Bill Ackman’s investment philosophy comes down to a simple but powerful idea: find great businesses when they’re going through tough times, buy them at a discount, and help them get back on track. In an interview with Lex Fridman, he broke down exactly how he does this in straightforward terms anyone can understand.
Ackman looks for businesses with long-term growth potential, strong cash flow, understandable models, and high barriers to competition. He specifically wants companies that don’t constantly need to raise more money. The problem, as he points out, is that everyone knows these are the good businesses, which usually means their stock prices are already high. “You can buy the best business in the world,” he says, “and if you overpay, you’re not going to earn particularly attractive returns.”
This is where Ackman’s strategy gets interesting. Instead of chasing popular stocks, he looks for quality companies that have stumbled. He gives the example of Chipotle, which he invested in after its food safety crisis. “Consumers got sick, almost killed the brand,” he recalls, but adds that “almost every fast-food company has had a food safety issue over time. And the vast majority have survived.” His point is that temporary problems create buying opportunities for patient investors.
The key is identifying which companies can recover. Ackman looks for businesses with strong fundamentals that have simply lost their way, then buys from shareholders who have lost confidence.
“We buy from shareholders who are disappointed, who’ve lost confidence, selling at a low price relative to what it’s worth if fixed,” he explains. After buying in, his team works to help turn the company around.
To find these opportunities, Ackman and his team do deep research. They read SEC filings, study years of earnings call transcripts to see if management delivered on promises, and learn everything about the industry. If it’s a sector they don’t know well, they’ll read books about it and talk to experts. They even watch CEO interviews to get a sense of management’s capabilities.
The takeaway is refreshingly simple: great investments aren’t just about finding great companies, but about buying them at the right price. When good businesses face temporary problems that scare other investors away, that’s often when the best opportunities appear. As Ackman shows, sometimes the most profitable investments come from situations that look the least promising at first glance.
You can watch the entire interview here:
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