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hey what's up stock compounders brad here so today i want to give my highlights of a q a done recently with bill ackman okay uh this was a q a uh on august 24th 2020 so just a couple weeks ago it's an hour and seven minutes i'll link to the video in the description but i wanted to share my highlights so bill was asked you know when did you start to get really concerned about the pandemic because we all know bill ackman made a big bet in march of 2020 that the markets would get much more fearful than they were as this virus spread and really when bill ackman started to get concerned it was january that there was a the chinese announced a shutdown of wuhan right they gave a 12-hour notice that there was going to be a lockdown and 5 million people left wuhan within that 12 hours now of course bill ackman is you know he understands compounding very well so when you have a region in china where there's a there's a virus spreading very rapidly and then you have five million people that disperse from that area it's it's not that difficult to do the math in your head when you have a virus you know number of cases doubling every day every couple of days sure it starts small right but it grows very large very quickly and from that point he started to see all right this this thing is going to spread far and wide and so in march you know he he was considering selling out of his stock holdings right he actually sold some of starbucks uh and he was considering selling other positions but then he thought to himself well instead of unwinding these equity positions what if what if we just hedge and so he came up with this idea to buy credit default swaps because he and he understood that the credit spreads are highly correlated with how much fear there is in the markets so you know he made almost a hundred times uh the initial bet on those credit default swaps i think it was like 2.7 billion that they that pershing square made from that bet um so it was a great position and then of course the proceeds from that he was able to put into great long-term companies that pershing square is invested in like lows like restaurant brands international companies where the prices had been quite depressed maybe 30 or 50 percent down from the highs in 2020.
so it was just you know not only was it one of the best trades of all time but it happened at such an opportune moment where all of those proceeds could be put back into businesses that he loved at bargain prices so just a really remarkable story there so ackman was asked you know are the markets completely disconnected from the economy and he doesn't think that the markets are entirely wrong here in terms of how the markets are valuing businesses the dominant players you know you think of the fang stocks maybe plus microsoft the dominant players have the capital to survive they have the resiliency to survive what's happening and in fact these large and dominant companies have become larger and more dominant as a result of the pandemic because you know smaller businesses all of these you know big companies like lowe's um like amazon like well not really facebook and google but big companies who really dominate their industry you know they're oftentimes competing against a lot of small players and in aggregates those small players add up to something the issue is the smaller players it's really hard for them to innovate quickly in times like this like where where larger companies might be able to you know offer a delivery option instead of people having to come to the store or um like with with food for example this is you're more agile if you have a lot of capital and if you have a franchise where you can quickly give feedback to other franchises on you know what's what's working and what's not in terms of pivoting to the current situation whereas the lone mom and pop operation they don't have that advantage so that's one reason the large and dominant companies are becoming even larger and more dominant throughout this pandemic so it's not that everyone is doing well in the markets it's that the larger players are really carrying the markets that's kind of what we're seeing there's more of a separation between the large dominant and the smaller companies he was asked about the u.s balance sheet you know with all this printing of money all this debt creation to help the people who need help to to move through this pandemic you know whether it's unemployment payments or stimulus checks you know all that stuff um the balance sheet is you know so ackman made this cheeky comment the us balance sheet is beginning to look like an appealing activist investor target you know if you look at the us as a business uh it's you know it's getting a little scary in terms of the the number the amount of debt that the u.s has taken on of course we still have a ton of assets right the us is an incredibly rich company and one of the strongest assets of the u.s is the ability of the government to change taxation rates you know in a very short period of time that's perhaps the largest asset of the us government is the ability to you know determine whatever taxation rate they want both for individuals and for corporations so you know don't that deserves a lot of respect that ability to um to do that that asset on the balance sheet is is immense um he was asked about bonds in this environment he says equities bill was asked bill ackman says equities are a vastly superior alternative to fixed income in this environment where you know a lot of you've got negative interest rates you know there there's a there's a lot of uh issues of of negative interest rates and um so really a stock certificate when you take an equity position in a company it's a variable income bond there's there's no uh fixed amount printed on the coupon it's it's up to us as investors to figure out what is that coupon so it's a variable income bond and it doesn't have a terminal value okay there's no date where the company says okay this is when we're going to return all of your money really with with stocks with equities the current coupons you know it's easy to find five percent coupons five percent interest uh and of course they can grow they're not fixed from year to year so you know that's it's it's very difficult to make a case for bonds in this environment bill ackman says stay far away from fixed income instruments uh in our current uh economic environment and it got me thinking you know i've been thinking a lot about ray dalio you know he's been buying a lot of gold lately and i've been thinking about his all-weather portfolio and how more than half of the all-weather portfolio is bonds right and so it got me thinking i'm very curious you know how ray dalio would kind of put together an all-weather portfolio at this time based on this time in the market cycle where you know dalio thinks we're we're nearing the end of what does he say the long-term debt cycle in the u.s is coming to an end uh so that that got me thinking if any of you know what ray dalio would say or maybe he's maybe he's talked about it in terms of what an all-weather portfolio would look like in this environment it even sounds funny to say because in the name itself it's a portfolio that's designed to you know do well in all conditions all weather um but you know this is it's an unusual situation so i'm just curious if he might have some alterations to it based on how low the interest rates are right now and how long those those bond payouts are uh okay so so this next part bill ackman talks about how his investment philosophy has changed in the 20 to 30 years that he's been managing money in the beginning when he got into the business he was very focused on price and value well that sounds familiar sounds a lot like warren buffett you know buffett wanted to find cheap businesses okay they didn't have to be great businesses he was looking for cheap businesses so businesses were the price what he could pay for them was much lower than the value what they were actually worth so that's what bill was focused on the beginning no surprise there bill ackerman is a strong warren buffett disciple so his his philosophy has really changed with warren buffett's whereas today he's very focused on quality durability and growth the question that really keeps him up at night is can two students in a stanford stanford dorm room come up with a business model that could disrupt this business right that's uh the question he always asks himself how disruptible as we advance technologically is this business can it defend its moat against technological disruption and then he was asked about management like how much does management factor into you know how interested you are in buying a business and you know it doesn't factor in that much and here's why because the companies that bill ackman really likes tend to be great businesses with poor management that are available at a price that's interesting to bill ackman and the reason that they're available at a price that's interesting to bill ackman is because they don't have great management and one of the things bill ackman and his team are very competent at doing is finding the right management to uh to take the company forward uh bill ackman bought chipotle a while back and you know the founder of chipotle was a visionary very competent at you know launching chipotle getting it off to a great start but the founder of chipotle was not great at growing the business right he was great at getting it to the stage it was but didn't have the skills really to take it further and so uh bill ackman and his team helped find management that could do that next phase that can really execute that next phase of the business for chipotle and you know usually when you have a situation where you have a great business and great management already in place it's very difficult to get a compelling price to buy those businesses at a compelling price that a value investor like bill ackman would be interested in so that's really the kinds of businesses that he's targeting he also mentioned a quote by warren buffett where when you have a business that has a reputation for mediocrity and a management that has a great reputation it's the reputation of the business that's going to remain intact and so it's really important to focus on is this a great business because if it's not a great business it's going to be hard to find any management team that's going to make that investment perform really well but if you start with a great business and you can you know trade out the management then you've got a potentially winning combination there so you know that's just highlights from bill ackerman's interview on august 24th 2020.
again i will link to that in the description uh you know every time i watch bill ackman i just get so many gems i really appreciate how just how candid he is about what's happening with pershing square and um i'm really appreciating him more and more as a mentor as someone to look to to make myself a better investor so you know if you have an hour check out his video and let me know what your highlights were from the video i'm curious what's resonating with you guys so leave a comment let me know and i will see you guys in the next video take care
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