As someone who’s read hundreds of shareholder letters over the years, I can confidently say Bill Ackman writes some of the best. His 2020 annual letter for Pershing Square Holdings is no exception—equal parts performance report, investment philosophy, and storytelling. The headline numbers alone demand a closer look: a 70.2% NAV return for the year, dwarfing the S&P 500’s 18.4%. But what makes Ackman’s letters stand out isn’t just the results—it’s how he discusses his thinking behind them.
Compounding at Its Best
Ackman highlights the power of compounding, noting that investors who backed Pershing Square from its 2004 inception have seen their money grow 15-fold, compared to just 5 times for the S&P 500. “With the magic of compounding,” he writes, “our 17.1% compound annual NAV return translates into a cumulative total NAV return since inception of 1,413% versus 399% for the S&P 500.” This isn’t luck—it’s the result of a disciplined strategy focused on durable, high-quality companies.
The Hedge That Paid Off
One of the standout moves in 2020 was Pershing Square’s timely credit default swap (CDS) trade, which accounted for 45% of the year’s gains. Ackman explains, “The majority of our NAV performance last year was driven by our large hedging gain… and the reinvestment of those proceeds in our portfolio companies.” This asymmetric bet—where the upside dwarfed the risk—showcases Ackman’s ability to capitalize on market dislocations.
Quality Over Everything
Ackman’s portfolio is a who’s who of resilient businesses: Lowe’s, Chipotle, Agilent, and Hilton, among others. These companies didn’t just survive the pandemic—they thrived. For example, Lowe’s saw comparable sales surge 26% in 2020, while Chipotle’s digital sales jumped from 20% to 50% of revenue. Ackman’s take? “The well-capitalized, high-quality, durable growth companies that represent nearly all of our holdings comfortably weathered the COVID-19 storm.”
ESG as a Value Driver
Ackman also emphasizes the importance of ESG (environmental, social, and governance) factors, not as a marketing tool but as a core part of Pershing Square’s investment process. He notes, “We believe that good ESG practices are fundamentally aligned with running a successful business.” Companies like Agilent and Starbucks, which rank highly on sustainability metrics, exemplify this approach. For Ackman, ESG isn’t just about doing good—it’s about investing in businesses built to last.
The Discount Dilemma
Despite Pershing Square’s success, its shares trade at a 25% discount to NAV. Ackman chalks this up to market misunderstanding, arguing that the firm’s unique structure and hedging strategies make replication impossible. “Investors who attempt to track and replicate the portfolio will likely have a substantially higher cost basis,” he writes. For long-term investors, this discount could represent a rare opportunity.
The Bottom Line
Ackman’s letter is a reminder to stick with a proven strategy, even when the market doubts you. As he puts it, “We do not view ESG as a way to market our funds… Our interest in ESG issues therefore entirely relates to their impact on our investments, and our long-term track record.”
You can find the entire letter here:
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