Bill Ackman is a legendary activist investor & billionaire, he is known for making big bets against the consensus & being right (most of the time, data later on)
His strategy was originally influenced by Warren Buffett & he considers himself value investor at heart. However, it’s clear his strategy is much bolder & more fitting to an activist investor with a specialism in credit.
Bill Ackman is known for his dogged persistence, when he believes he is right which can result in major win’s, but also some very public losses. In this post i’m going to breakdown Bill Ackman’s greatest public trades & outline:
Is Bill Ackman a Great Investor
Has Bill Ackman Beat the Market
Track Record of Public Trades (Performance)
Best & Worst Trades (Bill Ackman) – Including PDF downloads
Is Bill Ackman a Great Investor?
Yes, Bill Ackman is one of the greatest investors of all time despite his bold style. Pershing Square holdings (LSE:PSH) has achieved a 1,412.8% return between (2004 to 2021) vs the S&P 500 return of 399.2%. Figures are net of performance fee (20%). This is a compounded annual return of 17.1% vs the S&P 9.8% (2004 to 20201). Source. Pershing square holdings Annual Report.
Pershing Square Holdings Bill Ackman Portfolio Performance 2004 to 2021. Source: Pershing Square Holdings Annual Report
Has Bill Ackman beat the market?
Between 2004 and 2021, Bill Ackman beat the market with Pershing square producing an annual return of 17.1% vs the S&P 9.8% (2004 to 20201).
However, as noted on the below performance document between 2012 and 2021 the fund has slightly underperformed the S&P 500 Index producing a 13.6% compounded return vs 15.3% for the S&P 500.
Is it Harder to beat the market?
Many Value investors also noted from the period 2012 onwards, it has become harder to beat the market. This is for a few reasons, data is more abundant and markets have become more efficient. In addition, 2012 to 2021 was a fantastic period for the S&P 500.
The gains were driven by large tech stocks (FAANG) stocks, such as Facebook, Amazon, Apple, Netflix, Google which make up approximately 25% of the S&P 500.
BILL ACKMAN PERSHING SQUARE HOLDINGS PERFORMANCE (2004 to 2021). Source: Pershing Square Holdings Annual Report
Bill Ackman| Track Record of Trades
After an extensive amount of research & a trip back through history, I have managed to find out the approximate returns & losses for Bill Ackman’s most public trades.
A few trends are notable from the below graph:
More Win’s than losses (6 out of 10 public bets)
Losses are Smaller than Wins
Net Returns are positive +$4.75 Billion minusing losses from failed public trades.
BILL ACKMAN PUBLIC TRADE RETURNS BREAKDOWN, (Win/Losses). Credit: www.Motivation2invest.com/Bill-Ackman-Trades
More details can be found in the below table. Majority of return data has been sourced from Pershing Square shareholder letters and various high authority news providers, from the trade period such as Wall Street Journal and Bloomberg.
Bill Ackman Trade Returns Table Breakdown Good Investor or bad
Bill Ackman| Best & Worst Trades
1. Inflation Trade (2021)
In October 2021 Ackman has spoken ofInflationfears and is urging the fed to raise interest rates “as soon as possible.” On Twitter Ackman stated
“as we have previously disclosed, we have put our money where our mouth is, in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio.”
As we have previously disclosed, we have put our money where our mouth is in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio.
Ackman even gave a presentation to the New York Fed, urging them to raise rates. Of course Ackman will benefit from the hedges he has in place.
I gave a presentation https://t.co/U9C5OoiDq3 to the Federal Reserve Bank of New York last week to share our views on inflation and Fed policy. The bottom line: we think the Fed should taper immediately and begin raising rates as soon as possible.
Bill Ackman recently revealed in an interview with interactive investor (Oct 25th 2021) he has purchased “Swaptions” worth $100 Million and has made a 3x return already! In addition, Ackman has the potential to turn the bet into “Billions” if interest rates rise substantially, he stated in the interview.
What is a Swap Option (Swaption)?
A swap option, is an option to enter into an interest rate swap (or other type of swap). In exchange for an options premium. The buyer gains the right, but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.
Swaptions are usually used by large financial institutions such as banks, Hedge funds and some large companies to mitigate interest rate risk.
In 2020, Bill Ackman (CEO of Pershing Square Capital) made a major bet against corporate credit in early 2020. He bet that the health crisis in China, would crater the stock market & the economy in the USA.
This allowed him to turn $27 million into $2.6 billion for his investors! This is close to a 9500% return which is unbelievable! If you would have invested just $10k on the same trade, you could have turned that into $1 Million.
How did Bill Ackman do it?
Bill Ackman used credit protection hedges on investment-grade and high-yield bond indexes, to score the incredible profits.
As the odd’s of corporate credit defaults increase, the Pershing Square purchased assets rise in value. As the global pandemic caused the economy to be put on hold, corporate bond ratings tanked.
Pershing Square purchased the investment hedges in February 2020. Ackman noted in his Trade shareholder letter, they purchased “at near-all-time tight levels of credit spreads” so the risk of loss was “minimal at the time of purchase” .
Ackman’s full trade outline is here:
“On March 23rd, we completed the exit of our hedges generating proceeds of $2.6 billion for the Pershing Square funds ($2.1 billion for PSH), compared with premiums paid and commissions totalling $27 million, which offset the mark-to-market losses in our equity portfolio.
Pershing Square was actually up 7.9% when the rest of the market crashed and the investment firm recorded a massive 70% return in 2020.
BEST BILL ACKMAN TRADES Credit: www.Motivation2invest.com/Bill-Ackman-Trades
It was clear Ackman saw slightly further than most during the time:
“we believe that the federal government will soon initiate a total-US shutdown with a defined reopening date about 30 days later. If the federal government does not impose such a lockdown
He goes onto to say additional delays by the government will cost many thousands of lives and cause much greater economic destruction.
Bill Ackman even publicly went onto CNBC and stated “HELL IS COMING”. He goes onto say:
“I haven’t felt like this since the financial Crisis, there is a Tsunami coming and you can feel it in the air”.
Ackman has a strategy of speaking publicly about his investing thesis (after he had his hedges in place for his shareholders of course).
Pershing Square Foundation also invested Capital to help scale testing kits produced by Covaxx.
We became increasingly positive on equity and credit markets…and began the process of unwinding our hedges and redeploying our capital in companies we love at bargain prices that are built to withstand this crisis, and which we believe will flourish long term.
Ackman went onto to say that Perishing Square has added to investments in Agilent, Berkshire Hathaway, Hilton, Lowe’s, and Restaurant Brands. In addition to adding to “several new positions”, including Starbucks which they previously sold at high’s in early 2020.
This was truly the greatest trade of all time, minimal risk, maximal reward.
3. Ackman VS MBI | Trade (2002)
Outlined in the popular book “Confidence game”. Bill Ackman had his sights set on (MBI) Municipal Bond Insurance Association Inc.
MBI was rated as AAA by Credit agencies, meaning they were the highest quality of credit and extremely unlikely to fail. Bill Ackman questioned this and believed differently. Download Moody’s credit rating chart here.
Ackman discovered billions of dollars’ worth of credit default swaps (CDS) against mortgage-backed collateral debt obligations (CDOs), that MBIA was as part of.
The idea behind a CDO is that the number of loans bundled together diversifies the risk for investors.
However, this can be taken to extreme levels with various bad loans or “bad Ingredients” bundled together in an Investment grade (highest Rated) instrument.
The wide spread trading of these securities with major unknown default risk was one of the main causes of the sub prime mortgage crisis of 2007.
Ackman purchased his own credit default swaps against MBIA’s own debt in addition to shorting the company’s stock. He bet that the “safe” insurer would default due to the large exposure to CDO’s .
Bill Ackman Quotes Motivation 2 invest (4)
Ackman had a five year battle MBIA’s management, where they even banned Ackman from their earnings call’s! In addition to trying to intimate the “young guy”.
You’re a young guy, early in your career. You should think long and hard before issuing the report. We are the largest guarantor of New York state and New York City bonds.
In fact, we’re the largest guarantor of municipal debt in the country. Let’s put it this way: We have friends in high places.
– Confidence Game: How a Hedge Fund Manager Called Wall Street’s Bluff, Christine Richard, P. 6, (Wiley, 2010).
However, Ackman’s bold confidence & dogged persistence, paid off as the bond insurer’s shares and debt ratings crashed during the 2008 financial crisis. Ackman made $1.1 billion in gains for Pershing Square, which even offset the “paper losses” from stocks which crashed in 2008.
financial crisis 2008. Collapse of Lehman Brothers
Michael Burry Big Short
Legendary Investor Michael Burry also made a similar bet against these Mortgage backed Securities which was popularised in the movie, the big short. Below Margot Robbie explain’s these mortgage backed securities, a movie clip from the big short.
Are all Mortgage Backed Securities Collateralized Debt Obligations?
Mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) two very similar but technically different financial instruments.
The key difference between the two lies in what these assets are. MBS, as their name implies, are made up of mortgages home loans bought from the banks that issued them. However, CDOs are much broader: They may contain corporate loans, auto loans, leases, credit card debt and of course mortgages.
4. Bill Ackman VS Carl Ichan | Herbal Life | 2012
How much did Ackman lose on Herbalife?
In December 2012, Bill Ackman made a famous short bet against Herbal Life, a Nutritional supplements company.
Ackman called the company a “pyramid scheme” which he said would eventually go to zero. Ackman disclosed a $1 Billion short position against herbal life when the stock was trading at just $45 per share.
The stock then proceeded to spike as rival Billionaire Investor Carl Ichan invested into the company taking a a 26% stake.
Bill Ackman and Carl Ichan has many public arguments on CNBC where Carl Ichan even stated “Ackman is a crybaby”…”If you want a friend, get a dog”.
Bill Ackman Quotes Motivation 2 invest (6)
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In the end, Ichan won the battle & according to TheStreet, Icahn has made almost $1 billion profit from his investment. While Ackman lost close to $1 billion on Herbalife.
Bill Ackman’s bold confidence can also be a negative, causing him to take positions in companies which don’t turn a profit and then hang on for too long.
In 2015, Pershing Square bought shares in Valeant at approximately $190 per share, giving Ackman a sizeable 8.5% stake in the company.
First things seem to be looking up as the stock soared to $260 in summer 2015.
However, the company then proceeded to battle through a storm of issues from terrible earnings, to regulatory concerns, management mistakes and more.
These factors cause the stock to plummet to approximately $12 losing 95% of it’s value.
On March 13, 2017, Pershing Square finally threw in the towel and sold its entire position, taking a loss of more than $3 billion!
Ackman stated
“We elected to sell our investment and realize a large tax loss which will enable us to dedicate more time to our other portfolio companies and new investment opportunities,”
Wendy’s (WEN) was one of the first success stories for Ackman, as an Activist investor at Pershing Square.
In 2004, he invested into a large portion of the company (5.4%)(6.2 Million shares) then using his Activist techniques of persuasion he encouraged/pressured management to spin off it’s Tim Hortons business. Shortly after Ackman then later exited at a substantial profit.
However, surprisingly Wendy’s stock did not perform better after the spinoff. Many spoke critically of the move stating that Wendy’s was now in a weaker market . Ackman blamed the poor performance on their new CEO.
In 2011, Pershing Square took a 14.2% stake in Canadian Pacific Railway. This was a bold activist move by Bill Ackman who battled with the board of directors at Canadian Pacific. In the end Pershing won the battle and forced the change of the CEO & business strategy.
This resulted in a large increase in Canadian Pacific’s stock from just $49 per share to over $220 per share between September 2011 and December 2014, the Financial Post reported.
In 2016, Pershing sold its 6.7% stake which was valued at approximately $1.45 billion. This was a Big Win for Ackman.
Bill Ackman Quotes Motivation2invest.com/Bill-Ackman-Trades
8. General Growth Properties (2009)
Pershing Square bold yet fantastic turnaround of the troubled mall operator General Growth Properties. Ackman took the company from close to bankruptcy to success which netted the hedge fund a incredible $1.6 billion return on a small $60 million investment.
Ackman’s Activist Career is fraught with high’s and low’s, here is one of the low point. Pershing Square invested into Borders Group (Bookseller) in 2006 and increased their position in 2008 to (10.5 million shares). Borders had a failed take over attempt of Barnes & Noble Inc.
After which Borders declared Bankruptcy in 2011 and Pershing Square $200 million according to the Wall Street Journal. Ackman reportedly called borders the worst investment he’s ever made.
10. Target Corporation (2010)
Activist Ackman attempted to take over five board seats of Target the second-largest discount retailer in the USA. At the end of 2010, Pershing Square had 7.39 million shares of Target but still failed the takeover attempt. Ackman struggled to convince other shareholders which were mostly his Intuitional investment peer’s that he and his selected people were right for the board seats.
Bill Ackman is a legendary activist investor & billionaire, he is known for making big bets against the consensus & being right (most of the time as data shows).
It is clear from the data of his fund performance (shown earlier) he has beat the market successfully over a number of years. Looking at the performance of his bold public trades it is clear that despite the very public losses (herbal life etc). Ackman has overall achieved much more win’s with net returns of $4.75 Billion for the shareholders of Pershing Square.
From 2020, Ackman made 100x returns on Hedges and announced with many new deals from a public SPAC (Pershing Square Tontine Holdings) to taking a large stake in Universal Music in 2021.
On a personal note, Ackman seems to still have plenty of drive, confidence and just seems to getting into his stride.
Billionaire Bill Ackman reveals NEW Inflation Trade | $100 Million
Zillow is the number one real estate platform in the US. They have over 227 Million Website visits per month which is approximately 80% of the US population (Some may be returning users etc) .
Zillow’s business model is really an advertising platform which offers home sellers and real estate agents the opportunity to list their properties for a fee. However, Zillow also has other aspects of the business such as Mortgages, Home Loans and until recently a home buying business.
Number of Unique Monthly Visits ZIllow, Created by Author at Motivation 2 Invest
Watch Full Video with Analysis below
Why has Zillow Exited the Home Buying Business?
Last year I noted on the channel Motivation 2 invest, Zillow was taking a risk with the “ibuying” business as it was low margin and hard to scale. It seems my prediction was correct.
Zillow CEO & Co Founder (Rich Barton) stated in their Q3 Earnings Call: “We couldn’t forecast future home prices, with our models” . He also noted a more subtle point that offering sellers low offers was potentially damaging the brand and only 10% of Zillow’s offers were actually accepted.
He also noted the inherent risk in this type of business which was unnecessary for Zillow which generally runs an “asset light business” model, website etc. The CEO noted they “took a big swing” and “failed fast”
11/01/2019 CNN Business Risk Takers: Zillow 347 Ardmore Court NW, Atlanta, GA ph: E. M. Pio Roda / CNN
They now have to lay off 25% of workforce.
Zillow will also report heavy Inventory losses to reported in Q4 and charges reported in first half of 2022. Totalling approximately $500 Million. The company still has around 7,000 homes to sell, but the CEO stated “this is not a fire sale and we are in no rush to sell the homes…they are appreciating assets” ….”But we are in a rush to get them renovated and back on the market”
They are expected to sell most homes by Q2 2022.
CFO Expects: “POSITIVE EARNINGS & POSITIVE CASH FLOW COMPANY AFTER WIND DOWN”
The Co Founder and CEO Rich Barton, founded the company 16 years ago. He is also the founder of Expedia & Glassdoor and is an experienced veteran, with great connections (on the board of Netflix). He is also the Largest individual Shareholder (Large insider holding/skin in the game). On a personal note, I admire their CEO’s Honesty and straight talking.
An investing strategy I have adopted recently is that of “Investing with great founders” . A Legendary Investor Nick Sleep has highlighted this in his Letters, Full Summary here: Nick Sleeps Letters
Is Zillow Stock Undervalued?
Advanced Valuation Model, Embedded Google Sheet. Scroll Down to see the financials. Click the page “Valuation Output” then scroll down to the orange/yellow section for the value per share.
Advanced Valuation Model Zillow stock
Advanced Valuation Model Zillow stock
Advanced Valuation Model Zillow stock
Advanced Valuation Model Zillow stock
Advanced Valuation Model Zillow stock
Zillow is facing headwinds from the exit of it’s home buying business, which is expected to last at least until the middle of 2022. However, they have made great progress moving this forward with over half of the homes having been sold or under contract to sell. On balance I believe this is the right decision by the CEO Rich Barton. Zillow is exiting a capital heavy business and can now focus more on their asset light online business model. Zillow’s core business has a high EBITDA margin (40%+) and thus focusing on improving their platform through technology seems like the best strategy. There is still a few questions which remain on exactly how Zillow will proceed with “Zillow 2.0” and capture a larger percentage of the property transaction market. There is also the risk the write down will take longer than expected.
However, from my Advanced valuation Model the Value of the stock is $69/share and thus is approximately 12% undervalued. Thus this could be a great long term investing opportunity, if you can handle the short term choppiness expected.
Bill Ackman is a legendary activist investor & billionaire, he is known for making big bets against the consensus & being right!
His strategy was originally influenced by Warren Buffett & he considers himself value investor at heart, but it’s clear his strategy is much bolder & more fitting to an activist investor.
Investing Strategy: Activist Investor, Short Seller, Contrarian, Value Investor
What is Bill Ackman doing now?
Inflation Trade:
In October 2021 Ackman has spoken of Inflation fears and is urging the fed to raise interest rates “as soon as possible.” On Twitter Ackman stated
“as we have previously disclosed, we have put our money where our mouth is, in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio.”
As we have previously disclosed, we have put our money where our mouth is in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio.
Ackman even gave a presentation to the New York Fed, urging them to raise rates. Of course Ackman will Benefit from the hedges he has in place. Most likely shorting Bonds and buying assets such as Gold and Gold Futures.
I gave a presentation https://t.co/U9C5OoiDq3 to the Federal Reserve Bank of New York last week to share our views on inflation and Fed policy. The bottom line: we think the Fed should taper immediately and begin raising rates as soon as possible.
Bill Ackman recently revealed in an interview with interactive investor (Oct 25th 2021) he has purchased “Swaptions” worth $100 Million and has made a 3x return already! In addition, Ackman has the potential to turn the bet into “Billions” if interest rates rise substantially, he stated in the interview.
Below we have unpacked Bill Ackmans presentation and given a brief overview of the main points.
5 Reasons Bill Ackman Thinks Interest Rates will Rise:
1. Rising Inflation
Latest Inflation Numbers are approximately 5% , which is above the Federal reserves target of 2%. The Fed states this is “Transitory” as the economy restarts, many investors are sceptical.
An extract from Ackman’s presentation shows mid to high single digit inflation. From 7.2% for the CPI (Consumer price index) ,which is basically a basket of common goods purchased by people (food, groceries etc) to 6.2% for Wage inflation. Fed Target is 2% overall.
Inflation High. Source: Bureau of Labor Statistics (1) Represents the month over month change in the seasonally adjusted, average hourly earnings of all nonfarm payroll employees as published in the BLS’ Employment Situation Report
Ackman pointed out that total employment is only five million jobs lower today than its pre-pandemic level in February 2020.
Total employment is only five million jobs lower today than its pre-pandemic level in February 2020. Source: Bureau of Labor Statistics (1) U-6 unemployment rate represents total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force
4. Historic Context
Historically, when unemployment is low and inflation is high, the Fed has increased it’s Fed Funds Rate.
This is the amount of interest the federal reserve charges to banks for overnight borrowing. This often acts as a signal to the market and overall interest rates.
Bill Ackman noted in his presentation, that we now have low unemployment and higher inflation yet the federal reserve has still not increased interest rates. They are keeping them artificially low as they believe inflation is “Transitory” which means temporary.
The Bank of England has recently changed it’s story between July 2021 to October 2021. In July 2021 They stated “It is important to not to overreact to temporarily strong growth and inflation”. However, in October 17th 2021 they stated “The Energy story means [the period of high inflation] will last longer”.
How to play this Inflation Trade?
Bill Ackman recently revealed in an interview with interactive investor (Oct 25th 2021) he has purchased “Swaptions” worth $100 Million and has made a 3x return already! In addition, Ackman has the potential to turn the bet into “Billions” if interest rates rise substantially, he stated in the interview.
Historically during times of inflation, investors have invested into assets such as Gold, Gold Futures and Real Estate. Rising inflation will also impact the value of Treasury bills and bonds. As if as if a 10 year Treasury Bill is paying 1.5% interest and inflation is at 5%. The Investor is actually losing money by investing into these bonds!
Thus short selling fixed income such as government and corporate bonds could also produce high returns. Of course this is not financial advice and the risk is inflation doesn’t continue to rise and is “transitory” as the fed believed.
Former Wall Street Trader Interview | Inflation Trade revealed
Howard Marks is a legendary Value investor with a specialism ib deep value investing & special situations, such as credit & distressed debt investing. Marks is the founder of Oak Tree Capital which lists four kinds of investing on their website:
Credit (Loans/debt etc)
Real Assets (Real Estate)
Private Equity (Special Situations)
Listed Equities (Emerging markets & Value Stocks).
Howard Marks believes everything is governed by cycles, from investor moods to stock market crashes.
He even wrote a best selling book on the subject called “Mastering the Market Cycle” & “the most important thing”. The later book lists “the most important things” to do when investing.
Investing Strategy: Value Investor,Contrarian, Small Cap, Large Cap
How did Howard Marks make his Money?
Howard Marks began his Career at Citibank, where he started a portfolio of high yield bonds, upon meeting with “junk bond king” Michael Milken.
After he became an asset Manager at TCW, there he met his future co founder for Oaktree (Bruce Karsh). In 1995, Marks left with other other colleagues to start Oaktree Capital.
In 2019, Brookfield Asset Management acquired 61% of Oaktree capital for approximately $4.9 Billion in cash & stock.
Howard Marks Letters/Memos:
Howard Marks Memo’s at Oaktree capital are world renowned and even read by legendary investors such as Warren Buffett!
A widely popular memo is called “something of value” In the memo he talks about what is Value investing, the works of Benjamin Graham, Value vs Growth Investing etc. The Memo by Howard Marks is also a popular podcast and Oaktree insights are a great way of exploring the investing strategy of Howard Marks at an advanced level.
Oaktree Capital Fund Performance:
Howard Marks Oaktree capital has a history of exceptional performance. 18.8% IRR (Internal Rate of Return) vs the S&P 500 Annual Return of 10.4%. This is the annualised time weighted return since October 1988. More details can be downloaded at Oaktree Capital.
Howard Marks Oaktree capital performance Historic. 18.8% IRR (Internal Rate of Return) vs the S&P 500 Annual Return of 10.4%. Courtesy of: Oaktreecapital.com
Howard Marks on Bitcoin
Legendary Investor Howard Marks was previously sceptical on Bitcoin & Cryptocurrencies and stated in 2017 “they have no intrinsic value”. However, his thinking has evolved mainly thanks to influences from his son.
“My Reaction to Bitcoin in 2017 when it jumped from $1000 to $20,000…was a knee jerk sceptical reaction to something new…because of it’s newness”
“My son & I lived together during the pandemic, he gave me a lecture every day that i had opined about Bitcoin without knowing what I was talking about…which was certainly true”
Marks goes onto say:
“Most people have accepted you can make 7% returns dependently from stocks & bonds, so that means you have to push out the risk curve and go further a field into new things or odd things”
Howard Marks 15 Quotes on Investing
1. The market moves in cycles…
Credit: www.Motivation2invest.com/Howard-Marks
“The Market Moves in cycles like a pendulum which swings from pessimism to optimism”. As the father of value investing Benjamin Graham once stated, in the short term the stock market is a voting machine based on popularity, fear & greed, but in the long term the stock market is a weighing machine based upon fundamentals.
Stock Market Moves in Cycles from fear to greed
2. Buy from the pessimists, sell to the optimists…
“The Market moves in cycles, buy from the pessimists and sell to the optimists” , This is very similar to a quote by Sir John Templeton a legendary contrarian investor.
He stated it’s best to be a “realist” and then as Marks stated also…sell to the optimists at sky high valuations and “buy from the pessimists” at low valuations.
3. “People should like something less when the price rises…”
Howard Marks Quotes Motivation 2 invest Credit: www.Motivation2invest.com/Howard-Marks
“People should like something less when the price rises, but they often like it more! ” This is a strange but common phenomenon which shows humans aren’t rational and have a “heard mentality” in general.
When the price of a stock or asset such as cryptocurrency rises, suddenly more people get interested. This is despite the logical fact that as the price of the security suddenly rises, so does the risk as the valuation is usually stretched.
“What a wise man does in the beginning…the fool does in the end” .
Every stock market bubble starts with a nugget of truth from the California Gold Rush, to the dot com bubble in the late 90’s, Housing bubble 2008 etc.
There was lots of gold in California, the internet was a great technology and housing were a fairly “safe” investment.
However, “what the wise man does in the beginning”, investing into these asset classes at low valuations…”the fool does in the end”. The “fool” is usually the general retail investor, but can also be large intuitions, who can’t stand watching their colleagues make money and thus succumb to “FOMO” (Fear of missing out).
Stock Market Bubble chart.
From the chart of a bubble above you can see the various stages, it starts with the “Stealth Phase” where the “smart money” has a unique insight and thus decides to invest.
Then we go to the Awareness phase and majority of large institutional investors come in. Then the general public see’s a spike in trading volume and all this “smart” and “large” investors piling into the stock or asset.
Your friend in the office then walks in and brags of how much money he made in a few days…you then invest also. Then after capitulation…
“FOMO” fear of missing out, is one of the main causes of bubbles from the dot com bubble in the late 90’s to the housing bubble in 2008.
Cryptocurrency was a bubble back in 2016, which rose suddenly then popped. But only time will tell whether it will be a bubble again…it does seem to follow many of the above characteristics.
“Success creates the seeds of failure and failure creates the seeds of success” , When stock prices run up fast (as mentioned previously in the bubble explanation) euphoria is in the air, everyone is making money”…”on paper” and overconfidence ensues.
However, this is usually wear the seeds of failure are shown. Just like an overconfident driver, who gradually goes faster until the car ends up on it’s roof!
The only positive of this, is these “seeds of failure” a stock market crash for example, offer the opportunity as the pessimism often results in low valuations.
Legendary Growth stock investor Cathie Wood stated “The Greatest Bull Markets are built on walls of worry”
6. “We should know where we are”
Howard Marks Quotes Credit: www.Motivation2invest.com/Howard-Marks
“Although it’s hard to predict where we are going, we should know where we are”. Predicting a the next stock market crash is very difficult and almost impossible to do consistently. However, Howard Marks has some great advice, although we can’t predict where we are going…we should know where we are in the Market cycle.
7. “Two types of forecasters”
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
“There are two types of forecasters, those who don’t know and those who don’t know they don’t know” Howard Marks believes nobody can consistently predict the stock market crashes, interest rates, inflation etc.
The Legendary investor Peter Lynch also agrees with this. However, this doesn’t stop economists, hedge funds and many “experts” on CNBC trying.
8. “Success comes from buying things well”
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
“Success doesn’t come from buying good things, but buying things well”. This is a difficult concept for many people to understand, as when the see a “great company” they automatically think it is a great investment.
However, this is not always the case as a great investment depends upon the price paid. Howard Marks in a past interview offered the analogy of buying a car, if he offered to sell you his car you would first ask “what price?” .
Then if you are smart, you will compare the price to other similar car’s. However in stocks, many people still forget to even do “relative valuation”…this is comparing Price to sales (PS) ratio’s , PE ratio’s, EV/EBITDA etc.
9. “There are bold investors & old Investors…”
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
“There are bold investors & old Investors, but not any old bold investors”. This is very true if you take a look at many great investors they focus up limiting the downside risk first. However, many “bold investors” that use risky/speculative strategies with leverage can become successful. But if they don’t change their strategy usually they get wiped out.
Story of a “Bold Investor” who lost $20 billion in 2 days:
A great example of a “bold investor” in recent times was “Bill Hwang of Archegos Capital” . Bill came from humble beginnings working in McDonalds, before managing to start on Wall Street. He executed well and built up an incredible fortune of $20 billion.
In 2020, Hwang had a series of leveraged bets on tech stocks but when the market corrected he lost $20 billion in 2 days!
Bill even nearly took the Banks who borrowed him substantial amounts with him, including Morgan Stanley and Credit Suisse which lost $861 million!
10. “Luck plays a key part in any investing outcome…”
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
“Luck plays a key part in any investing outcome, thus you can’t judge the quality of the decision by outcome alone”
In investing a “mistake” does not necessarily mean because the stock went down, as luck can play a part. However, you can learn from your “process” used to make the decision to buy or sell the security.
11. Remember the 6ft man who drowned in a lake that was 5 feet deep…on average.
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
“Averages are useless, a 6 foot tall man drowned in a lake that was 5 feet deep…on average” . Be aware of averages especially when predicting outcomes, we can easily say “on average” this will be fine.
However, in scenario analysis we should look at the “tail end” of the distribution, unlikely outcomes which are still possible, “black swans”. If these outcomes can be fatal then it’s best not to make that bet.
12. Probability & Outcome are different…
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
“Probability & outcome are different, probable things can fail to happen & improbable things happen all the time” Just because something is “improbable” doesn’t mean it can’t happen thus this should be taken in account in your investing analysis.
13. Make all big decisions on probabilities & impact
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
“Make all big decisions using probabilities & impact, best case, worst case & likely case” As mentioned previously it is all about analysing the distribution of outcomes, what is the best case, worst case and likely case”. Is the best case a 50x and the worst case losing 1x…if so this is likely a good bet.
But if the worst case is losing all your money….which may affect your lifestyle then it’s best not to take that bet. Of course, this is not financial advice.
Advanced investors use a “Montecarlo” distribution to highlight the range of possible outcomes. We offer this in our advanced valuation modelif you wish to learn more.
14. “Investing is like Tennis…focus on not hitting losers”
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
Howard Marks gave a great analogy during a presentation at Google talks. He stated” investing is like Tennis, instead of trying to hit all winning power shots, focus on not hitting losers”.
He is referring to a useful strategy of beating amateurs at Tennis, as they are more likely to make a mistake, by trying to hit “power shots”. Which are much more difficult to execute.
This analogy reminds me of one by Warren Buffett, in which he stated they look for “one foot hurdles” to step over rather than trying to leap over 5 foot hurdles. In simpler terms this basically means looking for easy to understand businesses and simple “no brainer” investing opportunities.
15. “Experience is what you got…”
Howard Marks Investor Quotes Credit: www.Motivation2invest.com/Howard-Marks
“Experience is what you got, when you didn’t get what you wanted” , things don’t always go to plan but the beauty with investing & life is we can reflect and learn from past mistakes.
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Cathie Wood is the founder & chief investment officer at Ark invest. This is an investment firm which specialises in investing into disruptive innovation. With a series of active ETF’s focusing on Genomics, Robotics and even space exploration.
She is widely regarded as the biggest Tesla bull and was known for publicly stating what seemed to be outlandish price targets for Tesla of $4000+ , back when Tesla stock was trading at just a couple of hundred dollars.
Cathie Wood Quotes Ark Invest Tesla Credit: www.Motivation2invest.com/Cathie-Wood
In one CNBC interview in Early 2020 before Tesla stocks monstrous bull run of over 800%, Cathie wood stated many times “Tesla is ready for prime time” much to the look of amusement from CNBC’s commentators.
Cathie Wood had the last laugh with her active ETF’s returning over 100% in 2020.
In 2021 her ETF’s have had a rocky start thanks to rising interest rates which have impacted growth stocks more than others in the industry. Only time will tell if Cathie Wood can regain her crown as the queen of investing.
What is Cathie Wood’s Investing Strategy?
Cathie Wood of Ark Invest is a Growth stock investor who invests into companies which offer elements of disruptive innovation. She is not afraid of making bold bet’s against the consensus (Tesla 2019) and thus can be called a contrarian.
Cathie Wood believes Wrights Law (cost declines as a function of production) is a major predictor of future technology success from decreasing costs for EV Batteries to gene sequencing becoming more affordable.
Fun Fact: Some people refer to Cathie Wood as “Katie Wood” assuming Katie is short for Catherine. But Cathie tends to not use that name.
Investing Strategy: Growth Stocks , Technology, Medium Term, Daily Trades, Small Cap, Medium Cap.
1. My Highest Conviction stocks are…
Cathie Wood Quotes Ark Invest Tesla Credit: www.Motivation2invest.com/Cathie-Wood
“My Highest conviction stocks are Tesla, Square & Palantir”. Tesla is no surprise, but Square & Palantir are also great growth stocks with lots of potential. I previously covered stocks such as Square & Palantir on my channel Motivation2invest, full valuation models with buy points can be found here.
2. Tesla Price Target for 2025 is $4000
Cathie Wood Quotes Ark Invest Tesla Credit: www.Motivation2invest.com/Cathie-Wood
Cathie Wood Stated her bullish price target for Tesla stock is $4000 by 2025.
“Wrights Law forecasts cost declines in EV’s, Robotics and genomics.”
What is Wrights Law?
Developed by Theodore Wright in 1936, Wright’s Law is a framework for forecasting cost declines as a function of cumulative production.
It states that “for every cumulative doubling of units produced, costs will fall by a constant percentage.”
This is a very similar concept the economics of scale and that mass production & technology innovation results in cost declines. This has been true for Batteries, Solar Panels, Genomic sequencing and more.
Ark Invest even found “A price forecast based on Wright’s Law was 40% more accurate than one based on Moore’s Law.” (From the decade to 2015.
4. “Robot Grocery Delivery could cost just 40 cent per trip”
Cathie Wood Quotes Ark Invest Tesla Credit: www.Motivation2invest.com/Cathie-Wood
Following on from the previously mentioned Wrights Law, “cost declines as production increases”. Cathie Wood has also forecasted similar cost declines with robot grocery delivery.
ARK Invest expects industrial robots will cost less than $11,000 per unit, this is less than Boston Consulting Group’s (BCG’s) expectation of roughly $24,000, by 2025
5. “Genomic Sequencing costs are dropping 40% per year”
Following on from the previously mentioned Wrights Law, “cost declines as production increases”. Cathie Wood has also forecasted similar cost declines with Genome Sequencing following on from previous declines.
Ark Invest stated:
“DNA sequencing is following a cost curve decline that is steeper than microprocessors enjoyed during the past 40 to 50 years”.
“Since 2001 the cost to sequence one whole human genome has dropped from $100 million to $1,000, or more than 50% per year, an decline unrivalled by any other general purpose technology platform in history.”
cost declines of DNA Sequencing. Ark Invest. Source: https://ark-invest.com/articles/analyst-research/illumina/
Although inspiring, Ironically Ark invest sold of it’s very bullish Illumina stock (a leading company in the genomics industry) as they weren’t keeping up with the cost declines necessary. However, there are many other players in this arena.
“Tesla is a leader in Batteries, Robotics, Solar & Autonomous vehicles”. Tesla is not only an Electric Vehicle company but a technology company which has entered many industries aggressively.
Wall Street Analysts tore down 7 competing Batteries and they found Tesla’s to the be the lowest cost with highest energy density.
“Tesla will likely remain the cost and technology benchmark for several more years, and Volkswagen is the fastest follower on a global scale. Its €33bn committed EV investments of over a 5-year period are still unmatched.”
In terms of Robotics, Tesla shocked the world when they announced to be working on a Humanoid style Robot. A figure came out which many thought was a prototype…before the dancing started. Watch the supercut of the video below.
Tesla Robot Revealed | TESLA AI DAY 2021 | 6 Minute Supercut Analysis
7. Autonomous Taxi’s will revolutionise the auto industry
Cathie Wood Quotes Ark Invest Tesla Credit: www.Motivation2invest.com/Cathie-Wood
“Autonomous Taxi’s will revolutionise the auto industry” this area could really be a game changer and although Tesla hasn’t fully mastered the technology yet the potential is huge.
Tesla vehicles are capturing a vast amount of data daily, all this feeds into their Artificial intelligence & neural net’s system.
Thus once the accuracy of their system is close to perfect they can do an over the air software update to vehicles which will make their entire fleet self driving at scale. No other company has this ability to scale right now.
However, in terms of pure technology googles Waymo technology is actually fully functional as a self driving vehicle in Arizona right now! They use LIDAR which Elon Musk rejected as “too expensive” will he regret this.
More details on this video below, Top 3 Self Driving Car Stocks:
8. Bitcoin is the reserve currency of the digital ecosystem
Cathie Wood called Bitcoin the Reserve currency of the digital ecosystem and said investors see it as a “flight to safety” . Similar to the way the US dollar is the reserve currency of the world and gold can often be considered a hedge.
Correction from the quote above, in more bullish estimates such as at the SALT Conference 2021, Cathie Believes “Bitcoin will to soar to $500,000 in five years time”.
This is an incredibly high price target and is effectively a 10x from it’s current price of around $50,000. Cathie Wood believes this is driven by conservative estimates of supply and demand, Wood stated:
“If we’re right and companies continue to diversify their cash into something like Bitcoin, and institutional investors start allocating 5% of their funds in Bitcoin […] we believe the price will be ten-fold what it is today. Instead of $45,000, over $500,000.”
10. “Only 4 Cryptocurrencies will survive the next crash”
This quote was from a conference a few years back when Cathie Wood stated only 4 cryptocurrencies will survive the next crash, Bitcoin, Ethereum etc. She also stated “most of the 2000+ crypto assets today will be worthless”
For those of you who don’t know, the “FANG” or “FAANG” stocks are Wall Street nicknames for the best performing tech giants of our decade. These include: Facebook, Amazon, Apple, Netflix, Google.
However, Cathie Wood believes the next “FANG stocks are being birthed in the genomic revolution”. This is thanks to cost declines in gene sequencing mentioned previously driven by Wrights law.
“We wanted flying cars, instead we got 140 characters,”said Peter Thiel in 2013. However, according to a research report by Ark Invest, EVTOL (Electric Vertical Take-Off, Landing) vehicles could be with us soon. Many startups are working on this concept and have bullish projections to roll out vehicles by 2025. These include:
Joby Aviation (JOBY) – Wen’t public as a SPAC backed by LinkedIn founder Reid Hoffman, now owns UBER Elevate.
“We want our companies to invest aggressively, we don’t want our profits now”. Companies which invest into innovation and take strategic bets long term tend to product greater returns for investors.
The most notable is Amazon which has a culture of “experimentation” and taking “lots of small bets”. Legendary investor Nick Sleep held onto this stock for many years & was rewarded with fantastic returns.
14. “The Strongest Bull Markets are built on walls of worry”
From the Financial Crisis in 2008 to the 2020 crash, “walls of worry” do often lead to the strongest bull markets.
Square is a fantastic company founded by the Legendary Jack Dorsey (who is also the co founder of Twitter).
Square started by selling innovative devices which allowed small businesses to accept payments through their phone. However, they have now expanded to other areas including Cryptocurrency and their popular cash app.
I previously analysed square stock & completed an advanced valuation model before the stock ran up huge. Full Disclosure I did invest after the video and so did many members of our VIP community, You download my advanced valuation models & access our group by clicking the link here
Ray Dalio is the Billionaire founder of the worlds largest hedge fund, Bridgewater associates.
Dalio got his first taste of investing during the “nifty fifties” this was a major bull market and everyone was talking about stocks.
He overhead many conversations while caddying at a golf club & thus saved up his wages before investing.
He bought his first stock, North East Airlines which immediately increased in price. After which Dalio was hooked on investing & fell in love with the opportunities.
Investing Strategy of Ray Dalio
Ray Dalio’s investing Strategy has a big focus on Investing internationally and diversification across stocks, industries, asset classes etc.
Investing Strategy: Diversified, Value Investor, Emerging Markets, alternative assets, Long Term, International, Economics.
Ray Dalio Quotes MOTIVATION 2 INVEST (4) Credit: www.Motivation2invest.com/Ray-Dalio
All Weather Portfolio:
Thus Dalio created such portfolios as the “All Weather Portfolio” an investment portfolio which should perform well under any conditions.
all weather portfolio ray dalio. Credit: www.motivation2invest.com/Ray-Dalio
The Stocks (equity) act as the growth driver of the portfolio. The Bonds act as a stabilizer or ballast reducing volatility (Beta) .
In addition, the bonds are a hedge against stock market crashes, as usually when stocks crash investors retreat to bonds for safety.
The gold acts as a hedge against inflation and the devaluing of US dollars as the currency.
Ray Dalio Quotes MOTIVATION 2 INVEST (17)Credit: www.Motivation2invest.com/Ray-Dalio
Dalio is a major bull on investing into Gold, he states “If you don’t own gold, you know neither history or economics”.
This is contrary to Warren Buffett who doesn’t invest into gold as it “doesn’t produce anything”, Buffett prefers farmland.
all weather portfolio ray dalio 3D. Credit: www.motivation2invest.com/Ray-Dalio
Holy Grail of Investing
The “Holy Grail of Investing” is 12 to 15 uncorrelated bets which offer a low risk, high reward investment. This is known as an asymmetric risk/reward ratio.
Ray Dalio Quotes MOTIVATION 2 INVEST (1). Credit: www.Motivation2invest.com/Ray-Dalio-Quotes
12 to 15 Uncorrelated return streams – The Holy Grail of investing. This creates an investment portfolio with less volatility and risk but still with high returns.
Of course this is an ideal scenario and very difficult to achieve in practice as thanks to globalization many return streams are heavily correlated.
For example, according to a study by New York university, Crypto currency moves like a risky stock and real estate is not the hedge it once was.
Holy Grail of investing. Investopedia.com
We all know taking more risk can often lead to the chance of greater rewards but ideally we want a low risk, high reward situation.
Ray Dalio Quotes MOTIVATION 2 INVEST (3). Credit: www.Motivation2invest.com/Ray-Dalio-Quotes
Does Ray Dalio own Bitcoin?
In a recent interview with CNBC, Billionaire Ray Dalio stated he owned Bitcoin & gold as inflation hedges against the US Dollar. He stated Gold makes up a small portion of this part of his portfolio and Bitcoin makes up an even smaller position.
Dalio went onto to say “if it’s really successful, they’ll kill it” referring to government regulation. “We have China & India getting rid of it and El Salvador taking it on”. Bridgewater Associatesput out a detailed paper with their thoughts on Bitcoin & Crypto Currency.
They stated “Although Bitcoin is limited supply, other cryptocurrencies can come along to take it’s place”
Ray Dalio Quotes MOTIVATION 2 INVEST (20) Credit: www.Motivation2invest.com/Ray-Dalio
Bridgewater associates conclusion on Bitcoin is as follows, Quote:
“Overall, it’s clear that Bitcoin has features that could make it an attractive storehold of wealth; it also has proven resilient so far. However, we have to acknowledge that this financial vehicle is only a decade old.
In absolute terms and vis-a-vis established storeholds of wealth such as gold, how will this digital asset fare going forward?
Future challenges may still come from quantum computing, regulatory backlash, or issues we haven’t even determined yet.
Even if none of these materialize, Bitcoin, for now, feels more to us like an option on a potential storehold of wealth.”
Ray Dalio Quotes MOTIVATION 2 INVEST (20) Credit: www.Motivation2invest.com/Ray-Dalio
Investing into China
Ray Dalio is a major bull on Investing into China, as they have the 2nd largest economy in the world (soon to be first!) , a growing middle class and series of superstar technology companies such as Alibaba and Pinduoduo.
In a 2020 CNBC interview, Ray Dalio stated “almost all investors are underweight in China”.
“It’s a part of the world that one can’t neglect and not only because of the opportunities it provides, but you lose the excitement if you’re not there,”.
However, there are many risks for western investors in China. Including China’s crackdown on tech companies, Investing via American depository receipts (ADR’s), potential delisting of Chinese stocks and government control
Time stamps:👇👇 0:00 – Intro 1:50 – China stocks crash 3:50 – DIDI Stock crash 6:40 – Chinese stock investing tips 7:46 – Chinese ADR explained 8:40 – What happens if a stock is delisted?
Which Chinese Stocks does Ray Dalio own?
According to the latest portfolio update from the 13-F filing for Bridgewater associates, Q3, 2021. Ray Dalio has the following Chinese Stocks & Funds in his largest holdings:
Alibaba Stock (0.021% of his portfolio ($321 Million)
Pinduoduo Stock (0.9% of portfolio, $141 million)
I Shares MSCI China ETF (0.9% of portfolio, $141 million)
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Ray Dalio’s Portfolio Update Q3 2021
Diving into the 13-F SEC filing for Bridgewater associates we can discover Ray Dalio’s top 24 largest stocks in his portfolio.
Largest Stocks in Ray Dalios portfolio Q4 2021
Ray Dalio Portfolio Q4 2021 Largest Stocks top. Credit: www.Motivation2invest.com/ray-dalio
Interactive Portfolio of Top 24 Holdings, Updated automatically:
Which Stocks has Ray Dalio been buying?
According to the 13-F filing (Q3,2021) for Bridgewater associates. Popular stocks Ray Dalio has been buying Q3 2021, include Lowe’s, The Home Depot and Lululemon.
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Ray Dalio also added to shares of these 10 stocks:
WMT (+$230M)
PG (+$207M)
JNJ (+$183M)
IAU (+$142M)
KO (+$139M)
PEP (+$131M)
DHR (+$111M)
COST (+$111M)
MCD (+$105M)
EEM (+$97M)
Ray Dalio Latest stock buys 2021 Credit: www.Motivation2invest.com/Ray-Dalio
Long Term debt Cycle Graph
In the words of Legendary Investor Howard Marks who wrote the book, Mastering the market cycle. “We don’t know where we are going, be we should know where we are”. This is similar to the above quote by Ray Dalio, he often talks about cycles and knowing where we stand. Are we in a Bullish Market, Bearish, is their speculation in the air, fear?
Ray Dalio market cycles. Credit: www.Motivation2invest.com/Ray-Dalio
Dalio has spoken at length in the past about the Long term Debt cycle and states we are coming to the end of this.
Reviewing a Debt to GDP graph over the long term reveals alot about the long term debt cycle. I hate to be the bearer of bad news but we see to be at the point i’ve highlighted in red “printing Money and Credit”.
In terms of “Big Wealth Gap”, this is also true. According to a study by Pewresearch the gaps in income between upper and middle income households is rising.
The only think we haven’t had yet is a War, but there have been quite a few “revolutions” with many protests all over the world regarding various subjects.
What happens at the end of a debt cycle?
There are four ways to restructure debt at the end of the long term debt cycle.
1.) Austerity (Less government spending)
2.) Debt defaults (Bankruptcies if allowed could spiral into a depression)
3.) Raising taxes (Painful for people, but likely)
4.) Devaluation of currency (Already happening as we are seeing vast printing of money & rising inflation)
