In the final instalment of our series on Investors and their Investing Strategies, we take a look at two investors who have enjoyed their fame as investors in contrasting manners- one is a constant face on news channels, while the other has been almost inaccessible to the media. Both these individuals have had their fair share of multi-baggers but had lost some relevance at the latter half of the 2010’s. Over the last 15 months, amid the pandemic, both came back in the limelight for their new bets.
Bill Ackman Bill Ackman is an American investor. Over the last two decades he has been at the center of numerous bets and has pocketed outrageous profits on the same. He started his career in the real estate business by co-founding Gotham Partners, before starting his own hedge fund- Pershing Square Capital Management. He has been a controversial figure over the years, often running into trouble with other investors, hedge funds
and government agencies over his short positions, making huge bucks in the process but notwithstanding losses along the way. While 2015-18 saw him lose money on multiple bets, he made the headlines in 2020 for making $2.6 billion off a $27 million bet, by foreseeing the huge selloff in the financial markets. Ackman’s Investment Strategies Let us take a look at the investment strategies that have made him such a successful investor.: Activist Shareholding Ackman has been one of the two most famous activist investors of this era, along with Carl Icahn. Activist shareholders are those investors who rack up their stake in a public company and use their shareholder rights to affect a turnaround of the company, often by replacing incompetent management with a competent one. Such investors generally cash in on their stakes once the given company reaches its true value or force the company into buying back their stake at a hefty premium. Ackman made his name as a successful activist investor when he managed to turnaround Canadian Pacific Railway, consequently doubling the value of its shares.
Contrarian Investing Contrarian investing is a strategy wherein an investor makes bets against the prevailing market sentiment. Bill Ackman has made several unconventional and unpopular bets over the years, including his hedge on his own fund, which is being dubbed as Big Short 2.0. His success with his short positions has been a result of his foresightedness, which he has developed over the years, often at the expense of huge losses.
Stock Selection Ackman tends to choose mid-large cap companies which have low financial leverage and possess a catalyst for value creation.
High Concentration Bill Ackman prefers to maintain a portfolio of no more than 8-12 stocks at a time. This allows him to focus on the few best opportunities instead of spreading himself thin on several mediocre opportunities, something which every investor should bear in mind while investing. No or Less Margin Leverage Having learned a great deal from the winding up of his previous fund- Gotham Partners, Bill Ackman has generally strayed away from using margin leverage while investing. Investors must try not to use excess margin leverage, especially on risky bets. Investing in Real Estate based Stocks Bill Ackman’s real estate roots have allowed him to get an excellent understanding of the industry and therefore, he focuses on companies which rely on real estate as an important part of their operations, eg. restaurant industry. This shows that one must always look to invest in industries that they have a good understanding of.
Shivanand Mankekar Professor Shivanand Mankekar is an investor based in Mumbai who has been one of the most enigmatic investors in the country. Unlike the other investors discussed in this series, “Professor”, as people call him, has always kept a low profile, straying away from interviews and media appearances. He is so reclusive that there is no photograph of him available in the public domain. Most of his investments are made through Om Kedar
Investments and his Hindu Undivided Family. Apart from being an astute investor, Professor has been a respected academician. He was a professor at Jamnalal Bajaj Institute of Management Studies, Mumbai and counts UdayKotak and Chanda Kochar among his students. Professor’s Investment Strategies Let us take a look at Shivanand Mankekar’s investment strategies.: Emphasis on Cash Flow Mankekar has been known to prefer cash flow as the most suitable metric for vetting companies over assets or net profit, with the underlying logic that a cash flow positive company is earning more than what it is spending.
Due Diligence Professor takes due diligence very seriously. He himself conducts due diligence of companies, often visiting stores or establishments to get a general feel of the business. This has been attested by Kishore Biyani who discovered that Mankekar had visited a Big Bazaar outlet on four consecutive days to evaluate the business. This is a practice that every investor, big or small, must incorporate. Long-term Wealth Creation Professor invests in companies in which he sees long-term wealth creation rather than short-term profits, something that every investor should aim for. This strategy has seen the Professor make a 100 times return on his Pantaloon bet. Concentrated Portfolio Like Bill Ackman, Professor too believes in keeping a concentrated portfolio of 10-12 stocks which allows him to focus more on the most lucrative opportunities.
Conclusion Throughout this blog and the other blogs in the series, we have tried to analyze the different investment strategies of successful investors. Some common themes that can be seen to influence every investor’s strategy are extensive research, keen observation and tactful foresight. Stock markets are a simple game when you realize that rationality always trumps irrationality. While the gains made by these famous investors is extremely motivating, it is of utmost importance that readers stay vary of the risks involved in the stock markets and invest based on their risk appetite and financial capacity.
As this series comes to an end, we hope to have helped readers zero in on best practices that might help them get a step closer to their next multi-bagger.