PSH.L - Pershing Square Holdings

[giofranchi]

KHC MDLZ definitely makes sense.

 

Question to Gio, why not Bollore instead of PSH?

 

I guess because I simply don't follow Bollore...

Do they look for strategic deals like PSH does? Are there other similarities?

 

Cheers,

 

Gio

[giofranchi]

I have found this article about Bollore:

Follow ‘Buffett of France’ for a Three-Year Double: http://www.barrons.com/articles/follow-buffett-of-france-for-a-three-year-double-1482491739

 

It looks interesting and still cheap at today's price of $3.90 per share.

 

Cheers,

 

Gio

[giofranchi]

I am out again...

The "Soda and Junk Food" trend really bothers me: and almost 45% of PSH's capital is invested in MDLZ, QSR, and CMG. If the "Soda and Junk Food" trend gets momentum in the coming years, I think all of them will suffer... or at least they probably won't grow enough to justify their current valuations.

I believe also SBUX might suffer, and also SBUX should go on growing at an healthy rate to justify its present share price: I wanted to reduce my portfolio's exposure to the "Soda and Junk Food" trend, and decided to sell PSH while keeping the SBUX investment.

It was a small position and I replaced it with a small position in XBI.

 

Cheers,

 

Gio

[Foreign Tuffett]

Based on the week CMG just had, Pershing Square looks to be headed for another tough year. Unless Ackman and his team can turn things around in the next five months it will be Pershing's 3rd down year in a row. 

[valueyoda]

Actually, if you think CMG is close to a bottom, PSH looks appealing with a NAV above $17, especially given the ongoing buybacks by Pershing Square.

[cmlber]

Actually, if you think CMG is close to a bottom, PSH looks appealing with a NAV above $17, especially given the ongoing buybacks by Pershing Square.

 

The NAV for this vehicle isn't really the "net" asset value.  You don't own a pro rata share in the underlying, you own a pro rata share in the underlying PLUS a perpetual liability equal to 1.5% of "NAV" annually and 16% of profits after hitting the high water mark.

 

If you think the underlying investments will earn 10%/year, without taking into account the performance fees, this should trade at a 15% discount to NAV.  If you think the underlying investments won't outperform the S&P 500, probably more like a 20-25% discount to NAV. 

 

A bet on PSH is a bet that Ackman can outperform like he has in the past.  That may be true, but there's no margin of safety in the discount to NAV if it turns out not to be true.

[Gray Fox]

Based on the week CMG just had, Pershing Square looks to be headed for another tough year. Unless Ackman and his team can turn things around in the next five months it will be Pershing's 3rd down year in a row.

 

3rd down year is quite the understatement.

 

2015: SPTR up 1.38%, PSH -20.5%

2016: SPTR up 11.96%, PSH -13.5%

2017: SPTR up 11%, PSH -4% through July 18, probably closer to 6% now

 

He is on pace to underperform the S&P 500 by 20 percentage points three years in a row.  The public vehicle opened at $25 and the NAV is currently at $17.42. 

 

Even over a 10 year basis his LPs in the private fund are roughly in line with the S&P 500.  Start at 2007 and tack on returns so far this year.  Link below.  The LPs have got about 9% annually vs. 8% for the S&P 500.  His 1/3/5 year #s are terrible.  The entirety of his out performance for the life of the fund ties back to when he was running a small fraction of the assets. 

 

He has had some outstanding winners and is a charismatic guy.  I don't want to discredit the good ones.  MBIA/GGP were great calls.  AGN was a coup but I still conceptually can't see how it is NOT insider trading.  On an absolute dollar basis I would guess he has lost money for investors.  Running a $10bn fund is so much different than a <$1bn fund doing a lot of special situation work. 

 

https://assets.pershingsquareholdings.com/media/2014/09/28204101/PSH-Annual-Report_12.31.16.pdf

[Peregrino]

 

The NAV for this vehicle isn't really the "net" asset value.  You don't own a pro rata share in the underlying, you own a pro rata share in the underlying PLUS a perpetual liability equal to 1.5% of "NAV" annually and 16% of profits after hitting the high water mark.

 

If you think the underlying investments will earn 10%/year, without taking into account the performance fees, this should trade at a 15% discount to NAV.  If you think the underlying investments won't outperform the S&P 500, probably more like a 20-25% discount to NAV. 

 

A bet on PSH is a bet that Ackman can outperform like he has in the past.  That may be true, but there's no margin of safety in the discount to NAV if it turns out not to be true.

 

NAV is a liquidation value metric, no?  As such, including a discount for the perpetual liability of fees wouldn't seem to apply.  If you took control, sold all the assets at today's market price and paid off all creditors, you would be left with the NAV. 

 

If it were the case, then even a Vanguard fund or an ETF should perpetually trade at a discount to the index it references. 

 

Of course, you are correct, that someone who buys PSH does so in the belief that at its current market price it will, net of fees, return more than the broad market indices (or perhaps provide an adequate return net of fees with less volatility than the market).

 

No position in the stock and no opinion about PSH's ability to generate future returns sufficient to justify paying these fees.

 

I do, however, have a pet theory about offerings like PSH based on nothing firmer than intuition.  That theory is that whenever fund managers establish perpetual capital vehicles, it's a sign to me that they've topped out. 

 

I am basing this intuition mostly on what I infer the desire to manage a perpetual capital vehicle says about the PM's psychology.  If you manage an open vehicle, and are doing well, there's no need to ever fear that your investors will pull enough money from you such that you will be put out of business.  Even in extremis (a la 2008) good managers made it through with enough capital still at their disposal to put up good numbers. 

 

Establishing a perpetual capital vehicle, however, communicates that perhaps you are a bit worried that the past record may not hold up in future, that you like living in the manner to which you have become accustomed, speaking at conferences, saving the victims of pyramid schemes, and want some insurance against being put out of business. 

[kiwing100]

Revisiting Buffett talking about diversification is for the know nothing investor.

 

From the 2008 Berkshire meeting

 

" .... several times I had 75 percent of my net worth in one situation.

There are situations you will see over a long period of time. I mean, you will see things that it would be a mistake — if you’re working with smaller sums — it would be a mistake not to have half your net worth in.

 

I mean, there — you really do, sometimes in securities, see things that are lead-pipe cinches. And you’re not going to see them often and they’re not going to be talking about them on television or anything of the sort, but there will be some extraordinary things happen in a lifetime where you can put 75 percent of your net worth or something like that in a given situation."

 

Now PSH runs a concentrated portfolio and has shown us how portfolio concentration can go wrong ...

 

To my knowledge, Pershing Square has had 3 investments that were mistakes and resulted in a loss of significant capital - 1) Target 2) JC Penny 3) Valeant.

 

If an investor chooses portfolio concentration approach, they cannot afford to make mistakes.  There is a fine line knowing the edge of your circle of competence ....

 

A concentrated portfolio approach also means that the investor batting average needs to be high and is vulnerable to even a low error rate.

 

If Pershing Square had invested 50-75% in one of the above ideas where they lost a significant portion of their capital, who knows if Pershing Square Management would have continued in business.  If Pershing Square Management had not continued in business, then Ackman may have started another fund (after all he is on his second fund after Gotham Capital) ...

[JRM]

In some of his early holdings Buffett was an activist investor (Sanborn maps).  When you have the ability to be the catalyst, it must increase your confidence in a position or idea.  I've been lost with Pershing Square's recent "activist" positions. 

[Spekulatius]

With concentrated portfolios, survivorship bias turns its ugly head. You hear a lot more about those few successful ones than you hear about those that lose their money and disappear in the shadows.

 

None of Ackman’s bets were sure bets. They were turnaround bets (JCP) , leveraged  bets (Target) or jockey bets (VRX). You could also read about all these stocks in the newspaper/media a lot at this time.

[abyli]

Revisiting Buffett talking about diversification is for the know nothing investor.

 

From the 2008 Berkshire meeting

 

" .... several times I had 75 percent of my net worth in one situation.

There are situations you will see over a long period of time. I mean, you will see things that it would be a mistake — if you’re working with smaller sums — it would be a mistake not to have half your net worth in.

 

I mean, there — you really do, sometimes in securities, see things that are lead-pipe cinches. And you’re not going to see them often and they’re not going to be talking about them on television or anything of the sort, but there will be some extraordinary things happen in a lifetime where you can put 75 percent of your net worth or something like that in a given situation."

 

Now PSH runs a concentrated portfolio and has shown us how portfolio concentration can go wrong ...

 

To my knowledge, Pershing Square had has 3 investments that were mistakes and resulted in a loss of significant capital - 1) Target 2) JC Penny 3) Valeant.

 

If an investor chooses portfolio concentration approach, they cannot afford to make mistakes.  There is a fine line knowing the edge of your circle of competence ....

 

A concentrated portfolio approach also means that the investor batting average needs to be high and is vulnerable to even a low error rate.

 

If Pershing Square had invested 50-75% in one of the above ideas where they lost a significant portion of their capital, who knows if Pershing Square Management would have continued in business.  If Pershing Square Management had not continued in business, then Ackman may have started another fund (after all he is on his second fund after Gotham Capital) ...

 

Ackman has no clue what he is doing, concentrated or diversified does not matter...

[KCLarkin]

Ackman has no clue what he is doing, concentrated or diversified does not matter...

 

I hate piling onto investors who struggle but it is pretty clear that many, if not most, of his most recent investments were not lead-pipe cinches.

 

VRX - he bought at almost the peak valuation

JC Penny - was an almost impossible turnaround

Chipotle - Expensive turnaround story

Mondelez - Fairly expensive consumer staple

ADP - Well run, high moat business. But very expensive.

ZTS - Very good but expensive business

 

A few that I would consider cinches (with at least some hindsight):

CP Rail

GGP

Burger King

 

Interestingly, most of his cinches were his older ones. Diversification is for the know nothing investor. But it is also for asset gatherers. A concentrated portfolio doesn't scale well.

 

Ackman should have switched to closet indexing once his track record was established and his AUM exploded. Or he should have limited AUM like most of the other successful concentrated investors do.

 

[nickenumbers]

I think Ackman fails on the patience Quality.  He has all this investor money, high customer expectations and a pretty big mouth.  He feels like a fool if he is not active doing something, showing how smart he is...  active active...

 

 

 

“The big money is not in the buying.... the selling, but in the WAITING.”

 

"Its waiting that helps you as an investor, and a lot of people just can't stand the WAIT."  Charlie Munger

[LR1400]

How do these people keep getting investor money?

[Liberty]

Ackman up 31.9% so far this year. WSJ piece about him:

 

https://www.wsj.com/articles/after-suffering-bruising-losses-ackman-pursues-quiet-recovery-11553176760

[adhital]

45% net YTD. Not bad so far..and selling at 70 cents on a dollar.

[muscleman]

45% YTD isn't bad, but how is his longer term record?  ;)

[AzCactus]

I think it's good and very good if you ignore Valeant and a couple of other decisions  :o

[muscleman]

I think it's good and very good if you ignore Valeant and a couple of other decisions  :o

 

Come on..... I wish I have a magical wand to exclude all losing trades in my portfolio.  ;)

 

He lost money in 2015, 2016, 2017, 2018. This year's 45% gain merely gets him back to where he was at the end of 2014.

[adhital]

I think it's good and very good if you ignore Valeant and a couple of other decisions  :o

 

Come on..... I wish I have a magical wand to exclude all losing trades in my portfolio.  ;)

 

He lost money in 2015, 2016, 2017, 2018. This year's 45% gain merely gets him back to where he was at the end of 2014.

 

That’s why it’s is selling at almost 30% discount to net and liquid asset and  No need to pay any performance fee for next 50% gain.

[Gregmal]

Ackman actually, quite admirably, acknowledged he made some mistakes, did some soul searching and then was active about making the changes he needed to(mainly shutting up, stopping with the TV appearances every 2 days and focusing on research), and seems to have gotten back to basics and is investing in his circle of competence. Not like some others, such as Einhorn who still refuses to admit he is wrong and keeps making the same mistakes, or Tilson who just gave up. Kudos to Bill

[cameronfen]

I wouldn't all attribute it to being a "changed" man.  There also a lot of tailwind of having less assets.

[writser]

Ackman actually, quite admirably, acknowledged he made some mistakes, did some soul searching and then was active about making the changes he needed to(mainly shutting up, stopping with the TV appearances every 2 days and focusing on research), and seems to have gotten back to basics and is investing in his circle of competence. Not like some others, such as Einhorn who still refuses to admit he is wrong and keeps making the same mistakes, or Tilson who just gave up. Kudos to Bill

 

Does this narrative explain his recent results? Or did his recent results create this narrative? He has a highly concentrated portfolio. Could be just variance, which investors have a tendency to explain.

[Gregmal]

Ackman actually, quite admirably, acknowledged he made some mistakes, did some soul searching and then was active about making the changes he needed to(mainly shutting up, stopping with the TV appearances every 2 days and focusing on research), and seems to have gotten back to basics and is investing in his circle of competence. Not like some others, such as Einhorn who still refuses to admit he is wrong and keeps making the same mistakes, or Tilson who just gave up. Kudos to Bill

 

Does this narrative explain his recent results? Or did his recent results create this narrative? He has a highly concentrated portfolio. Could be just variance, which investors have a tendency to explain.

 

Lowe's, Starbucks, Chipotle, HHC, QSR, these all have a common theme to them which is much more consistent with where he has had success prior. Not exactly small caps either. Much different than the profiles of JCP, VRX, PAH, HLF, etc. Basically stuff that is either highly complex, loaded with debt, or dependent on fixing major structural problems.