Early Ambition and the Formation of Gotham Partners
Bill Ackman’s journey into the world of high finance was anything but conventional. From the outset, he possessed an unshakable confidence in his ability to analyze businesses and identify mispriced opportunities. Fresh out of Harvard Business School in the early 1990s, he rejected the safer route of working under an established investor like George Soros or Michael Steinhardt. Instead, he launched his own fund, Gotham Partners, at just 26 years old.
Gotham Partners started with a relatively modest amount of capital but quickly gained attention for its deep-value approach. Ackman sought out overlooked, undervalued businesses with hidden potential. But while he had the right instincts, the firm’s downfall came from investments that were too complex, illiquid, and legally entangled. His attempt to take over a golf course company through convoluted financial maneuvers led to protracted lawsuits and investor redemptions, ultimately forcing him to shut Gotham down in 2003. It was an early, bruising lesson in risk management and the perils of illiquidity.
The Birth of Pershing Square and a More Disciplined Approach
Undeterred, Ackman emerged from the collapse of Gotham Partners with a refined investment philosophy. In 2004, he launched Pershing Square Capital Management, this time with a more concentrated, activist-driven strategy. Instead of spreading himself thin across illiquid and complicated assets, he sought to focus on a few high-conviction bets, where he could influence the company’s direction and unlock hidden value.
One of his earliest and most defining victories came with MBIA, the bond insurance giant. Ackman suspected that MBIA’s structured finance portfolio was a house of cards and that the company was dramatically overleveraged. He meticulously gathered evidence, presenting a case that would later prove prophetic when the 2008 financial crisis exposed MBIA’s fragility. The trade earned him hundreds of millions and cemented his reputation as a meticulous researcher willing to take on industry titans.
The Activist Approach: Fixing Businesses from Within
Unlike traditional hedge funds that might focus on momentum trading or deep-value investing, Ackman’s approach evolved into what is now known as activist investing. Rather than simply betting on stocks to rise or fall, he would take substantial positions in companies, push for changes in management, and seek to overhaul business strategy to drive value.
A prime example of this was Canadian Pacific Railway, which was struggling with inefficiency and underperformance. Ackman identified an opportunity to turn it around by bringing in the legendary railroad executive Hunter Harrison. His activist campaign involved a heated battle with CP’s board, culminating in a proxy fight that saw nearly all of the board replaced. The result? One of the most successful corporate turnarounds in modern history, with Canadian Pacific’s stock more than tripling in value under new leadership.
The JCPenney Debacle: A High-Profile Miscalculation
For all his successes, Ackman has also had his fair share of high-profile failures. One of the most public and painful was JCPenney. In 2010, he took a massive stake in the struggling retailer and convinced the board to bring in Ron Johnson, the former head of Apple’s retail division. The idea was to modernize JCPenney’s stores and eliminate discount pricing in favor of a more straightforward pricing model.
What seemed like a logical strategy turned into a disaster. JCPenney’s customer base had been trained to respond to frequent markdowns and coupons, and when Johnson abruptly removed those incentives, foot traffic collapsed. Revenue plummeted, and within a year, Ackman was forced to admit defeat, selling Pershing Square’s stake at a substantial loss. The experience reinforced a crucial lesson: even the best ideas require gradual implementation and respect for consumer behavior.
The Valeant Pharmaceuticals Collapse: When Aggression Backfires
Perhaps his most painful investing mistake came with Valeant Pharmaceuticals. Starting in 2015, Ackman took a massive position in the company, convinced that its aggressive roll-up strategy—acquiring companies and hiking drug prices—would drive exponential earnings growth. At its peak, Valeant seemed unstoppable, its stock soaring to all-time highs.
But as questions arose about its business model and the sustainability of its pricing practices, the stock began to unravel. Investigations into its accounting practices and ties to a specialty pharmacy led to regulatory scrutiny. Ackman, who had stubbornly defended the investment for too long, was eventually forced to sell Pershing’s stake at a $4 billion loss—a staggering blow that tested his reputation and forced him to reevaluate his risk management practices.
Exiting Short Selling: The Herbalife War and a Shift in Strategy
Another defining chapter in Ackman’s career was his bitter feud with Herbalife, the multi-level marketing company he publicly accused of being a pyramid scheme. He placed a $1 billion short position, expecting the stock to collapse under regulatory pressure. What followed was an unprecedented Wall Street battle, as rival investor Carl Icahn took the opposite side of the trade, publicly ridiculing Ackman and driving Herbalife’s stock higher.
Ackman spent years lobbying regulators and making his case against the company, but despite minor penalties against Herbalife, the business endured. He finally exited the position in 2018, marking it as a costly and exhausting mistake. Following this episode and the Valeant loss, Ackman fundamentally changed his approach, moving away from short selling altogether. He concluded that betting against stocks, while occasionally lucrative, was too unpredictable and psychologically draining compared to finding undervalued businesses with long-term potential.
The Coronavirus Windfall: A Masterstroke in Crisis Investing
While Ackman has faced painful losses, he has also orchestrated some of the most brilliant investment moves of his career. One of his greatest successes came in early 2020 when he sensed that the COVID-19 pandemic would wreak havoc on the global economy.
He placed a $27 million bet on credit default swaps—essentially insurance against economic collapse. As markets tumbled in March 2020, that bet ballooned into a $2.6 billion gain in a matter of weeks. It was an astonishing return on investment, and he quickly reinvested those profits into high-quality blue-chip stocks that were trading at steep discounts, including Hilton, Lowe’s, and Starbucks. This not only solidified Pershing Square’s resilience during crises but also demonstrated Ackman’s ability to think several moves ahead.
The Present and Future: A More Measured, Long-Term Approach
Today, Bill Ackman is no longer the brash, hyper-aggressive investor who made headlines for taking on billion-dollar short positions or launching contentious proxy battles. His experiences—both victories and defeats—have shaped a more methodical and long-term-oriented approach.
Pershing Square’s portfolio now consists of carefully chosen businesses with durable competitive advantages. Ackman focuses on high-quality companies with strong cash flows, pricing power, and long-term growth potential. His strategy has evolved into something closer to Warren Buffett’s playbook—investing in businesses he intends to hold for years, rather than making speculative bets.
His evolution from an aggressive activist investor to a more patient, fundamentals-driven manager showcases his adaptability and resilience. While he remains a sharp and outspoken voice in the investing world, he has also demonstrated that the most successful investors are those who learn from their mistakes, refine their strategies, and continue to evolve.
