2 things Bill Ackman says about stocks

William Ackman, known as Bill, is the chief executive officer of Pershing Square Capital Management. He’s been around the block or two, and is famous for his well-publicised short position on Herbalife. Ackman has been very successful in investing, and even though he eventually took a loss on the Herbalife position, he has made a lot of money.

Here are two things that Ackman says about stocks. 

Investing is a business where you can look very silly for a long period of time before you are proven right

In investing, you need to be willing to go against the herd. I’m not saying that you should ignore tried and tested stock market wisdom, but superior returns in investing are made by finding stocks that are worth a lot and buying them when they are cheap. 

Buying stocks that everyone has already discovered means that the equity is likely trading at a fair price. The more that is known about a stock, the more efficient the market becomes. 

When you become a lone ranger and start hunting for stocks, it can be very lonely. It’s natural to want to stick together for safety – but following the herd will mean average returns. If we want to beat the market, we have to go our own way.

That means being willing to look very silly to many people for extended periods of time. It takes a while for the market to catch on. But if you’ve done your research, you can be prepared to wait. 

I’m not emotional about investments. Investing is something where you have to be purely rational and not let emotion affect your decision making – just the facts.

This is good advice from Ackman. With every market cycle there is a glamorous new technology that excites people and sends them delirious. Mere mentions of the internet back in the Dotcom bubble were enough to frenzy hordes of buyers, who were willing to bid the stock up to extreme earnings multiples. 

Cryptocurrency was another bubble, and many believed they were going to become rich beyond their wildest dreams. Sadly, it never happened. The peak of the bubble was $20,000, only for it to then collapse – along with all of those dreams.

People were not rational when buying this bubble. They were sold on the dream, but not the risks. Bitcoin has no intrinsic value, and therefore it is impossible to know how much it is worth. It is worth purely what the market decides it is worth.

Anyone claiming to be ‘investing’ in Bitcoin was merely speculating, and while there’s nothing wrong with speculating, it should only form a small part of a sensible investment strategy. 

Focus on the facts – not your emotions.