Video summary
Bill Ackman has recently released a new investment letter featuring six fresh stock purchases, prompting an analysis of his evolving strategy and risk appetite. The core of Ackman's approach involves targeting high-growth companies that he believes can outperform the S&P 500 over the next three to five years, often by acquiring positions at low price-to-earnings ratios. However, the speaker notes a significant shift in Ackman's behavior since 2012, observing that he is increasingly chasing performance and growth rather than strictly adhering to value principles. This strategy involves leveraging assets to amplify returns, which introduces substantial risk, particularly in sectors like private equity and infrastructure where earnings growth relies on valuation adjustments rather than organic cash flow generation.
Among the specific holdings discussed are Microsoft and Amazon, both viewed as major bets on artificial intelligence, alongside Meta Platforms and Visa. The speaker expresses caution regarding Microsoft due to its heavy reliance on a few customers for revenue growth, labeling it risky if those expectations fail to materialize. Conversely, Amazon is seen as having a more conservative intrinsic value compared to Ackman's aggressive targets, while Meta is considered one of the cheapest hyperscalers available. Visa and Intercontinental Exchange are highlighted as stable businesses with strong moats and consistent compounding, though the speaker advises waiting for deeper valuation discounts before entering positions like S&P Global or Moody's, citing historical examples where Buffett waited for crises to buy similar stocks at much lower prices.
The analysis also delves into Ackman's controversial moves in the insurance sector through Howard Hughes Corporation and Restaurant Brands International. The speaker warns that investing in insurance during current market conditions is akin to "chasing returns" without fully accounting for the cyclical risks that Warren Buffett has long warned about, noting that predicting downturns is nearly impossible for most investors. Additionally, Ackman's track record is scrutinized, revealing a history of mixed results where he successfully profited from some companies like Hilton and Chipotle but suffered losses on others such as Nike, Universal, and Hertz. These instances illustrate the volatility inherent in his leveraged strategy and the potential for significant drawdowns if market shocks occur or if his growth projections prove overly optimistic.
Ultimately, while Ackman's portfolio appears relatively cheap compared to broader market valuations, the speaker emphasizes that it is not strictly a value investment by traditional standards due to the high fees associated with his fund structure and the aggressive nature of his bets. The conclusion drawn is that investors do not need to replicate Ackman's strategy of trying to beat the market at all costs, especially given the accumulation of fees over time which can erode up to 30% of an investor's value over a decade. Instead, the video suggests focusing on risk and reward scenarios that align with one's own comfort level, perhaps waiting for clearer cycles or better entry points rather than blindly following every new buy recommendation from a manager who has struggled to beat the market consistently in recent years.
Read the full video transcript
Hello, fellow investors. Bill Ackman
came out with his new letter, six new
buys, interesting positions. Let's look
at them. By the way, if you're
interested in trading any of these
stocks, this video is supported by
Interactive Brokers. If you click on my
link in the description below, I get a
small fee. Thank you for supporting the
channel. I use this broker. See how
perhaps the best broker globally for
value investors fits you. We discussed
Uber yesterday. You can find the link in
the description below. Very, very
interesting risk and reward situation.
See how it fits your portfolio. Let's go
by strategy. Uber, every company, the
top companies that Bill Ackman owns,
estimated 3 to 5 years earnings per
share growth rate, 25, 20, 19, 22, 15,
24. Some value holdings, insurance,
things like that. Then, another great
companies trading at low
price-to-earnings ratios for those
companies growing at high teen rates for
the next 3 to 5 years. This is much
better than the S&P 500
growing at lower rates with a little bit
higher PE ratio. If we look at what
Bill Ackman is saying, he did beat the
market in the past. Keep in mind that is
in the first 10 years of his situation.
He didn't beat the market since 2012.
He is still delivering a great return of
double digits, but below the 15% of the
S&P 500. He's trying to do whatever he
can to beat the market. There is a
discount to net asset value. Keep in
mind because of the fees. If you have a
1.5%
management fee and a 16% performance
fee,
that's your discount. Over a decade,
that accumulates to 30% of your value.
That's why there will always be a
discount there, no matter what Bill
tells you. But six new companies, we'll
discuss a few of them. There is some
leverage, of course. It his strategy is
to find great growth stocks and also
narrow the discount to net asset value.
So, let's discuss Brookfield. I gave my
opinion on Brookfield a little bit more
than a year ago. There was a stock
split, so the stock is up a little bit.
Don't get confused by the dump here by
saying 57, adjusted something like 37.
However, here Brookfield to me is an
example of Bill chasing growth, chasing
the performance, chasing ways of beating
this market that he hasn't done since
2012. If you look at what he is saying,
he is saying that Brookfield grows at 14
times earnings and will grow earnings in
double digits going forward. If I go
back to this video, how is Brookfield
growing earnings? They buy something and
then they say
okay, it's valued 10% more next year.
Given the leverage, given the
everything, that's how they grow their
earnings, not through real owning cash
flows like Berkshire. If there is a hit,
and I hope it doesn't happen because
that will destroy the financial system,
to these vehicles, private equity,
things like that, and there are
certainly risks, then Brookfield gets
very ugly. More information in
Brookfield in this video, not much
changed in my opinion. But it explains
Bill's risk-taking
for performance. Microsoft, Bill's
position also estimated growth on AI. We
discussed this in a few videos. If 70%
of revenues of growth are from just two
customers, you understand the circle of
financing. For me, it is too risky. And
if we go to our intrinsic value
template, you can download it for free
in my free value investing course. Here
you have Microsoft. If we look at the
growth rates estimated to justify the
current stock price of 484,
15, 10% P/E ratio stays at 20. If we go
to higher growth rates and the P/E ratio
goes higher, then yes, it is
undervalued. Perhaps Bill is expecting
this. He is expecting 20% growth rates
on AI. But if the growth rate slows
down, the P/E ratio narrows, then there
is 60-70%
risk. For me, too risky. It's all about
Azure, the growth there, how his
Microsoft is going to benefit. And
Microsoft is an AI bet for Bill. He
needs to buy the cheapest AI bets, hope
to get revaluation to beat the market.
Earnings also fake AI, fake earnings,
circular financing, who knows. Another
bet, of course, he bought a little bit
cheaper, Amazon. If you look at the
numbers, it looks great, it grows. AWS,
huge growth there. Revenue growth 20%,
30% 30%, everything looks great,
compounding at 20%. Tailwinds from AI.
If we go to Amazon intrinsic value, here
we have it. Let's see. Here I see I made
a mistake a little bit. If we go to
growth rates 15, 10% discount rate,
terminal multiple, then we are just a
little bit below the intrinsic value. If
we grow at 20% and then 15% and then
have a a P/E ratio, then yes, the
present value, the intrinsic value is
below the current stock price, and this
is what Bill Ackman is going for. Worst
case scenario, disaster scenario, it is
risky, but not that much. So, stock
price is not far from my conservative
intrinsic value. Here we have Amazon.
For my conservative 8 9% return, Bill
Ackman likely going for 10 to 15%
returns in a shorter time period. I'm
more of a cyclical investor, more
conservative. I would wait for the right
cycle, like I told you, when the risk
and reward in Amazon was extremely
positive a few years ago. The stock
price was 90. There was some risk, but
the reward happened already. I prefer
such situations. Howard Hughes, that's a
long story for Bill Ackman, not a
positive one. He then invested another
billion himself through Pershing to
acquire insurance, to create insurance
holding companies.
He expects to grow equity and have a
return there of 20% above, get a
revaluation at two times book value over
time, and that it will increase the
stock price there. However,
when it comes to insurance, I have
learned from Buffett there are great
times, which have been going on for the
last 5 years,
and there are terrible times. Can you
predict them? Maybe Warren Buffett can.
We can't. Bill Ackman, I don't know.
It is a way to get exposure to the
hottest situations now. Everyone is
insurance. Insurance invests in AI,
cloud, things like that. Same situation
with Brookfield. Study history to
understand the risks.
Buffett knows it. Ajit knows it. They
didn't make much acquisitions in
insurance. Think Buffett also said it's
too risky now. It's crazy what's going
on with insurance, but Bill Ackman finds
something to buy. Again, chasing
returns, I think. Restaurant Brands, we
discussed it in this video. Wake me up
at a higher dividend yield, even if it's
not bad now, but he wants the P ratio go
from 20 to 30, make 50% 2x on buybacks,
things like that. It might happen, but
with these businesses, I would need more
safety, I think. So, it's just a
buybacks earnings per share growth and
then valuation expansion, but he knows
the business well, so he thinks it
should be repriced, but that's just
relative investing in my opinion. Meta,
another one of his AI bets. We discussed
this in a video. We'll put all the links
to the videos in the description below.
He sees as growing earnings 20%
over a year over the next few years. If
we put 20% in our table, here is Meta,
then yes, I put 8% growth on a terminal
P ratio of 20, and that is still gives
you a good intrinsic value compared to
the stock price, which makes Meta cheap
on a very conservative rate. If we go to
Bill Ackman's 20% and then 10% on a P
ratio, then Meta stock could possibly
more than double. On a very risky
situation where people go away from
these platforms, unlikely, but then
it would be very cheap, and I have seen
I have bought Meta at 90. We have been
there a few years ago, so we'll see how
it goes. But from this, if I leave it
like this,
from that intrinsic value situation, if
I compare it to the stock price, then
Meta, yes, is among the cheapest of the
hyperscalers and these revaluation bets,
this is what Bill is chasing. Not a bad
situation. Then we have the new buys,
Visa.
P/E ratio 30. He bought at a lower P/E
ratio. You see the dip here on the
chart. Again, good company, great
company, of course, the toll taker of
the financial world. The market is
expected both for Visa and Mastercard to
grow as people use more cards. They get
their 20 basis points on their
transactions. Everything good, huge cash
conversion, great businesses. There are
some concerns about stablecoin
disruptions, things like that, but
that's very, very far-fetched.
Therefore, on that basis, if
they keep on growing, then the P/E ratio
should not be this low, should go higher
over time. There is your return. Here
you have net revenue growth at great
numbers, earnings per share from
buybacks growing, everything growing,
targets growing, very high cash
conversion. I have made a new
calculation here of Visa just for that
comparative valuation and everything. If
they grow at just 10% per year, terminal
multiple of 30, they are fairly valued
for a 10% return. If they grow faster,
then you can make some extra money. Even
if slow growth, you should still end up
positively over the next decade, but
perhaps this is the margin of safety
scenario where in case of a recession,
things like that, market scares, you can
buy it at a cheap valuation. But nothing
wrong with Visa, great business if you
can take advantage of the cheap
situation. It looks good. Same situation
for Intercontinental Exchange, company
that has been compounding, has a moat.
You cannot avoid it. Bill Ackman sees
strong growth, business momentum growth,
everything. Annualized stock return in
the mid-20s if all goes as planned. I
don't do pharmaceutical, so I can't help
you much with Alcon. They're doing their
business, growing, steady growth with
buybacks, with everything should be in
the double digits. So, this is Bill
Ackman's portfolio. Uber is a very
positive risk and reward. Meta Platforms
is interesting. Restaurant Brands,
Netflix,
that we also discussed in a video.
Getting very interesting. See how the
risk and reward fits you.
Something to add to your portfolio
if you like these kind of businesses.
Bill Ackman certainly does. I'm seeing a
risk in the AI bets, that's for sure.
S&P Global, MasterCard, Visa, okay.
Those are perhaps not that SPGI, I did a
video there in the past. And since I did
the video, the valuation contracted from
exuberant 43 to 25.
25 might be a good buy, but keep in mind
Buffett bought Moody's at a P ratio of
10.
Perhaps wait for the next crisis. You
don't have to be in anything. You don't
need to beat the market like Bill Ackman
does need, and he didn't for a while.
So, we don't have to chase everything.
Also, mentioned he lost money on Nike,
made money on Hilton, made money on
Chipotle, lost money on Universal
despite offering double the current
market price in a takeover, lost the
patience also on Hertz. So, interesting
situations there. We discussed his
portfolio 3 years ago. We had
loves Chipotle things like change a lot
there.
Switches from great praise to Nike to
things like that then if it doesn't work
just sells it and goes on. For me with
Bill there is evaluation and timing
issues. Yes, if the market remains as is
he will likely do great because he's
more levered on things going well. If
there are no shocks if there are shocks
it will get ugly also for Bill. Can Bill
be ahead of shocks like shorting the
market before the covid crisis things
like that? We will see.
His holdings are surely relatively cheap
compared to market.
Not absolutely cheap from a value
investment perspective.
Then on top of that you have the 1.5%
fee plus the 16% performance fee which
is always something to keep in mind. I
don't own any of his companies. Thanks
for watching. I'll see you in the next
video.