For Bill Ackman at Pershing Square Capital, there hasn't been much Netflix and relaxation. The subsequent sell-off was utterly nasty when the streaming juggernaut estimated it would lose two million paying subscribers this quarter. Nearly $100 of its share price was erased in a matter of minutes on that day in mid-April.
One of those who had to deal with the losses was Ackman.
The fact that Ackman just acquired Netflix in January 2022 was even more astounding.
We'll examine Ackman's trades in this article, with a focus on his Netflix call, to see what went terribly badly for him. We'll also get to know the other holdings that constitute the fully invested portfolio of Pershing Square.
Bil’s Motto- Go big or go home!
For his courage and determination in placing large bets on a select few positions, Ackman is both praised and criticized. To begin, the flagship collection of Pershing Square Capital, which was founded in 2004, consists of just seven equities.
Imagine managing US$18.5 billion worth of assets with only seven stocks.
As we've already mentioned, his (very) active approach has produced some of the best investment calls as well as some of the largest collapses. However, he adheres to a few principles even when he makes large takes.
- Target the city's major area (mid and large caps)
- low financial sensitivity (this rules out most big tech companies automatically)
- A trigger for value generation ought to exist.
- Always look for better ideas- until you discover the ideal investment hold onto your wealth.
In-Depth View Of Ackman's Wager on Netflix
Of his seven jobs, six were acquired in the most recent quarter with no sales. A few of these, Netflix, is a very well of all of them (NASDAQ: NFLX).
Ackman invested US$1.1 billion in Netflix, hoping to profit from the company's then-rapid selloff. Additionally, the 3.1 million shares buying elevated him among the top 20 shareholders in the business.
Ackman claimed in a letter to investors, which was cited by the Financial Times that he was drawn to Netflix because of the size of its streaming business since it has the ability to draw customers and charge them greater fees.
Additionally, he made the embarrassing observation that Netflix may bring the fund significant, sustained earnings.
Let's see how that thesis is applied.
When Ackman surrendered his position, the investment chart came to an end. Ackman highlighted in his final letter that the issue wasn't with management but rather with management's perspective change of direction.
It is highly challenging to foresee how these business model changes would affect the company's long-term user growth, future profits, operating margins, as well as capital intensity. Despite the fact that we think these adjustments are logical,
One of the lessons we've learned from prior errors is to take quick action if we receive additional knowledge about an investment that conflicts with our initial assumption. That's the reason we did it here.
So he carried out. Regrettably, Pershing Square Capital lost $400 million on the bet.
Although the hype around Ackman's holding in the streaming behemoth made it seem like it, Netflix was nowhere close to Ackman's greatest position. Now let's talk about his other significant wagers, including the home improvement company, Lowe's (NYSE: LOW).
Ackman sold around $580 million worth of Lowe's stock during the first quarter. But for him, Lowe's has kept moving downhill ever since it sold. Since 2018, Ackman has been increasing his stake in the business, hoping that it will outlive its main rival Home Depot. It looks like it was worthwhile. In 2021, the business's sales surpassed all previous highs as a result of the US housing boom.
Just a shame that the share price does not coincide with it
Food And Other Investments
Food is a big topic in all of his other important stances as well.
Nearly 40% of the portfolio is made up of the taco chain Chipotle (NYSE: CMG), Restaurant Brands International (NYSE: QSR), which also owns Burger King and Tim Hortons, and Domino's Pizza (NYSE: DMP).
Ackman also owns roughly 5% of Hilton Hotels (NYSE: HLT), despite the fact that the epidemic hasn't really affected travel. He contends that the epidemic has caused independent hotels to look for connections with major brands like Hilton.
Ackman is a significant benefactor of Dallas-based Howard Hughes International, a property developer, continuing the theme of real estate (NYSE: HHC). With Pershing Square, he controls over a quarter of the corporation and serves as its chairman.
Finally, and absolutely unrelated, he owns a small portion of the Canadian Pacific Railway (TSE: CP). But don't let the light weighing mislead you- Ackman's relationship with the business dates back to 2011 when he was successful in having the majority of the Canadian Pacific board removed due to balance sheet issues.
Despite having his share of successes, Ackman is currently losing money. His unsuccessful move on Netflix was well reported, but it comes out that his high-risk approach is failing in a market where equities prices have plummeted to earth.
Last but not least, Ackman has been hammering home the point about interest rates. Ackman has already been hedging against rate increases since the end of 2020, but in a Twitter thread, he said the Federal Reserve has not been tough enough in combating the rising price of goods.
Markets hate uncertainty, especially in the short run. I think the sooner and more forcefully the Fed inflation increases to control inflation, the better.
The rate increases, in fact, come at last, along with the rebalancing of his holdings.