Bill Ackman on Activist Investing, Concentrated Bets, and Financial Battles

Bill Ackman runs Pershing Square, a hedge fund that owns only seven or eight companies at a time and holds them for years. He is an activist investor — someone who takes a large stake and then works to change how the business is run — and over a quarter-century he has produced both the best trades of his career and the worst, often in public and at enormous scale. Across this conversation he lays out how he decides what a company is worth, why he concentrates rather than diversifies, how a single mistake nearly ended his firm, and how the same instincts that drive his investing carried into his public fights over Harvard and the press.

Key ideas

1. Value is the cash a business throws off over its life, bought at a discount. Following Benjamin Graham’s The Intelligent Investor, Ackman separates price (what you pay) from value (what you get). A stock is a slice of a business, and a business is like a bond that pays uncertain coupons; the work is predicting those cash flows with high confidence and buying well below the estimate. Graham’s margin of safety — paying a low enough price that you are still fine if your estimate is 30% too high — is the core discipline, because a big part of investing is simply not losing money.

2. Concentrate on a few businesses you can predict for a decade. Ackman owns seven or eight companies, not hundreds. He looks for non-disruptable businesses — close your eyes, shut the market for ten years, and you know the company will be larger and more profitable. Universal Music Group, Chipotle, Restaurant Brands, Alphabet. The hardest single judgment is the width of the moat: how protected the business is from disruption, which he calls the central difficulty in an era when two nineteen-year-olds can raise millions and dismantle an established company.

3. Activist investing restores the owner’s voice. An activist takes a five-to-ten-per-cent stake — never control — and persuades the other shareholders to back changes management resists. Ackman traces the craft from Pershing Square’s first campaign at Wendy’s, through the proxy battle that replaced the entire board of Canadian Pacific (99% of the vote, the stock up roughly tenfold), to a present in which boards now invite him in. He frames it as a correction to the passivity of index funds, which now hold over half the market and never push a company to improve.

4. Asymmetry and risk management decide survival. Short selling — borrowing a stock, selling it, and buying it back cheaper — has unlimited downside, because a stock can rise without limit; that is why Pershing Square has shorted only two companies and no longer shorts at all. Ackman prefers structures where a small outlay can produce a large gain, as with the credit default swaps used against MBIA. (The 2020 hedge that turned roughly $27m into ~$2.6bn is the canonical example of the same asymmetric logic, though it post-dates the trades he discusses here.) The deeper rule is never to borrow against your securities, so that a market panic cannot force you to sell at the bottom.

5. The biggest losses came from breaking his own rules. Valeant Pharmaceuticals — a passive stake in a volatile, confidence-dependent business that violated his core principles — cost about $4bn and triggered a cascade: a Herbalife short squeezed by Carl Icahn, rival activists circling his own public vehicle, lawsuits, and a divorce, all at once. He survived by borrowing $300m to buy control of that vehicle, then carving his investment principles into granite. The recovery, he argues, came from refocusing on fundamentals and from compounding small daily progress.

Content

Price, value, and the margin of safety

Ackman’s framework begins where his career began, with Graham’s The Intelligent Investor. The market, in Graham’s image, is a neighbour who knocks every day and offers to buy your house: ignore the stupid offers, take the great ones. In the short run the market is a voting machine, registering supply, demand, and speculative mood; in the long run it is a weighing machine that tells you what something is worth. The investor’s job is to know the weight independently.

He defines the value of any security as the present value of the cash you can take out of it over its life. A government bond is easy — the coupon is contractual. A stock is harder, because you must forecast how many widgets sell, at what cost, and how much profit must be reinvested to keep the business running. Most companies cannot be forecast with confidence, which is why most investments are really speculations. Pershing Square’s living is made by finding the rare businesses that can be predicted far out, then buying them at a discount deep enough — Graham’s margin of safety — that a wrong estimate still leaves a profit.

What makes a durable business

The ideal company has a long growth runway, throws off cash, is easy to understand, carries high barriers to entry, and rarely needs to raise capital. Everyone knows these are the great businesses, so their prices are usually high and the value is already in the price — and price matters enormously; overpay for the best business in the world and you earn poor returns. Ackman’s opening therefore comes when a great business stumbles: a recoverable mistake that frightens shareholders into selling cheap. Chipotle is his example — a 50% price fall after a food-safety crisis, against a concept that athletes and consumers love, fresh ingredients prepared in front of you, and a moat in supplier relationships that rivals cannot easily copy.

His test for a moat is whether he can foresee a world in which the business is disrupted. Restaurants are his best record — never a loss — because they are simple: getting from 100 to 200 to 500 stores is imaginable, and quick-service success is about systems that let a stranger run a franchise. Music passes the same test for a different reason: people will listen to more next year than this, streaming is more predictable than selling records, and the value accrues to the content owner — the artist and the label — not to whichever device or app delivers it.

The Alphabet bet and the AI question

Alphabet is a large Pershing Square position, bought when an AI scare knocked the price to about fifteen times earnings — extremely cheap for a business of that quality. Microsoft’s ChatGPT launch dazzled; Google’s Bard demonstration flopped; the market concluded Google had fallen behind. Ackman’s research suggested the opposite — that Google’s AI capability was at least equal, that as a scrutinised giant it could not take the liberties a startup like OpenAI could, and that you were paying nothing for the upside. He frames the cheapness as a yield: a fifteen multiple is roughly a 7.5% earnings yield, growing, against 4% for lending to the government, with the loss-making cloud business as free optionality.

AI is also the standing threat to his whole method. Investing means finding companies that cannot be disrupted; AI is the ultimate disruptor. He invokes Buffett’s castle-and-moat image — barbarians forever trying to reach the princess — and the cautionary cases of Kodak and Polaroid, dominant companies that simply vanished. This is why he has generally avoided pure technology companies: the world is dynamic enough that someone is always building a better version.

Buffett, temperament, and the everyday investor

Most of what Ackman knows he attributes to Warren Buffett, learned from the Berkshire reports and the early partnership letters. The lesson is temperament: investing demands dispassionate, unemotional rationality, which is not a survival instinct. In the jungle, when the lion appears you run with the herd; in markets you must turn and walk toward what everyone is fleeing — buying when the lemmings sell. Get excited when things get cheaper, concerned when they get dear.

His advice for ordinary investors falls out of the same logic. Never invest money you cannot afford to lose; never borrow against your securities, because a crisis can halve a great company overnight and leverage turns that into ruin. Take a long view, which requires being financially secure enough to take it. Most mutual funds do not earn their fees — too diversified, too short-term, too close to the index they charge to beat — so an index fund usually wins. But a dozen well-understood, low-debt businesses capture most of the benefit of diversification, and a consumer who genuinely loves a product (his example is the individual investors who read Tesla better than the professionals) starts with a real edge.

Activism: from banging on the door to being invited in

Activist investing, as Ackman tells it, is a campaign to convince a company’s other owners. Index money is the most passive form of capital — a machine buying a fixed basket, never lifting a finger to improve anything. An activist takes a meaningful stake, learns the business deeply, and then presses for change. Pershing Square’s first campaign was Wendy’s: the CEO would not return his calls, so Ackman hired Blackstone for a fairness opinion showing Wendy’s would be worth 80% more if it spun off Tim Hortons, mailed it in, and six weeks later management complied.

The arc runs from there to General Growth Properties — the firm’s first board seat and one of its best investments — and to Canadian Pacific, the most dramatic proxy fight. CP was the worst-run railroad in North America, blaming the weather each quarter while its directors treated the board as an honour. Ackman assembled a slate of Canadians (the breakthrough was recruiting Rebecca McDonald, after which others followed), brought in the legendary railroader Hunter Harrison, rented the largest hall in Toronto, and won 99% of the vote; management begged to resign the night before the meeting. After roughly seven years without a hostile campaign, Ackman now describes himself less as an activist than as an engaged owner whom boards welcome — a return, he argues, to how the Carnegie-and-Morgan owners ran companies 150 years ago, and a net good for the performance of the US market.

Short selling, asymmetry, and the Herbalife war

Ackman is emphatic that short selling is inherently treacherous. Go long and your worst case is losing what you put in; go short — borrow a stock, sell it, hope to buy it back cheaper — and the loss is unbounded, because the price can rise to any level. He uses the image of borrowing silver dollars to sell, owing them back: fine if they fall, catastrophic if they multiply. Pershing Square shorted only two companies, MBIA and Herbalife. MBIA worked partly because he used credit default swaps — instruments that made the bet asymmetric, a small outlay against a large potential gain — the same logic that defines his best risk-managed trades. Herbalife had too little debt for that structure, forcing a conventional short of the stock.

He judged Herbalife a pyramid scheme preying on poor and often undocumented people, gave a long public presentation, and watched the stock fall — until Carl Icahn took the other side, motivated, Ackman says, less by the company than by an old grievance. The grievance traces to a Hallwood Realty deal years earlier, where Icahn owed Ackman’s investors a contractual schmuck insurance payment, fought it through every level of appeal for years, and paid only after losing. The Herbalife squeeze — restricting the supply of borrowable stock to drive the price up — cost Pershing Square about a billion while Icahn made one. The lesson Ackman draws is the one he already held and had to relearn the hard way: do not short stocks.

The lowest point, and recovery by compounding

The Valeant loss — roughly $4bn on a passive stake in a volatile pharmaceutical business that broke his principles — is the worst of his career, and it arrived entwined with everything else. Rivals who knew his whole ten-stock portfolio bet against all of it; the Herbalife short was squeezed; a shareholder lawsuit followed; Elliott Associates took a position in his own public vehicle and tried to force a liquidation; and his marriage was ending at the same time. He envisioned losing the firm, the vehicle, and his future at once.

The turn came when he broke his own rule against borrowing, took $300m from JP Morgan, and bought enough of the public vehicle to block the takeover — the moment, he says, that everything reversed. The deeper recovery was psychological and methodical: he had learned in an earlier 2002 crisis to make a little progress every day and let it compound, the way money compounds, never looking up at the mountaintop he had fallen from. Looking at Pershing Square’s long-run chart now, the catastrophic drop reads as a small bump. He also chiselled the firm’s previously-unwritten investment principles into granite and put a copy on every desk — and reports the best six years in the firm’s history since.

From boardrooms to public battles

Ackman reads his later public fights through the same lens of governance and incentives. On OpenAI, the lesson was that a blurred nonprofit-and-capped-profit structure with no shareholder check on the board was built for the crisis it produced; on venture boards, that directors who care more about reputation for the next deal than about this company create divergent incentives. On Harvard, his central charge is governance: a self-perpetuating board with no shareholder vote, no way to rebalance, and a leadership selection process he considers broken. He frames the resignation of President Claudine Gay, the dispute over DEI ideology, and the Business Insider attack on his wife Neri Oxman all as failures of institutions and incentives — and credits X with restoring some ability to answer the press in real time, quoting Buffett’s line that the only person who harms you more than a thief with a dagger is a journalist with a pen.

Related

• What Makes a Great Investor — the temperament, margin of safety, and not-losing-money discipline Ackman draws from Graham and Buffett
• Value Investing — price versus value, intrinsic worth, and the margin of safety
• Compounding — the long-horizon, let-progress-accumulate logic behind both his investing and his recovery
• Howard Marks — fellow value investor on risk, cycles, and avoiding loss
• Ray Dalio — concentrated-conviction investing and the role of temperament
• William Green — chronicler of the great investors’ mental habits
• Cliff Asness on Momentum, Value Investing, and Market Efficiency — a contrasting, quantitative take on value and market efficiency
• John Cochrane on Economic Puzzles and Habits of Mind — macro and asset-pricing counterpoint to Ackman’s bottom-up method
• Lex Fridman — host