Bill Ackman explains his investment success in a recent podcast where he made his investors billions of dollars in investments.
“A big part of the message is not losing money and having a few great hits. You can do very well over some time,” he said.
Voting versus weighing machine; Bill Ackman explains his investment success
“You have to understand the difference between price and value. Price is what you pay and value is what you get.
The key is to figure out what something is worth and you have to weigh it.
The stock market short term is a voting machine that represents speculative interest supply and demand in the short term,” he said.
“In the long term, the stock market is a weighing machine. It is much more accurate, it is going to tell you something is worth it,” he said.
“Only buy something you would be happy to hold if the stock market closed for ten years,” he added.
“Only buy something you would be happy to hold if the stock market closed for ten years”
BILL ACKMAN
Estimate discount approximation; Bill Ackman explains his investment success
“The value of a stock is the present value you can take out of it over its life.
You can not get to a precise view of value, but an approximation, and the key is to buy at a price that represents a discount on that approximation.,” he said.
“You want to buy a company at a price that represents a big discount to that approximation,” said Bill Ackman.
The concept of margin of safety; Bill Ackman explains his investment success.
“You want to buy a company at a price that if you are wrong, and it turns out to be worth 30% less than you paid, and you’ll need a deep enough discount to your estimate,” he said.
Civil engineers use the margin of safety concept. Building a bridge with 40% more payload capacity is an example of a margin of safety.
In engineering, not having a margin of safety could have severe and costly consequences, and it can have the same impact when applied to investing.
“You can not get to a precise view of value, but an approximation, and the key is to buy at a price that represents a discount on that approximation”
BILL ACKMAN
“With the margin of safety, you can still be wrong and make money,” he said.
Every consumer has a view regarding different brands and companies. We look for non-disruptive businesses, which you can shut your eyes and know that ten years from now it will be a more profitable and valuable company.
So technology stocks are difficult, if not impossible, to predict future revenue because their products could be superseded by newer technology companies.
Bill Ackman explains his investment success by investing in non-disruptive businesses with predictable incomes
Investing in railroads is an example of predictable income.
An undisruptable business is a railroad because the high cost of capital means competitors have barriers to entry.
His research entails reading public filings, talking to the experts, watching podcasts and YouTube to get a sense of the people, the company’s website, and reading the annual report.
