Great Minds of Investing

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In December 2012, Bill Ackman declared war on Herbalife. During a three-hour presentation in New York, he denounced the nutritional-supplement company as a “pyramid scheme” that causes “enormous harm to the most vulnerable communities.” Ackman also revealed that he had a $1 billion short position and said his target price for the stock was zero.
Over the next two years, he intensified his crusade against Herbalife, which has vehemently denied his accusations. Ackman says his investment firm, Pershing Square Capital Management, has spent $50 million on its campaign, which covered everything from investigative research to legal fees to producing films such as Herbalife Unmasked: An Insider Admits that the “Business Opportunity” is a Fraud. Pershing also spent “a few hundred thousand” dollars on political lobbying.
Ackman found himself under attack, too. Carl Icahn, who bought a 17.3 percent stake in Herbalife, derided him on CNBC as a “major loser,” a “liar,” and a “crybaby.” Famous investors such as George Soros and Daniel Loeb also loaded up on the stock in what many saw as a classic attempt at a short squeeze, with Ackman cast as the victim of his own hubris. The media looked on with vitriolic glee. A Vanity Fair article mocked his “uncanny knack for making bold, brash pronouncements and for pissing people off.”
But Ackman is not easily cowed or silenced. On a cold winter’s day in early 2015, we meet in a 42^nd-floor conference room in his sleek Manhattan offices, which boast some of the city’s most glorious views. Calm and implacable, he continues to predict that Herbalife will implode “no later than March of 2016” when its “debt comes due.” In the past year, regulators have launched an investigation into Herbalife, the stock has halved, and Ackman says his bet has finally turned profitable. He vows to go “to the end of the earth” to get Herbalife shut down, “regardless of whether or not I have an investment…. Having a reputation for doing what you say you’re going to do is critical. Once you lose that, you have nothing. You can’t be a shareholder activist.”
Ackman is an unusual mixture of ruthlessly effective Master of the Universe and save-the-world idealist. He says he initially shorted Herbalife because he expected to “make a bunch of money for our investors” by exposing it as “a fraud” and persuading regulators to step in. But he also relishes the role of the righteous avenger who wields his financial power to benefit the weak. Herbalife “is preying on the poorest people in the U.S. and 90 other countries,” he claims. “That seems like something worth coming into work to fight. And if I don’t do it, who will? There are very few other people in the world who will take this thing on and who have the resources to do it.”
At first glance, Ackman seems an unlikely champion of the little guy. He grew up as the privileged son of a prominent businessman, then attended Harvard for his undergraduate studies and his M.B.A. At 48, he has a net worth estimated by Forbes at $2.7 billion. But he is also keenly aware of his humble roots. He speaks proudly of his great-grandfather, Abraham Gechtman, walking from Russia to Austria to Germany in 1887, then taking a boat to America, where he apprenticed as a tailor. “If someone had taken his life savings away from him in a pyramid scheme, I probably wouldn’t be here,” says Ackman. “It’s clearly my obligation to return the favor, right?”
Ackman’s brand of aggressive shareholder activism has worked brilliantly since he founded Pershing Square in 2004. One of his biggest victories came when MBIA’s stock crashed, just as he had predicted for several lonely years. But he mostly invests on the long side, typically in companies where he can exert “public pressure” to force management “to run their businesses more effectively.” Occasionally (as with Target and J. C. Penney), he has endured costly high-profile failures. But his winners have vastly outnumbered his losers. In 2014, for example, Pershing scored a profit of about $2.5 billion from its investment in Allergan, the maker of Botox.
Ackman says one advantage of his approach is that he isn’t passively attempting to predict the future, like most investors, but is actively shaping it. “That’s what makes the strategy more interesting, more profitable, and, I think, lower risk because we’re not stuck with the status quo.” It also helps that “there’s a very limited number of competitors” in the field of large-scale shareholder activism and that Pershing has the financial heft to lean heavily on management.
Success has brought Ackman tremendous freedom. “The most important personal driver for me very early on was independence,” he says. “I wanted to be financially independent. I wanted to be independent enough to say what I thought and… to do what I thought was right.” The force of his convictions makes him controversial, but criticism doesn’t bother him: “I’ve always been willing to say what I think without regard to what anyone else thinks.” And, he adds, “the more opposition, sometimes the better the victory.”
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