Bill Ackman channeled Warren Buffett when he invested in Google-parent Alphabet this spring.
He capitalized on market fear to buy in cheap, took a long-term view, and prized predictability.
Pershing Square’s billionaire boss discussed his Buffett-style approach to the bet this week.
The prominent investor and Pershing Square chief discussed the wager at CNBC’s Delivering Alpha Summit on Thursday. He capitalized on doubts about Alphabet’s AI chops to buy its stock on the cheap. He determined the search-and-advertising giant was more predictable than Netflix, a wager he entered and exited in a matter of months last year. He also bought into Alphabet with the intention of holding it for the long run.
Buffett famously strives to “be greedy when others are fearful,” as periods of market panic often throw up bargains for brave investors. He avoids buying into businesses unless he’s confident they have a durable competitive advantage, and will still be doing well in a decade’s time. The Berkshire Hathaway CEO is also renowned for his buy-and-hold philosophy — he’s owned big stakes in Coca-Cola and American Express for over 25 years.
“I’ve been a kind of Warren Buffett devotee,” Ackman told CNBC. “He’s been my unofficial mentor for many years.”
The hedge fund boss noted that one of Buffett’s key advantages is his access to permanent capital. Unlike the typical money manager, the “Oracle of Omaha” can take a long-term view and not worry that short-term losses will lead to a tidal wave of redemptions. Instead of client funds, Buffett invests the “float” from Berkshire’s insurance operations, or the money left over after premiums are collected and claims are paid out.
Pershing Square’s structure has effectively given it access to permanent capital for five years now, allowing it to take a Buffett-like approach to investing, Ackman said.
“We can buy Google at $94 a share when people are scared,” he noted. “If you want to be a successful investor over time, and you find a handful of great businesses, doing nothing but owning them is an amazing strategy. It’s underappreciated as a successful way to make money.”
“These are businesses we feel very comfortable with, we can sleep at night and have a very high confidence level what they look like over a long period of time,” Ackman continued. His team will happily sell up if a business changes, or it turns out they’ve misunderstood its predictability, he added.
Ackman’s fund purchased around 8.1 million Class C shares and 2.2 million Class A shares of Alphabet in the first quarter of this year, securing a stake worth nearly $1.1 billion at the end of March. It scooped up another 1.3 million Class C shares in the second quarter, and Alphabet stock rallied by about 15% in the three-month period, meaning the total value of its position rose to $1.4 billion by June 30.
The billionaire may have bolstered his bet since then. “We’ve bought more in the $120s, it’s our second-largest investment,” Ackman said, adding that his fund has around 16% to 17% of its capital in Alphabet. The position only made up about 13% of the long positions in its US stock portfolio on June 30.
Pershing Square didn’t immediately respond to a request for comment from Insider.
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