In his recent 2022 Annual Letter, Bill Ackman explained why stock market volatility is the friend of the long-term investor. Here’s an excerpt from the letter:
While our NAV declined by 8.8% in 2022, the volatility markets experienced in 2022 should set the stage for greater longterm outperformance for PSH.
Last year, we made few portfolio changes other than with respect to the acquisition and/ or disposition of hedging instruments and the purchase and sale of Netflix which we have previously described in detail here.
We prefer less rather than more investment-related activity as it is an indication that we have made good decisions about where to invest our capital for the long term. Constant turnover of the portfolio of a so-called long-term investment manager is generally an indication of poor investment decisions that had to be reconsidered.
We think of PSH as a vehicle by which one can own an indirect, proportionate interest in our underlying portfolio companies, cash, and hedges.
While most of our portfolio companies share prices declined in 2022, they continued to generate strong business performance, increased earnings, and greater free cash flow per share. Our companies’ longterm prospects remain highly attractive, and we accordingly made minimal changes to our core equity holdings in 2022.
About half of our companies (or five of seven if we exclude Fannie and Freddie which are unable to repurchase shares) repurchased their own shares during the year thereby increasing our ownership without any additional investment from PSH.
As a result of PSH’s and our companies’ share repurchase programs in 2022, our shareholders’ ‘look-through’ ownership of PSH’s underlying portfolio increased by 8.2%, half from PSH buybacks and the balance from share repurchase programs of our portfolio companies.
If we are correct in our assessment of our companies’ future prospects, our increased ‘look-through’ ownership will amplify our returns in future years as our companies continue to increase in intrinsic value, which over the long term will be reflected in their share prices.
You can read the entire letter here:
Pershing Square – 2022 Annual Letter
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