How ‘the single best trade of all time’ netted one investor a $2.6 billion profit + Trading in a Post-Pandemic
“Capitalism without failure is like religion without sin. It doesn’t work.” - Allan H. Meltzer
Bill Ackman had a hunch back in February that the coronavirus pandemic would have a greater impact on the stock market than investors were pricing in, this thought motivated him into setting up a $27 million hedge.
The Pershing Square hedge-fund manager then watched as the virus spread and the market tanked, turning his small bearish bet into a $2.6-billion winner.
Author and former investment banker. William Cohan called Ackman’s move perhaps “the single best trade of all time.”
He pulled out his funds which went from zero to $2.6 Billion just in case the government took the right steps.
“We said, ‘you know what we’ve got this massive position... which maybe has the potential to double if credit spreads widen to where they were during the financial crisis,” he told The Knowledge Project. “‘But if they don’t, and the government takes the right steps, this hedge could be worth zero and the stock market could go right back up to where it was.’ So we made the decision to exit.”
At that point, Ackman explained, he got out with his tidy profit and started buying stocks. He then invested more than $3 billion in risk assets, a move that also proved prescient as the Fed started pumping money into the system and stocks rallied hard off the coronavirus bottom.
Aside from dishing on his big windfall, the billionaire said he admires Tesla’s Elon Musk but questioned whether he should perhaps lay off Twitter for a while.
“I don’t know that Elon Musk has been the ideal public company CEO,” Ackman said on the podcast. “He had a challenging period there with his tweets.”
Ackman also talked about Warren Buffett and how Berkshire Hathaway likely bought back its own shares as well as other stocks during the market drop.
“I’m surprised they haven’t done anything yet that’s visible, but my guess is they’ve been buying stocks a lot,” he told host Shane Parrish. “The big opportunity for Berkshire is Berkshire itself.”
Pershing Square Capital Management CEO Bill Ackman
What will investment look like in a post-pandemic
- The market responds to Noise and Fast money move securities
- We look for a great business that has lost its way and buy into it.
- Time overcharge is a big advantage.
- On Index fund investment – The only way to compete is by lowering your prices it's hard to scale up to make a thoughtful decision about making money.
- Index funds take more of the float out of the commodity. It reduces the liquidity of the security.
Why investors should be optimistic about the market
- The economic crisis is driven by artificial shutdown driven by health reasons, not economic reasons
- Government around the world are taking the problem more seriously
- The entire world is working on solutions
- Small businesses will take time to rebuild but with the stimulus packages and sourcing for funds will help the business reemerge in the long run.
- This might also be the best time to go into the Real estate business - as the risk can be spread over time.
- What’s permanent is debt that will exist a long time but focusing on what we can control is the best way businesses can chart their way back to succeeding in the long term.
Digital Transformation in the Health Sector is King
Technology companies have a big role to play in Fighting COVID19
Work from home will not be something that the world will embrace for far too long we might see a drop in share prices in Social media platforms like zoom app in a post-pandemic
Online platforms- E-commerce platforms like Amazon will be the greatest beneficiaries of the Coronavirus pandemic.
Biomedicals and the health and wellness industry will also become major beneficiaries of COVID19 in the long term. The race for a vaccine to cure the disease will create the most powerful corporate bodies in the world in the Health sectors.
The biggest industries will be in the Consumers market, Technology Industry, and Health Industry which will control the economy in the post-pandemic.
It will be wise for investors to cash in on these industries now.