BILL ACKMAN HOW TO

So that’s it: accept you’ll be wrong, plan ahead for it, and don’t bottle out of taking the painful decisions when those decisions need to be taken. That’s almost impossible to do if the scale of the loss you’d take would ruin you. You need to be able to assess a position coolly and let it go, taking a loss if necessary, if your original thesis turns out to be wrong.

In short, you need to make sure that you aren’t betting your house on being right, because chances are, you’re not. You need to make sure that your portfolio is diverse enough and that you aren’t staking too much on any one position. But the bigger picture lesson is certainly relevant. By making sure that they don’t have too much money risked on any one trade (or hand) they can still make money overall because their winners outgain their losers.įor longer-term investors, the risk of being entirely wiped out or blowing up your account is typically lower. Successful poker players and day traders all understand one thing perhaps better than anything else: position sizing. So the other key skill is to make sure that an individual loss does not wipe you out. The other key point is this: Ackman might be able to afford a loss of $400m, but most investors’ pockets just aren’t that deep. Given that his initial thesis no longer held, and that he couldn’t have confidence in valuing the “new” future for Netflix, selling makes sense. The company might be able to make that work, but the point is, by shifting to that model, it will become a very different company to the one that Ackman, three months ago, viewed as such a compelling “long-term” bet. Now Netflix has talked about launching an advertising-supported streaming service. It looks as though Ackman’s initial case was based on Netflix being able to charge its existing subscribers more, with its content acting as a moat. In the case of Netflix, reports the FT, Ackman told investors that Pershing had “lost our confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty.” So you need to cultivate sufficient humility to be able to accept that. Even people whose highly-paid job it is to do this stuff get things wrong all the time. Now, you’re not a day trader (I hope), but the point stands. Most traders make money only in the 50 to 55% range.” Stock Market Wizards was published in 2001, but I doubt the odds have improved since then. In Jack Schwager’s book Stock Market Wizards, he interviews another US hedge fund manager, Steve Cohen, who notes that “my best trader makes money only 63% of the time. In fact, you will get lots of things wrong. The first thing you have to understand and internalise as an active investor is this: you will get things wrong. If you ever try your hand at stockpicking or are tempted to do so, here are the three main lessons you can learn from Ackman’s Netflix trade.

This was a textbook trade, despite the outcome, and it’s one that even the humble non-hedgie likes of you and I can learn a few things from.

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BILL ACKMAN HOW TO

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Bill ackman