In this interview at Delivering Alpha, Bill Ackman explains why he typically owns a small number of stocks but holds large positions in each one. This allows his fund to focus on its best ideas and have a significant impact on the companies it invests in. Here’s an excerpt from the interview:
Ackman: Wrote a little letter to our investors.
We said look we think Netflix is going to be a great investment over time, but in terms of do we want it to be one of eight things we own, or one of 10 things we own.
No, because the… it’s kind of the… the range of outcomes as a result of the sort of change in strategy going to an advertising model etc.
And predicting the probability of the success of that was a different kind of hurdle for us to climb.
So sort of the facts changed in a meaningful way, it became a different kind of investment. I would have been happy to have that as a you know maybe even a two and a half percent position, three percent position in the portfolio, but that’s not what we do. We don’t collect thirty things where we put three percent of our capital.
We have 22% – 25% of our capital in Universal Music. We have whatever 16, 17% of our capital in Google. These are businesses, we feel very comfortable, sleep at night, have a very high confidence level what they look like over a long period of time.
If a business doesn’t meet those threshold characteristics or something about the business changes where we you know misunderstood the predictability of the business, we’re happy to sell and find something else to do.
And basically we took the Netflix, you know losses, put the capital if you will, and we invested in Google, and it was a good decision. We’re able to make a bigger investment in a company we had more confidence in.
You can watch the entire discussion here:
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