Friday, August 09, 2013

This Just In: Hedge Fund Billionaire Now Advertising in “I’m Desperate” Magazine

 First, let’s just say right up front that Bill Ackman is a genius.  That’s how you generally get to be a billionaire, Donald Trump notwithstanding.
 But his gambit yesterday—leaking on CNBC a letter to the board of JC Penney, of which his hedge fund is the largest shareholder, that urges pushing out the same CEO he just brought back (Myron Ullman) after pushing him out once before in favor of ex-Apple genius Ron Johnson, who pretty much destroyed the JC Penney as we knew it in favor of a slicker, more upscale thing called ‘JCP’ (the stock ticker, get it?) which JCP’s customers did not get at all, and from which they left in droves—smacks of desperation.
 Doubly so because Ackman floated the name Allen Questrom, a true retailing genius (whose name we here at NotMakingThisUp previously floated as the one guy who could have turned around Sears) and whose name was almost certainly calculated to get JCP (the stock ticker) turned up, owing to Questrom’s high standing on Wall Street, after so many days of JCP (the stock ticker) turning down.
 So flagrantly desperate does Ackman’s gambit appear that the first thing that came to mind was the scene in Arrested Development where good son Michael Bluth discusses resorting to asset sales to rescue the family business, prompting valley-girl sister Lindsay to protest for all she’s worth (which is not much):
 Michael Bluth: “I’m even selling the company jet.”
 Lindsay Bluth Fünke: “Great, so now we don't have a car or a jet?  Why don’t we just take an ad out in I’m Poor Magazine?”
 Seeing Ackmanwho has been lashing out like there’s no tomorrow at Herbalife short-squeeze engineer, Carl Icahn and Herbalife short-squeeze pile-onner George Sorosadd poor Myron Ullman to his hit list, you wonder, “Why doesn’t he just take an ad out in I’m Desperate Magazine?”
 And unfortunately for Ackman, desperation is the last thing any investor wants to advertise.
 A far better model from popular culture for investors would be the Godfather: 
 “Never tell anybody outside the Family what you’re thinking…”


Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2013)    $4.99 Kindle Version at

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Leon Phelps said...

As Police Chief Grady said in Super Troopers, "Desperation is a stinky cologne."

Dan said...

That's a curious way to start your column Jeff.

Do you really think Ackerman is a genius? The better tautology may be 'successful'; better, 'super successful'. Given that your evidence of his genius is his success.

No doubt he is intelligent, yet I doubt very much his intelligence has any relationship at all to his success. There are likely millions of people who are both poorer than him, and more intelligent. No doubt there are a few wealthier and dumber as well.

He is certainly good at making money - unfortunately I suspect that making money is actually something of a dull pursuit that bores most geniuses.

It would be interesting to find some geniuses somewhere and inquire why it is they have so much less money than Bill. Being smart and all, they should know.

Jeff Matthews said...

I'd say anybody who bought General Growth Properties when he did, in the size he did, and saw it through to the profits he did, is a genius. But that's just me.


Dan said...

Fair enough, if his successes, such as GGP, evidence genius; what then do his JCP exploits evidence?

The most notable thing that jumps out with GGP is that he was buying at a time when others were selling, dramatically. It is well understood that doing the opposite of crowds can breed great investing success. It is less certain if the willingness or ability to be different than the crowd is due to brilliance or stupidity, or for some other quality.

This doesn't interest me as a semantic detail, and it is not the focus of your post, so it perhaps is more worthwhile to take up at a different time and place.

To me the interest is motivated by the central motivation from watching a master in any field; to learn. If Ackerman's success is due to genius, it is difficult to see what there is to learn. Much as there is little to learn for a man of average height from Tim Duncan if his basketball prowess is due merely to his height.

The link I notice between both GGP and JCP is that both required a serious set of stones. From whence comes confidence? To know and not to act is not to know. Can a person with less than Mensa might learn to act?

Jeff Matthews said...

Even geniuses screw up. Warren Buffett bought Dexter Shoe for stock and it became worthless very quickly. Did the same with Irish bank stocks in 2009, although he didn't pay stock, he paid cash. Does the fact Buffett's a genius mean you can't learn from him? I don't think so. I think you can learn a lot.

I won't defend JCP, although Ron Johnson might have been able to turn it around if he hadn't tried to do everything in 1 year. If he had done it right, Ackman's investment might have worked.

If what you're getting at is Ackman is simply a high roller, I'd say no, he does his homework. Jesse Livermore was a high roller, went bankrupt a couple of times and ended up shooting himself. I wouldn't say Livermore was a genius: he was just a great trader in his day.

Buffett always says you don't have to have a high IQ to make it as an investor. You just have to read more than anyone else and know more than anyone else about your investment.


Dan said...

No, I am not saying Ackman is simply a high-roller. I don’t know Ackman, and I don’t know anything about his investing besides the headlines regarding HLF, JCP, GGP, and the weird leveraged fund he had to own Target. What caught my eye was the notion of genius regarding stock picking. I think it is fairly common to view the central problem with stock picking as needing to recommend/buy stocks that will go up in the future while not knowing what will happen in the future. Being really really smart, a genius, merely smarter than everyone else in the room, or out hustling all the other smart people has zero bearing on this central problem; it is generally accepted that even smart people don’t know the future. This is why the first objective in investing is not to seek return, but to manage risk (ie. managing risk is the currently accepted answer to the question, how do you make decision in the face of uncertainty). Or in the words of at least one famous investor, job one, two and three is; don’t lose money.
Indeed this is the genius of Buffet for the whole point of value investing is to manage risk, to have a margin of safety. Clearly value investing is not the only tool various risk managing investors use.
How does Ackman put the Hedge in Hedge Fund? I haven’t a clue, clearly the risk at hand is portfolio risk not position risk, and I don’t know at any point what his portfolio is. In any case, I am not taking shots at Ackman, he’s coming up smelling like a rose, regardless of where he stepped before.

Dan said...

By the way, I strongly agree with you that the JCP failure may well have been one of implementation and not of strategy. I don't think that point was made well in the various analysis done on the story. It's a shame, I would have liked to see it succeed.