so I'm thinking we haven't seen the last of him.

More than anything else, his pedigree will bail him out. He's produced before, so there's that.

In the meantime, wow, what an ass kicking.

Aug 22, 2013

Lots of Ackman hating... I don't disagree that some of his tactics are disruptive to corporations, but isn't that what we need in an investing world dominated by passive investors? I don't want to go off on a tangent, but I'm convinced that one of the side effects to our increased diversification from individual equities on a retail and institutional basis is that BOD's aren't held appropriately accountable for shareholder interests, and activists like Ackman are often the white knights of capitalism sent to save shareholders (and their increasingly inconsequential stakes) and corporations from running into the ground.

Blackhat, I agree with your point on the HLF short having too much regulatory risk (this is the only reason I haven't gone short myself), but I'll add that Ackman successfully overcame that risk with MBIA. And the dude waited 7 years. I respect the fact that he put $1 billion on the line and is using his podium to shine a spotlight on such a despicable corporation. As someone who is highly skeptical of impact investing, I find it revealing that his short position in HLF, driven by capitalist ROI motivations, actually has the most potential for positive impact of any investment I've seen in a long time.

Overall, I'm long Ackman. I'm also long JCP at these levels.

Aug 22, 2013
Spalding Get Your Foot Off the Boat:

Overall, I'm long Ackman. I'm also long JCP at these levels.

In that case I'm short triple-levered Spalding ETFs, ha.

Lots of good points being made here.

I like the guy, I just think he's been stepping in a lot of dog shit lately and I feel that in the activist world -- much more so than any other strategy -- you're only as good as your last trade.

Its a strategy where you are most visible (and vulnerable, figuratively speaking) and one where the respect you command is integral to your success. Its very easy to end up with your foot in your mouth if you're not incredibly bright and incredibly right... which most of these are and almost always are, respectively.

Aug 22, 2013

So you think JCP is going down from here? What's your thesis? My thesis is people like you panic when they see bad headlines, stock prices drop deep below intrinsic values, and buying opportunities become available for people like me.

I could very well make 100% return on this stock on the long side over the next 12 mos. A short seller's upside is much more limited, and his downside is infinite.

Aug 22, 2013

He's an arrogant, narcissistic ass, but let's take a look at the facts: he runs 10bn+ and has taken some very public lumps but is still +3-4pct this year. He is so far from done it's laughable to float the notion.

(I'm mostly replying to DBCooper's "he's on his way out" comment.)

Aug 23, 2013

Fair enough. I had no idea he was +% YTD.

Please don't quote Patrick Bateman.

Aug 23, 2013
DBCooper:

Fair enough. I had no idea he was +% YTD.

He's up 5-6% YTD in an environment where the S&P is up 20%. Hardly impressive.

Aug 23, 2013

I'd be interested to hear whether you all think the size of Pershing is getting in the way of being able to find compelling activist opportunities. At some point it has got to be difficult to find places to put $2B of capital.

Aug 23, 2013

Check out Marcato Capital Mgmt if you want to see activist investing at a smaller scale...it's run by a guy who used to work at Pershing

Aug 23, 2013

I don't really understand where his credibility comes from in the first place. Didn't he blow up once already? Moreover, some of the things he's done recently suggest he's a total loose cannon. Take the two observations together and I have no idea why anyone would want to be an investor in his fund.

Aug 23, 2013
Martinghoul:

I don't really understand where his credibility comes from in the first place. Didn't he blow up once already? Moreover, some of the things he's done recently suggest he's a total loose cannon. Take the two observations together and I have no idea why anyone would want to be an investor in his fund.

I agree.

Aug 23, 2013

I personally think Ackman is really, really smart. Maybe too smart. Everything I've heard about him indicates that he knows his companies extremely well.

He has enormous conviction in his ideas. Think of HLF. It's unethical, but is it illegal? He thinks so. But what he thinks doesn't matter - the FTC's opinion does. I'd bet he is baffled as to why FTC could hold a different opinion after he stated his case.

I personally don't have a stake in HLF. I'm wary around companies that have the government as a large customer. I'm not about to make an investment 100% dependent on government action. But I respect the amount of work Pershing has done on this. Some really smart people have spent thousands of hours researching this company - I'd be willing to bet there is more to their thesis than was in Ackman's presentation.

Aug 23, 2013

He just raised $900 million in the midst of the JCP fiasco and with HLF running up against him. I don't know if the proverbial banana peel is as close as some might think.

Aug 23, 2013

I do not know if Ackman's fund is absolute return (I am pretty sure it is not), but to compare his fund's returns to the S&P500 is a *bit* fallacious. For one, his fund is L/S, the S&P500 is long only. Over time, his strategy has outperformed the S&P500. I have heard him affirm that the fund has returned 20% since inception (compounded).

Let's face the facts, Ackman has done 26 activist investments. On a consolidated basis, 23 of those investments can be characterized as a success.

Even if he does have to wind down the fund (highly unlikely), he will definitely start a new fund. He has done this before.

His strategy seems to be working, to me.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

Aug 23, 2013

Ackman's problem (and in the past, his best quality) is that he's way too high conviction. He's been way too reckless given his convictions, from a portfolio management standpoint, so if given a choice to invest in other less intense activist managers I'd probably opt for them. Investing in a single idea though, I'd probably go with Ackman. On an infinite timeline, Ackman is prone to blow up because of his conviction (and he has before, as someone mentioned), but he's also a very, very smart analyst. There's an argument to be made that he'd be infinitely better if he had a co-manager.who had to sign off on his trades to keep him in check.

Aug 23, 2013
BlackHat:

Ackman's problem (and in the past, his best quality) is that he's way too high conviction. He's been way too reckless given his convictions, from a portfolio management standpoint, so if given a choice to invest in other less intense activist managers I'd probably opt for them. Investing in a single idea though, I'd probably go with Ackman. On an infinite timeline, Ackman is prone to blow up because of his conviction (and he has before, as someone mentioned), but he's also a very, very smart analyst. There's an argument to be made that he'd be infinitely better if he had a co-manager.who had to sign off on his trades to keep him in check.

Yes, I definitely agree. Activist investing does not have to be adversarial. Behind the scenes, meet with management. If the are not someone you want to invest with, or they are not able to unlock the value you think has not been unearth, look elsewhere.

If you did invest with a management team that has not unlocked the value in 3+ years, maybe you should work on your judgment of character.

Yeah, his conviction is definitely manifested in his portfolio construction (>10 stocks). Ackman is definitely smarter than me, and 99.99% of people on this site when it comes to stock picking, but I think you're exposed to tremendous tail risks when you structure your portfolio this way.

Maybe he is just... lucky?

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

Aug 24, 2013
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