William A. Ackman, the best choice of Pershing Square Capital Management L.P., penned instructions to shareholders now that relived the worst twelve month in the U.S. hedge fund’s 12-year history. Among allusions to unforced errors in tennis and recent personnel changes in the firm, Ackman attempts to justify why his investors fared so poorly in 2015.
Here are several phrases and ideas he references in 13 pages, and just what he strategies by them:
In his mea culpa, Ackman admits that his biggest investing mistake wasn’t knowing when to trim or exit positions that approached their intrinsic value. He says the firm over-emphasized the “platform value” of certain stocks, a concept he has previously touted. With superior management and shareholder-friendly capital allocation, a platform company, such as Canadian drugmaker Valeant Pharmaceuticals International Inc., can supposedly create more value for its shareholders through acquisitions.
With that theory in your mind, Pershing bought shares of Valeant, a serial acquirer, at an average price of US$196. Ackman says he didn’t sell this summer, if this was exchanging the mid-US$200s, because he thought the company could buy its way to a higher intrinsic value. Valeant’s stock has since tumbled sharply to US$86.09 from the all-time high of US$263.81 in August. “Looking back, it was a very costly mistake,” Ackman writes.