A brilliant idea for Bill Ackman; Cathie Wood's bizarre post on X underscores why you should stay away from her funds; I've traveled about 35,000 miles for research since last fall

1) One of my favorite business writers has an idea to help my college buddy Bill Ackman create a profitable stock...

Following up on my e-mail yesterday about Bill "withdrawing" the initial public offering ("IPO") of his planned closed-end fund Pershing Square USA, I want to share a truly brilliant column by Bloomberg's Matt Levine.

Regular readers know how much of a fan I am of Levine – not only is he incredibly insightful, he's also funny.

And Levine's column from yesterday, Bill Ackman Raised No Money, is particularly interesting because he highlights a way that Bill might someday create a publicly traded investment vehicle that could be a profitable stock for those paying attention.

In it, Levine first analyzes the likely reason why Bill pulled the IPO and concluded pretty much what I did yesterday: "Bill was unable to sufficiently ease investors' concerns about the risk of [the fund] trading at a discount."

But then – here's the brilliant part – Levine analyzed how another famous investor named Brad Jacobs recently raised a large amount of money in a new, publicly traded, permanent capital vehicle that trades at a substantial premium to its net asset value.

The key twist to Jacobs' approach was that, instead of an IPO, he took control of a tiny shell company. As Levine describes it:

1. Jacobs is a successful investor who does roll-ups of logistics-y businesses, and he wanted to raise a fund to buy companies in the building products distribution industry.

2. So he went and found a small public company called SilverSun Technologies Inc., which had a market capitalization of about $20 million when he found it.

3. He agreed to invest $1 billion (of his own and some seed investors' money) in it, at a price of $4.57 per share.

4. Investing $1 billion in a $20 million company gave him, you know, 99% of the stock; he quickly took over management and renamed SilverSun "QXO Inc."

5. At this point, QXO was mostly a pot of (his) money, which he planned to use to buy building products distributors. But a teeny little stub of it was the public stock that was left in the hands of the old SilverSun shareholders, which continued to trade.

Then, because the "float" – the amount of tradable shares – was so tiny, the stock went parabolic. That gave Jacobs the opportunity to raise a lot more money at a much higher price than he and his investors paid. As Levine continues:

6. That stock traded way, way up, on some combination of (1) small float and volume (average trading was under 40,000 shares per day), (2) retail enthusiasm for Jacobs and (3) confusion about how the share math worked. The stock peaked at $235.61 per share this June, which represented roughly $150 million worth of public shares, but a nearly $100 billion market capitalization when you count Jacobs' shares – which, again, he bought for $4.57.

7. Jacobs then went to other institutional investors and sold them stock at $9.14 per share, which represented (1) a premium to net asset value, (2) a premium to what he paid and (3) a huge discount to the public trading price of the stock.

8. In total, QXO has raised a bit more than $5 billion from investors (including Jacobs' initial investment), at a fully diluted market capitalization of about $6.8 billion. So the institutional investors in Jacobs' fund have bought in at about a 33% premium to net asset value. (Except that Jacobs and his initial investors who put in the $1 billion bought at a discount.)

9. All that money was locked up: The big investors couldn't sell until QXO filed a registration statement allowing them to sell their shares.

10. The tiny sliver of public shares continued to trade at huge prices unrelated to the prices that big investors paid in the fundraising rounds. Last week, while QXO raised another $620 million at $9.14 per share, the stock hit $123.96.

Of course, you know what happened...

As soon as the lockup expired, the float suddenly went up by 100,000% (that's not a typo) overnight – and the stock crashed by 82% the next day, as some investors rushed to sell.

Sounds like a disaster, right?

But in fact, other than the tiny number of fools and/or speculators who bought at the temporarily, artificially inflated price, this deal has worked out brilliantly for everyone: Jacobs has a well-funded, publicly traded entity to pursue his investment objective, it's trading well, and nearly every investor is sitting on a profit.

So why doesn't Bill do something similar?

Well, actually, Levine speculates he might just do that, concluding: "honestly it's a good idea?"

I think so too.

To be clear, I haven't spoken with Bill and have no idea what his plans are. But I do know that he's the most persistent person I've ever met, so there's no way he's just going to give up on his idea of creating some sort of entity that ordinary Americans can invest in.

He hinted at this when he texted Puck's Bill Cohan on Wednesday, after he withdrew the IPO: "All good. Better actually."

This is total speculation, but I'll just say I wouldn't be surprised if I saw that Bill had bought a stake in an obscure microcap company, which would indicate that he's following Jacobs' playbook.

If so, it might be a heck of an investment opportunity... so I'll be watching closely!

2) Speaking of high-profile investors about whom I've written often, another one caught my eye recently...

But this one is at the opposite end of the spectrum from Bill in terms of investment ability: ARK Invest's Cathie Wood.

As background, I think she's one of the worst investors (and risk managers) I've ever seen... And, as such, I've been warning my readers about her for years.

I first warned about her (thanks to my friend Doug Kass of Seabreeze Partners) and her flagship fund, the ARK Innovation Fund (ARKK) on February 23, 2021, just after the fund's all-time peak (not coincidentally near the peak of the meme-stock bubble as well):

Since then, I've mentioned her 42 times (archive here) which I'll admit sounds a little obsessive... but she gets so much attention that I worry some of my readers might be sucked into one of her funds unless I regularly warn them.

Earlier this year, Morningstar named her firm the biggest wealth destroyer of the past decade – estimating the cumulative losses inflicted on investors at more than $14 billion.

The reason she hit my radar screen was because a friend sent me this post from her on X from July 14 (she has since deleted it, but the Financial Times published it). No wonder she did so, because it's a doozy:

In other words, she's boasting that because she's lost so much of her investors' money she has lots of realized tax losses that can be used to offset her (minimal) gains. My translation: "Our terrible performance is actually a disguised tax-optimization strategy."

This is yet another good reminder to stay far away from ARK Invest.

3) Matt Weinschenk, the director of research here at Stansberry, recently asked all of the editors like me how many miles we've traveled to find opportunities for our readers...

I only joined Stansberry last fall, so I didn't think my number would be very high. But when I sat down and looked at my calendar, it added up to roughly 35,000 miles – nearly one-and-a-half times around the globe!

Some of my major trips were:

• San Francisco to visit air-taxi companies Joby Aviation (JOBY) and Archer Aviation (ACHR)
• Las Vegas for the Consumer Electronics Show
• Orlando for the ICR consumer conference
• Switzerland for Guy Spier's VALUEx conference
• Omaha, Nebraska for the Berkshire Hathaway (BRK-B) annual meeting
• Italy a month ago for the Value Investing Seminar I co-host

Sure, I enjoy traveling for adventure, family, and fun... but I'm also crossing the globe to find the best investment opportunities for my readers!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.