Bill Ackman is worth US$9.3 billion today, a fortune that would put the American hedge fund manager in tenth place among Australian rich listers. You won't find any ASX stocks in Ackman's portfolio, but his style can be replicated locally.
Renowned painter and sculptor Pablo Picasso said, "Good artists copy, great artists steal." In a sense, investing is an art form. By studying the greats — Warren Buffett, Peter Lynch, Stanley Druckenmiller, and others — we can craft our own unique investing approach.
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A billionaire's playbook
Ackman's fund, Pershing Square, presides over approximately US$15 billion in assets under management. According to the latest filing, the fund's portfolio consists of seven concentrated investments in the following companies:
- Universal Music Group
- Chipotle Mexican Grill Inc (NYSE: CMG)
- Hilton Hotels Corporation (NYSE: HLT)
- Restaurant Brands International Inc (NYSE: QSR)
- Alphabet Inc (NASDAQ: GOOG)
- Howard Hughes Holdings Inc (NYSE: HHH)
- Canadian Pacific Kansas City Ltd (TSE: CP)
There are a few commonalities between each of these companies. A strong brand is an obvious one. Most people know Chiptole, Hilton Hotels, and Google (owned by Alphabet). Branding allows companies to shift away from competing on price, enabling greater profits for shareholders.
Other companies in Ackman's portfolio rely on different moats, such as efficient scale. Take Canadian Pacific, for example. The railway operator is the first single-line network connecting Canada, the United States, and Mexico.
Ultimately, the company benefits from being the dominant operator in an area where demand is limited and costs are prohibitive for competitors to reach scale.
Another critical factor in Ackman's stock selection is the contrarian mantra. The Pershing Square founder explained this on the Lex Fridman Podcast (linked above), stating:
Price matters a lot. You can buy the best business in the world, and if you overpay, you're not going to earn particularly attractive returns. So we get involved in cases where a great business has made a big mistake, or has kind of lost its way, but is recoverable.
In short, it involves investing when a good company is out of favour due to a solvable problem.
2 Ackman-tier ASX stocks
If I applied Bill Ackman's investing style to the ASX, two companies would come to mind: Sonic Healthcare Ltd (ASX: SHL) and Collins Foods Ltd (ASX: CKF).
Sonic Healthcare is similar to Canadian Pacific, both touting efficient scale. The ASX-listed diagnostics company is dominant in an industry with limited demand. Competitors are held at bay by the large capital investment needed to acquire the necessary testing equipment.
Shares in Sonic are down ~48% from their all-time highs. The fall coincides with a dramatic reduction in COVID-testing revenues, pulling down earnings. However, this could be what Ackman describes as a recoverable issue for a great business.
Secondly, Collins Foods is an ASX stock trading on a forward price-to-earnings (P/E) ratio of ~16 times earnings. This is despite the KFC and Taco Bell food chain flexing a lengthy record of strong growth. Collins Foods' revenues have more than doubled in less than six years.
