Steelmanning: Bill Ackman
A billionaire, a hedge fund manager, and...
It was recently brought to my attention that Bill Ackman, successful investor and manager of Pershing Square Holdings, made the following Tweet:
This came to my attention after browsing Reddit this morning and seeing it mentioned in r/JordanPeterson, whose OP was in turn crossposting from r/Destiny:
I suspect folks who are reading this post already know who Jordan Peterson and Destiny are, but Bill Ackman may be a new name to them. Before we go into his story, let’s examine the issue at hand. Ackman’s remarks were part of the greater topic of the invasion of Israel by Hamas that began on October 7. The attack was a raid, intended to target civilians. Israeli towns and villages that had been occupied by Hamas experienced extreme and intentional brutality, namely the murder and decapitation of entire families in their homes, including babies.
Destiny is a streamer whose views (most would agree) place him on the political left. Nevertheless, a diversity of opinion exists in his community, as can be found in the comments. Those disagreeing with Ackman are many, but these two comments summarize the sentiment:
From what I can glean, the disagreement with Ackman comes from left-wing commenters and suggests two key points/assumptions:
This is hypocrisy by the political right, which typically claims to oppose cancel culture.
He is a hedge fund manager and heir, and therefore his wealth is undeserved and almost certainly acquired immorally.
As we examine those, I’ll explain how I first became familiar with Ackman. I myself am an amateur investor, and I previously worked as an investment advisory representative with Fidelity Investments. In my own private study, I naturally came across Ackman to learn about his principles of investing. That is to say, I did not learn of him by being involved in communities like the IDW or because of debates about cancel culture and free speech. Similarly, it is my familiarity with investing that encouraged me to create the Financial Freedom lessons on our YouTube channel as one of our maiden projects.
Point One
We come to Ackman’s positions on free speech and cancel culture. I first saw him touch on these by pure accident while listening to an investing podcast and later included that clip in our first Financial Freedom video. I’ll post it here, timestamped for your convenience:
He notes that his outspoken, online presence was initially part of his fund’s strategy of activist investing (this is not to be confused with ESG investing, which I will elaborate later). He observed how, over the last decade, “free speech has been crushed,” which resonated with him as someone who values his independence. Understandably, he feels bad for people who have lost their independence in this cultural climate and chooses to speak on issues where he feels a large chunk of the population have been bullied into silence.
That explains why he’s willing to speak up on yet another controversy in the Israel-Palestine saga. Nevertheless, it does seem odd when he’s asking Harvard to give names specifically so that they can never been hired by the likes of Pershing Square (and other CEOs who asked him about it). It isn’t taking a job someone already has and around which they have built a livelihood, but it’s in a similiar category, for sure.
One key difference, however, is Ackman wants information that will allow him to abstain from associating with those individuals. It does not appear that he intends to rally people to deny them careers or basic subsistence (which is generally what people find objectionable about cancel culture). His motive for this is simple, for he is not only a billionaire and a hedge fund manager; Ackman is a Jew. When even Jewish babies are decapitated by invaders and terrorists who would probably do the same to Ackman and his family, given the opportunity, it naturally makes him want to distance himself from folks that take that side of the debate.
Ackman was not born a billionaire, and a change of tides could always take away his vast wealth. No matter what happens, though, he will always be a Jew, and he will always be a potential target by anti-Semites. It’s not absurd to want to have adequate information to avoid associating with them. As will be clearer on point two, he is an investor, and he wants to invest in the right relationships.
Lastly and more briefly, it does not appear that Ackman hails from the political right (unless we insist that being a billionaire capitalist makes one right-wing). Wikipedia indicates that he is a Democrat and has contributed accordingly:
Thus, it’s unlikely that he is a Republican whinging about cancel culture while calling for leftists to be cancelled. To be clear, being a Democrat does not make him left-wing (there are right-wing Democrats), but it creates doubt about the presence of right-wing hypocrisy. I’ll leave it to the reader to uncover more about the nuances of his political beliefs (if that matters to them).
Point Two
We return to the virtue (or lack thereof) of Ackman’s wealth. It is true: he runs a hedge fund and is the son a successful real estate investor. There is an element of luck to his success, but he did not start out a billionaire, so most of his wealth today is a consequence of decisions. With the screenshot descibing him as a “lucky gambler,” we now ask if his gains over time are a result of luck, cheating, or merit.
As mentioned before, Ackman is considered an activist investor. This does not mean that he buys shares of businesses in order to leverage his voting power in pursuit of social activism. This means that, instead of contributing capital and letting it sit, he often collaborates with the other shareholders and the company management to improve the profitability of the company (he takes an active role). This has resulted in his companies turning around, allowing him to sell his stake for a substantial profit.
More fundamentally, Ackman is considered a value investor. Value investors (the most famous being Warren Buffett) invest in businesses from an owner’s mindset. They study the fundamentals of the business to learn what kind of profit-making power a business has and what a good price to be an owner in that business would be. If a business earns $100 million a year, buying it out for $2 billion might be pricy, but buying it for $400 million would allow a fairly safe return of principal and immense profitablity if that business has growth prospects. Ackman simply studies businesses to find those with the soundest fundamentals and waits for the market to give him an entry price that screams, “Low risk, high reward.” This sometimes entails waiting for years for a business that he likes to be priced favorably.
Readers may be sensing already that these methods do not align with our mainstream idea of what a hedge fund is or does. Normally, we associate these firms with shady deals, whose profits comes from criminal acts that are never enforced, like insider trading or market manipulation. The events of the Gamestop Short Squeeze ring a recent bell for many, as does the 2008 Financial Crisis. It’s a very different course to sit and wait for the market to give you a price that you want, to put that ball entirely in other people’s court, and merely act when it is given to you willingly by them.
That is not to say that Ackman has never profited from trades that were purely short-term and did not fit the “buy and hold” method described above. In March 2020, Ackman pulled off what many have called the greatest trade in history. In essence, he bought a 5-year contract for credit default swaps that February. Swaps are like insurance on corprate debt. With the COVID pandemic about to hit America, Ackman supposed that the economy would be heavily disrupted and lead companies to default on their debt, so he simply bought swaps where the downside was low and upside was high.
The first month’s premium on the swap required Pershing Square to pay $27 million. Shortly after, the pandemic hit, the economy took a dive, and companies were defaulting on debt, causing their bonds to crash. Ackman exited his swap position with $2.7 billion, a 100x return in a month, which he used to invest in sound businesses whose stocks had now crashed and gave him the kind of entry price he likes.
The bottom line is that most of Ackman’s success is due to him making logical decisions, based on facts that are availabe to the public and prices that he does not dictate (unless his ability to improve a business naturally makes its price go up). If there is such a thing as ethical investing in American capitalism, it probably looks like this, and deviations from this path have caused Ackman to lose money, rather than gain. While most other hedge funds might use cheap tricks, that isn’t Ackman’s approach.
We can examine the deeper questions of how the profits of his portfolio companies (you can look them up here) are made and how some of these trades, like the swaps, aren’t available to the everyman, but that goes beyond what is implied in calling him a “billionaire hedge fund manager” or a “lucky gambler.” They are norms that Ackman himself does not control. I say that as a guy who supported Bernie in 2016 and therefore probably found himself on the opposite side of Ackman in the Democratic Party.
In Summary
The steelman of Bill Ackman is that there is a substantial difference between actively trying to ruin people’s careers and simply wanting to know which names he himself may not hire at his firm. It is also different when the controversy in question pertains to the murder of Ackman’s ethnic group, to the point of consciously decapitating babies, which makes him uncomfortable. Lastly, while we can examine the deeper issues of fairness in the American model of capitalism and in the deeds of hedge funds generally, Ackman and Pershing Square represent a straight and honest man’s way to make money in that system, a far-cry from squeezing out wealth through manipulative scheming and gambling (whether stated or implied).
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