When I (Porter) first heard hedge-fund manager Bill Ackman was trying to raise $1 billion to purchase a single, unnamed stock... my first thought was: "Why not? It worked out so well the first time."
In mid-2007, months before the subprime bubble burst, Ackman raised $2 billion to buy another unnamed company... It turned out to be big-box retailer Target. And the fund subsequently fell 90%.
You can read the details of Ackman's latest deal to plunge $2.2 billion into industrial gas company Air Products & Chemicals in today's Digest.
I'd just like to add that it's ridiculous... It's a sign of the top. I wouldn't have given Ackman a penny for this fund. But I was in the minority... He raised more money than he could spend, he said.
Before discussing Ackman's specific investment, I'd like to tell you something I find very interesting about Ackman...
He made a big deal about the supposed ethical shortcomings of a company called Herbalife. He pointed a finger at the folks who run Herbalife and called the business a pyramid scheme. He made fun of the fact that it sells lotions and potions in a network-marketing arrangement.
A lot of people disdain multilevel-marketing businesses. I understand that. They're not everyone's cup of tea. They're not mine, either. I would never be part of a multilevel-marketing organization, nor would I be a customer of a multilevel-marketing product. I'm not comfortable doing business in that way.
But I'm not pointing the finger at people involved in these businesses. Nor would I label them liars and pyramid schemers. Keep in mind, Herbalife is a company that's been scrutinized over the years by plenty of attorneys general and lawyers.
I felt like Ackman's stand involved some ethical posturing. He was holding himself out as a moral judge of another man's business. That really bothered me. I don't like people like that. And I wouldn't do business with them, either.
It's troubling that Ackman can so easily point a finger at Herbalife and say, "I don't approve of these people. And I'm going to try to hurt their business interests by publicizing the things I don't like"... that he can trash the company publicly simply in an attempt to make money as a short seller. Yes, I'm aware he's donating any profits to charity... but that's beside the point.
In the meantime, Ackman has the gumption to do something preposterous... raise money from people (who really should know better) to buy a single stock.
When you start studying the economics of what he's doing, it's insane. He will charge a 2% management fee on whatever money he raises. Based on the $2 billion he invested in Air Products, that's $40 million right there. He made that for doing work on one stock, for making one stock recommendation. Plus, he will take a cut of any profits the investment returns.
So if he's right and the stock goes up, he stands to make hundreds of millions of dollars more in fees. And if the stock goes down and his investors are all wiped out – as they were with Target – hey, he just moves on.
And he can do it again – no problems... no qualms... no shame... not even a casual recognition that he's in a business that pays him in an absurd way.
I find the juxtaposition between what he was saying about people involved in Herbalife and how he conducts his own affairs to be startling.
– Porter Stansberry with Sean Goldsmith
'I don't like people like that... And I wouldn't do business with them'...
Hedge-fund manager Bill Ackman just raised $2 billion to invest in a single stock – an effort that could potentially pay him hundreds of millions of dollars for a small amount of work.
In today's Digest Premium, Porter shows how this "preposterous" investment compares with some of Ackman's public moralizing...
To continue reading, scroll down or click here.
'I don't like people like that... And I wouldn't do business with them'...
Hedge-fund manager Bill Ackman just raised $2 billion to invest in a single stock – an effort that could potentially pay him hundreds of millions of dollars for a small amount of work.
In today's Digest Premium, Porter shows how this "preposterous" investment compares with some of Ackman's public moralizing...
To subscribe to Digest Premium and access today's analysis, click here.
We begin today's Digest with an extraordinary event that has become commonplace these days...
The Dow Jones Industrial Average flirted with an all-time high today, briefly hitting 15,654.32, before pulling back a bit in the afternoon. It closed at 15,567.74 on July 23. Federal Reserve Chairman Ben Bernanke's printing press is still working for now...
While the Dow is soaring, gold dropped 1.3% today to a little more than $1,300 an ounce. The precious metal fell as positive economic news hit the wire.
The U.S. economy grew 1.7% in the second quarter, beating expectations of 1%.
And the latest data from payroll processor Automatic Data Processing shows private-sector employers added 200,000 jobs in July. (Analysts had expected 185,000.)
Enjoy this "growth" while you can. As we've said many times, these good times are the product of government money printing. As Porter wrote in the latest issue of his Investment Advisory...
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For now, investors are happy to invest, believing the good times can't end. But keep one question in mind: How do you think stocks will fare if interest rates double or triple?
Hedge-fund billionaire Bill Ackman just made his largest investment ever...
In the July 15 Digest, we told you Ackman was looking to raise $1 billion to buy shares in a single company. On CNBC this morning, Ackman announced his hedge fund, Pershing Square Capital Management, had spent around $2.2 billion to acquire a 9.8% stake in Air Products & Chemicals, the world's largest supplier of hydrogen and helium.
We also noted that Ackman did the same thing in mid-2007, raising $2 billion to buy a large stake in big-box retailer Target. And investors lost around 90%.
Maybe this time will be different... Ackman, a noted activist, sees potential in Air Products... The company has lower margins than its competitors. (So it has room to improve.) And beyond its core helium-and-hydrogen business, it has units that make specialty chemicals and gases for semiconductor manufacturers. Ackman could potentially sell those off.
We wish Ackman the best with his new investment, just as we did when he built his position in Target. But, we'd like to note… it's insane that a hedge-fund manager can raise "more than we could spend" (as Ackman described it this morning) to purchase a single, unnamed stock.
Remember, hedge funds like Ackman's charge clients 2% off the bat and 20% of any profits. That these guys can raise billions of dollars for whatever investing scheme they come up with, despite their onerous fees, is incredible. It's the sort of behavior you get at market tops.
One more note about Ackman... I attended the meeting he held in New York City last December when he announced he was shorting nutraceutical company Herbalife. In short, Ackman alleged Herbalife was a "pyramid scheme." We won't get into the details here. (His presentation was 300 slides.) But Digest Premium subscribers can also read my notes from the conference here and here.
Ackman shorted $1 billion of Herbalife stock. The stock fell 40% after the presentation. But his actions were hotly debated...
Fellow billionaire fund manager Dan Loeb, of Third Point, took an 8% position in the company. And activist investor Carl Icahn also went long, buying 16% of the company. (He and Ackman have had several public battles over the company.)
"I never would have been looking at Herbalife if Ackman hadn't come out with that report," Icahn said earlier this month at the CNBC Institutional Investor Delivering Alpha Conference in New York. "And because I'm not a great fan of his, I decided to look at it."
The Herbalife short has been a painful one... The stock hit a 52-week high this week. And it soared nearly 9% today after George Soros reportedly took a large position in the company...
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With gold falling.... everyone wants to know when it will bottom... As we wrote in Monday's Digest, one of our trusted gold-stock advisors said the bottom is already in. (His portfolio is up 32% since early July.)
And in yesterday's edition of our free e-letter DailyWealth, True Wealth Systems analyst Brett Eversole gave readers more empirical evidence of a bottom forming in the gold market...
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New 52-week highs (as of 7/30/13): ProShares Ultra Nasdaq Biotechnology Fund (BIB), Chesapeake Energy (CHK), Emerson Electric (EMR), iShares Nasdaq Biotechnology Fund (IBB), and Marvell Technology (MRVL).
More positive feedback today, this time for DailyWealth Trader. Let's keep the good feedback coming... Send your e-mails to feedback@stansberryresearch.com.
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'I don't like people like that... And I wouldn't do business with them'...