Bill Ackman’s on a crusade. No, he’s not parading his latest stock pick nor touting his next Herbalife short. Rather, he’s parading around in his global health professional/emergency crisis strategist hat.
His cries reverberated through the walls of FinTwit. But not in a good way. Many investors called Ackman’s antics repulsive, childish and a sign of “the bottom.”
Whether Ackman’s right in his global health crisis calls isn’t the point of this article. I want to highlight a broader issue. One of particular importance within the investment/finance community.
Here’s the issue: It’s great if you have an opinion on something, but you should disclose in advance if you stand to profit from that opinion.
Ackman could very well be spot on in his analysis of the situation. If that’s true, we should praise investors like him for going on-air and spreading “their truth.”
But what if he’s wrong? If he’s wrong, hindsight will show Ackman as a fear-mongering short-seller with no business engaging in national health conversations. It goes further. Ackman’s interview was a win-win for his portfolio. If he goes on air and preaches the end of the world, his short bet gains value. If he goes on the air and turns out to be wrong about the virus, his long book takes off.
No matter where Ackman falls on the “being right” spectrum, he is without a doubt a polarizing figure.
How We Got Here
You’re probably wondering how we got here. Why is Ackman all over my Twitter feed?
It all started with this CNBC interview.
28 minutes of heart-felt, tear-jerking cries for a global shutdown and wide-spread American spring break.
This interview set FinTwit on fire.
Don’t believe Ackman’s polarizing? Check out some of the tweets below. Published the day Ackman went on CNBC.
— Grant Cardone (@GrantCardone) March 18, 2020
Ramp Capital – Negative/Humorous
The Bill Ackman Bottom™
— Bear Market Ramp Capital (@RampCapitalLLC) March 19, 2020
Market Wide Circuit Breaker hit as Bill Ackman scares the shit out of everyone
— Open Outcrier (@OpenOutcrier) March 18, 2020
I think this @BillAckman interview on CNBC just tripped the market circuit breakers.
And you know what.
Every. Word. He. Spoke. Was. 100%. Correct.
— KYLE KELLY (@GoKyleKelly) March 18, 2020
That was an incredibly courageous speech @BillAckman. It was needed for America and the world.
— Norgard (@BrianNorgard) March 18, 2020
Where Do You Stand?
Argument 1: Bill Ackman delivered a great message, and although it seemed extreme, that’s exactly what we need at this moment.
This stance makes sense. Especially when viewed through an evolutionary perspective. I’m paraphrasing Nassim Taleb when he said: “Throughout evolution if you panicked and nothing happened, you lived. If you panicked and something happened, the odds of survival increased. But, if you didn’t panic and something happened, you almost always died.”
Looking at COVID-19 through evolutionary lenses, it makes sense for humans to panic. It’s in our DNA.
If we heard ruffling in the bushes and always assumed it was a lion ready to eat us, we usually survived. But if we assumed that every ruffling of the leaves was a quaint mouse that wanted to be our friend, we’d die at our first wrong inference.
Argument 2: Bill Ackman shouldn’t go on CNBC and scare the financial community with his fear-mongering slander and worry. He should stick to investing in stocks, not peddling apocalypse stories.
We’ve seen this argument in droves on social media. But again, is this just par for the course with Ackman? I like Yaron Naymark’s tweet thread on this idea:
Ackman haters hate on him when he puts hedges on. They hate on him again when he takes em off. They hate him when he loses money. They hate him when he makes money.
Guess hell never be able to live down the VRX battle vs Hempton or HLF battle vs Icahn or cycling battle vs Loeb. https://t.co/NWVCOFG1u1
— 1 Main Capital (@1MainCapital) March 25, 2020
Maybe people like hating on Bill Ackman? But why? Sure he’s a bit egotistical, but I’m reminded of that Seth Klarman quote (paraphrasing):
“Investing is both the most arrogant and humbling profession. You have to believe that the person you’re buying (or selling) from doesn’t know as much as you. But at the same time you have to understand that you could be wrong.”
Regardless of what you think about Ackman’s recent stance and publicity, one thing’s for certain: we all want to see us come out stronger.
Ackman’s $2.6B Payoff
And then there’s Ackman’s $2.6B profit from his put positions on the market. We should talk about this. On one hand, it looks sketchy as hell to go onto CNBC, paint doom-and-gloom until you (literally) cry — and subsequently profit from those fears. So, Ackman lays out his reasoning in his six-page letter.
According to the letter, Pershing sold around half of their short position prior to Ackman going live on CNBC. Ackman then unwound the rest of the short over the next three days.
Did Ackman move markets? I don’t think so. In his words, it’s a rather “dubious” claim. But this whole payoff brings another important question: financial disclosures on CNBC. During the interview, Ackman failed to mention his large short position on the market. Isn’t that important for viewers to know as Ackman spews end-of-the-world jargon? Again, even if he’s right and vindicated, shouldn’t CNBC viewers know his profit at-stake?
I don’t think Ackman’s 100% in the wrong. But something about profiting from a short bet on the US markets after preaching doom-and-gloom on CNBC. It rubs me the wrong way. I’m torn. I applaud Ackman for his passion and (clear) love for the country and those that live in it. Ackman’s not the problem. Financial media is the problem. Ackman’s merely the canary in the coal mine.
Student of value investing for over 13 years spending his time in small to micro-cap companies, spin-offs, SPACs and deep value liquidation situations.