Here’s a great interview with Bill Ackman on Virtual Live with André Esteves in which he discusses a number of issues including how his investment criteria on potential investments has reversed over the last 20-30 years. Here’s an excerpt from the interview:
Our biggest focus is around what I call business quality and durability right. Can I predict with a very high degree of confidence that this business will grow at a meaningful rate for a very very long period of time?
What’s the risk of two students from Stanford University in a garage coming up with a disruptible – just a technology or a business model that causes us to disappear?
I think the single biggest threat to every company that we own today is – is there a technological entrant? Or is there a new entrant of any kind, that can disrupt the business? As long as we can get comfortable there are very meaningful barriers to entry, it’s very difficult for the business to be disrupted then the analysis goes to how good… OK fine it’s dominant, it’s going to grow, then what kind of returns can they earn. What kind of returns on capital does the business earn.
I think of every business like a bank right it earns a certain amount on its assets and it’s got a cost of liabilities and you want a business with a high return on assets and a low cost of liabilities.
If you have both then you have something pretty extraordinary and if you think the business can grow at a reasonable rate over a long period of time these are the elements.
So the biggest focus for us is on those elements of quality, durability, growth, and just undisruptability. So that’s where we focus our analysis and then other than that it’s really price valuation. What is our starting price?
When I got into the business I was more focused on price and value than I was on quality, durability, and growth and that’s been reversed in my mind after 20-30 years of experience.
You can watch the entire interview here:
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