PSH.L - Pershing Square Holdings

[giofranchi]

Why not just mimic his investments?

 

You might be perfectly right!

The strategy you suggest is simply not the one for me, but I understand it might work just fine.

 

By the way, I think that both GLRE and TPRE are very good investment vehicles. I have chosen PSH over them right now simply because with 48% of my portfolio invested in FFH, I have enough of insurance exposure! ;)

 

Cheers,

 

Gio

 

 

[obtuse_investor]

Why not just mimic his investments?

 

You're right, of course.

However, I must point out that Ackman does run a sizable short book as well that wouldn't be exposed via 13Fs.

 

 

[Liberty]

Why not just mimic his investments?

 

You're right, of course.

However, I must point out that Ackman does run a sizable short book as well that wouldn't be exposed via 13Fs.

 

Just short Herbalife and that's probably 95% of his shorts by value right there ;)

[wbr]

Why not just mimic his investments?

 

I think often Ackman's involvement alone will cause a stock to spike. An extreme example would be Allergan where the price was $116 before he started buying and was above $160 once VRX and Ackman made it public. By being invested in his fund you can benefit from this instead of replicating his holdings once a large part of the gain was already made.

[magno111]

Why not just mimic his investments?

 

I think often Ackman's involvement alone will cause a stock to spike. An extreme example would be Allergan where the price was $116 before he started buying and was above $160 once VRX and Ackman made it public. By being invested in his fund you can benefit from this instead of replicating his holdings once a large part of the gain was already made.

 

In his last letter to investors he mentioned they usually buy short term options in advance of an activist campaing ( everyone knows how a stock pops when a famous activist appears), that enhance returns, and you can't replicate...

[thepupil]

Why not just mimic his investments?

 

You're right, of course.

However, I must point out that Ackman does run a sizable short book as well that wouldn't be exposed via 13Fs.

 

Ackman does not run a "sizable" short book.

 

Pershing Square is a low gross exposure (usually like 100% gross) very long biased fund with only occasional shorts.

 

It's not a traditional long short fund that is like 130 by 70 with 20 or 30 shorts on at a time.

 

When he does short, he is far more concentrated than your average fund (because he is only short 1 or 2 things at a time, he can size em up) and he's very  public and long term about it (MBIA, Herbalife)

 

 

 

[Haasje]

Why not just mimic his investments?

 

I think often Ackman's involvement alone will cause a stock to spike. An extreme example would be Allergan where the price was $116 before he started buying and was above $160 once VRX and Ackman made it public. By being invested in his fund you can benefit from this instead of replicating his holdings once a large part of the gain was already made.

 

In his last letter to investors he mentioned they usually buy short term options in advance of an activist campaing ( everyone knows how a stock pops when a famous activist appears), that enhance returns, and you can't replicate...

 

That sounds so illegal :P

[Mephistopheles]

Why not just mimic his investments?

 

I think often Ackman's involvement alone will cause a stock to spike. An extreme example would be Allergan where the price was $116 before he started buying and was above $160 once VRX and Ackman made it public. By being invested in his fund you can benefit from this instead of replicating his holdings once a large part of the gain was already made.

 

In his last letter to investors he mentioned they usually buy short term options in advance of an activist campaing ( everyone knows how a stock pops when a famous activist appears), that enhance returns, and you can't replicate...

 

That sounds so illegal :P

 

It does, but it's not illegal. There is no inside information involved. It's merely the market reacting to a famous investor taking a stake. I don't blame him either, because there are two sides of it: once they report their stake publicly, the stock shoots up and they miss out on buying more at the same low price. So buying options compensates for that in my opinion.

[mcliu]

If their 13D/F report moves the market does that not count as material non-public information if they trade on it before it happens?

[obtuse_investor]

Why not just mimic his investments?

 

You're right, of course.

However, I must point out that Ackman does run a sizable short book as well that wouldn't be exposed via 13Fs.

 

Ackman does not run a "sizable" short book.

 

Pershing Square is a low gross exposure (usually like 100% gross) very long biased fund with only occasional shorts.

 

It's not a traditional long short fund that is like 130 by 70 with 20 or 30 shorts on at a time.

 

When he does short, he is far more concentrated than your average fund (because he is only short 1 or 2 things at a time, he can size em up) and he's very  public and long term about it (MBIA, Herbalife)

 

You're right that it isn't sizable from the perspective of positions. The reason I used that adjective is because I recall him having a $1B short position for HLF, while his total AUM is only about $13B. I could be incorrect in recalling those numbers.

 

That is a large percentage if you're used to investing along BRK.A or MKL.

 

[giofranchi]

Why not just mimic his investments?

 

I think often Ackman's involvement alone will cause a stock to spike. An extreme example would be Allergan where the price was $116 before he started buying and was above $160 once VRX and Ackman made it public. By being invested in his fund you can benefit from this instead of replicating his holdings once a large part of the gain was already made.

 

By the way: there are many studies which show how anyone could have achieved extraordinary investment returns copying Buffett's decisions after they had been disclosed to the public... Yet, I don't know of anyone who made lots of money that way, while I know many people (me included!) who made lots of money investing in Berkshire! ;)

 

Cheers,

 

Gio

[james22]

How would I buy this in US?

 

OTCMKTS:PSHZF

[magno111]

If their 13D/F report moves the market does that not count as material non-public information if they trade on it before it happens?

 

you aren't responsible for market craziness. Mr.Ackman has a reputation, that's why stocks move when he appears, if he stops delivering good results with activists campaigns, I am pretty sure the side effects of a 13D won't be the same.

 

 

[Picasso]

So if I knew that Ackman was going to take a position in a stock and that the result would likely be a rise in price, and proceeded to buy up options ahead of it wouldn't that be insider trading?  How is that any different than Ackman doing it?  He knows the market response and can't really say "oh it was just market craziness."

 

These insider trading laws are stupid.  They should just get rid of them or clean up these loopholes.

[adesigar]

So if I knew that Ackman was going to take a position in a stock and that the result would likely be a rise in price, and proceeded to buy up options ahead of it wouldn't that be insider trading?  How is that any different than Ackman doing it?  He knows the market response and can't really say "oh it was just market craziness."

 

These insider trading laws are stupid.  They should just get rid of them or clean up these loopholes.

 

That's a dumb comparison. How do you say that Ackman knowing he himself is buying the stock is insider information? Should he buy it without knowing he is buying it? Should he tell his broker, go buy something but don't tell me what it is cause that would be insider information?

[jawn619]

From the SEC website.

Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.

 

I think the 2 key things here are

-material nonpublic information(which Ackman had)

-a breach of fiduciary trust duty(which Ackman didn't have)

[Liberty]

So if I knew that Ackman was going to take a position in a stock and that the result would likely be a rise in price, and proceeded to buy up options ahead of it wouldn't that be insider trading?  How is that any different than Ackman doing it?  He knows the market response and can't really say "oh it was just market craziness."

 

These insider trading laws are stupid.  They should just get rid of them or clean up these loopholes.

 

That's a dumb comparison. How do you say that Ackman knowing he himself is buying the stock is insider information? Should he buy it without knowing he is buying it? Should he tell his broker, go buy something but don't tell me what it is cause that would be insider information?

 

Yeah, that's like saying Buffett shouldn't be able to buy stocks because when it becomes known that he's bought them, they usually go up (so he's insider-trading against himself?!).

[Picasso]

I don't think you guys get how this is strange. On one hand you say Ackman has a strategy to buy up options ahead of his filing so he can profit from the market reaction. It's different to buy a stock knowing it might move when the announcement is made and ultimately has little impact on your end result. It's a totally different situation to buy short term options because you know of that impact on the holding.

 

 

[Picasso]

The best way I can think of this is as follows:

 

Would you feel right buying up options ahead of your announcement of taking a stake in a company that you know would push up the price of the shares?  For the sole purpose of selling it shortly after to "reduce the impact of copycats reducing your returns?"  Give me a break.

 

At least Buffett has the class to get an exemption from the SEC to build up a stake if need be.

 

You don't need the SEC to determine whether something is right or wrong. Even a judge in the AGN VRX saga said Ackman was seriously pushing the boundaries on what constitutes insider trading.

[oddballstocks]

A small related rant.  When did "insider" become co-opted to mean "anything the SEC determines is unfair?" 

 

Let's say when I buy a stock and mention it the price shoots up like Ackman.  I buy options and stock hoping to profit from the price action.  How is this 'inside information?'  All I'm doing is trading the market, I know nothing more than anyone else.  Ex-ante I don't know for sure if the stock will rise, it's speculation.  This is clearly different than true insider trading where an insider might know about a merger, or earnings or some other significant material market event that causes the stock to appreciate or decline.  In retrospect we can always know if something worked or not, but no one truly knows for sure ahead of time, unless the information is truly inside info.  A CEO announcing a merger or sale knows there will be a material outcome, they might not know the magnitude, but they know there will be an impact.

 

Secondly what's the timeframe?  So Ackman buys a stock and options around a position and announces it and the price rises.  So suddenly this is 'inside', but what if the market falls and suddenly the stock trades below his purchase price.  Does the SEC re-measure or drop the case?  What's the time period?  As an outsider it seems arbitrary.

[mcliu]

http://www.investopedia.com/exam-guide/cfa-level-1/ethics-standards/standard-nonpublic-information.asp

 

CFA Ethics:

 

Material versus Non-Material

 

No statutory definition of "materiality" is available, so it is up to courts that rule on insider trading cases to rule. These cases will often cite the market price impact of the released information to establish that it was indeed material. Say a dividend is cut in half and the shares fall 10%; it was clearly a material event. However, if a company announces a new branch office in Kansas, and the stock performs in line with the market following the announcement, it was a non-material event. An insider with knowledge of the Kansas venture would not be found criminally liable if there were a purchase of shares prior to the public announcement of the Kansas office.

 

Regarding Analyst Opinion on a Stock

 

Ask whether the information is material: i.e. will it have a market impact? If an influential Wall Street analyst is preparing to downgrade his or her investment opinion from a buy to a sell, and we know about it, that's very different from our neighborhood broker/dealer stating he doesn't like it anymore. In the first case, we are required to wait for public disclosure of the change in opinion; the second case requires no trading restrictions.

 

[oddballstocks]

 

Ask whether the information is material: i.e. will it have a market impact? If an influential Wall Street analyst is preparing to downgrade his or her investment opinion from a buy to a sell, and we know about it, that's very different from our neighborhood broker/dealer stating he doesn't like it anymore. In the first case, we are required to wait for public disclosure of the change in opinion; the second case requires no trading restrictions.

 

So what or who decides the difference between an influential analyst vs non-influential?  A jury of our peers?  I can ask 100 "men on the street" and I'm guessing maybe one or two at most know who Ackman is.  By this is he influential if no one has heard of him besides financial geeks?

 

I understand the rules, no supposed unfair advantage.  Except the problem is by the very nature of the markets one side ALWAYS has an unfair advantage.  A person who works at any company always has an advantage against someone who doesn't.  So either you can't talk to anyone tangentially related to an investment or we just accept that some people have better/more information than others.  The reality is the markets seem to work like this already.  A guy like Ackman attracts a following because people believe he does more research or has better information compared to others.  He's floated a fund on this premise, anyone running a fund has floated something on this premise, that their information is better than others and they'll let investors go for a ride for a fee.  The SEC only cares about it once you're big or do something egregious enough that they can push through an easy case.

 

If a middle manager at a company talks to their brother-in-law at a BBQ saying they're worried about their job because of a plant closure that's inside info.  But if the rumor spreads throughout the office and suddenly everyone in town assumes this rumor is true it's not inside anymore.  So the difference seems to be the dissemination of a rumor.

 

Do I wish that management were trading against me? No. I accept that it happens.  Why is it when management buys stock on the open market this is considered a good signal?  It's because we presume they know something inside and they're acting on it.  That's legal somehow.  If I'm unknown and buying a stock I can tell my brother-in-law.  If I'm lucky enough to get on CNBC suddenly I can't talk to anyone anymore.  How is this different than the manager who has better information?

 

I'm pushing against a wave here.  All the CFA's (mcliu I'm sorry I presume) are pulling their hair out I'm sure.

 

Insider trading reminds me of football, nothing is sane, but if you've watched the game long enough it's understandable.  A catch isn't a catch until the ball is held to the ground and two feet are dragged and the player shows possession etc.  Two identical plays could be ruled differently on the whim of endless replays and ref judgement calls.  My sense is insider trading is the same, no sanity, no sense, but if you live in the system it's accepted.

 

Maybe it's a term thing.  Managers aren't trading on superior information, they're simply opening themselves up to be "cloned".

[Picasso]

A small related rant.  When did "insider" become co-opted to mean "anything the SEC determines is unfair?" 

 

Let's say when I buy a stock and mention it the price shoots up like Ackman.  I buy options and stock hoping to profit from the price action.  How is this 'inside information?'  All I'm doing is trading the market, I know nothing more than anyone else.  Ex-ante I don't know for sure if the stock will rise, it's speculation.  This is clearly different than true insider trading where an insider might know about a merger, or earnings or some other significant material market event that causes the stock to appreciate or decline.  In retrospect we can always know if something worked or not, but no one truly knows for sure ahead of time, unless the information is truly inside info.  A CEO announcing a merger or sale knows there will be a material outcome, they might not know the magnitude, but they know there will be an impact.

 

Secondly what's the timeframe?  So Ackman buys a stock and options around a position and announces it and the price rises.  So suddenly this is 'inside', but what if the market falls and suddenly the stock trades below his purchase price.  Does the SEC re-measure or drop the case?  What's the time period?  As an outsider it seems arbitrary.

 

If Ackman takes a stake in a company like SHLD, isn't a reasonable assumption that the stock will shoot up quickly?  Even if the stock declines he would still be trading on non-public information.  It has been shown in other insider trading cases that they actually lost money but were still charged for insider trading.  Winning or losing has no say in whether it is proper.

 

As for the timeframe, it is like how Ackman and VRX almost got nailed, and still might, when they worked together to build a position in a company with the likely intention to make a tender offer.  The intention is part of the timeframe issue and speaks to the heart of the strategy.  If the intention is to trade ahead of your filing to turn a short-term profit to hedge the "risk" of not making enough profit, well I don't see how that is kosher. 

 

Obviously the laws are vague.  Power to them for taking advantage of it like the way people take advantage of the tax code.  I personally think its garbage that something like that is fine, but to each their own.

 

As far is it impacts PSH, I could see how this will make it hard to emulate Ackman's strategy.  But I still think it should trade near or below book value.

[petec]

Since we're talking about Return on Equity, there are several examples and they usually trade at big premiums to net worth.  Microsoft is the easiest example off the top of my head - http://ycharts.com/companies/MSFT/return_on_equity

 

Ackman really wants people to equate PSH with Berkshire but he has said he will continue with his current strategy of buying stakes in public companies.  He's not going to get an operating company multiple on book.  The present value of the fees would suggest a small discount is fair.

 

This isn't some regular business with perpetual 20% returns. 

 

 

If you know of any companies with perpetual 20% returns please do let me know ;)

 

I know what RoE is.  I was quibbling, rather pedantically, with the use of the word 'perpetual'.

[ni-co]

There will come a time when we will laugh at the fact that you could "insider trade" analyst recommendations. What's the news here? You almost deserve being ripped off if you buy a stock because of such a recommendation. This is, by the way, completely incompatible with EMH since the analyst only uses publicly available information.

 

With regard to the options trading: Where's the difference to Ackman simply buying a few stocks more on margin and then selling them into the market? I don't understand the issue here. If he overdid it the market reaction would change. Nobody has the right to buy shares "pre Ackman announcement". It's like Odballstocks says, he just takes a couple of bps from the people who clone him. Shouldn't he be allowed to do that?

 

And what's the reason behind disclosure for investment/hedge funds, anyway? Wouldn't it suffice to report the crossing of certain hurdles that matter to the company because the fund can now influence a company's destiny (like 10%, 25%, 50% of the voting rights)? That's how it's handled in Germany and it works just fine. I don't mind stealing ideas from great investors but I don't think that this kind of disclosure is necessary.