In this interview with Lex Fridman, Bill Ackman describes his experience turning around General Growth Properties through bankruptcy. He emphasizes the importance of independent analysis and learning the basics over relying solely on conventional wisdom and expertise. He highlights the positive outcome for all stakeholders involved and credits his success to studying a book on distressed investing.
Here’s an excerpt from the interview:
Ackman: Next thing you know, I’m invited on the board of the company, and the board is talking about the old equity of general growth. Old equity is what you talk about, “The shareholders are getting wiped out.”
I said, “No, no, no. This board represents the current equity of the company and I’m a major shareholder. John’s a major shareholder. There’s plenty of asset value here. This company should be able to be restructured for the benefit of shareholders.”
And we led a restructuring for the benefit of shareholders, and it took, let’s say eight months. And the company emerged from Chapter 11.
We made an incremental investment into the company, and the shareholders kept the vast majority of their investment. All the creditors got their face amount of their investment par plus accrued interest, and it was a great outcome. All the employees kept their jobs, the mall stayed open, there was no liquidation.
The bankruptcy system worked the way it should. I was in court all the time and the first meeting with the judge, the judge is like, “Look, this would never have happened were it not for a financial crisis.”
And once the judge said that, I knew we were going to be fine, because the company had really not done anything fundamentally wrong, maybe a little too aggressive in how they borrowed money. And stock went from 34 cents to $31 a share.
Fridman: What gave you confidence through that? Went to a penny stock, and I’m sure you were getting a lot of naysayers and people saying that, “This is crazy.”
Ackman: It’s the same thing. You just do the work. We got a lot of pushback from our investors actually because we had never invested in a bankrupt company before. It’s a field called distressed investing, and they’re dedicated distressed investors and we weren’t considered one of them. “Bill, what are you doing? You don’t know anything about distressed investing. You don’t know anything about bankruptcy investing.” But I can read.
Fridman: And you learned.
Ackman: And I learned. And it sometimes is very helpful not to be a practitioner, an expert in something because you get used to the conventional wisdom. And so we just abstractly stepped back and look at the facts and it was just a really interesting setup for one of the best investments we ever made.
Fridman: How hard is it to learn some of the legal aspects of this? Like you mentioned bankruptcy code. I imagine is very dense language and dense ideas and loopholes and all that kind of stuff. If you’re just stepping in and you’ve never done distressed investing, how hard is it to figure out?
Ackman: It’s not that hard. No, it’s not that hard.
Fridman: Okay.
Ackman: I literally read a book on distressed investing. Ben Branch or something on distressed investing.
Fridman: You were able to pick up the intuition from that. Just all the basic skills involved, the basic facts to know, all that kind of stuff?
Ackman: Most of the world’s knowledge has already been written somewhere.
You can watch the entire discussion here:
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