Bill's big bets: What Bill Ackman is buying post-Netflix wipeout

There has been no Netflix and chill for Bill Ackman at Pershing Square Capital. After the streaming giant predicted it would lose two million paid customers this quarter, the ensuing sell-off was absolutely savage. On that day in mid-April, nearly $100 was wiped off its share price in minutes. 

Ackman was one of those who had to bear those losses.

Even more remarkable was the fact that Ackman only bought Netflix in January 2022.

In this wire, we'll take a look at what went so wrong for Ackman - the trades he made and in particular, a deep dive into his Netflix call. Plus, we'll meet the other positions that makeup Pershing Square's fully invested portfolio.

For your reference, our source for Bill (and all our candidates in the 13F series) is 13F information, which in turn directly comes from the US SEC.

Bill's thesis - go big or go home

Ackman is celebrated and derided for his confidence and tenacity when it comes to making big bets on a handful of positions. Founded in 2004, Pershing Square Capital only has seven stocks in its flagship portfolio, for starters. 

The above chart ends when Ackman sold his stake. In his final letter on the subject, Ackman noted that the problem was not in management - but rather management's potential pivot. 

While we believe these business model changes are sensible, it is extremely difficult to predict their impact on the company’s long-term subscriber growth, future revenues, operating margins, and capital intensity.

One of our learnings from past mistakes is to act promptly when we discover new information about an investment that is inconsistent with our original thesis. That is why we did so here.

And so he did. Unfortunately, the gamble cost Pershing Square Capital US$400 million.

Home improvement

Netflix was nowhere near Ackman's largest position, though the press around his position in the streaming giant made it sound like it. Let's move now to his other big bets - including the home improvement retailer Lowe's (NYSE:LOW). 

Ackman reduced his position in Lowe's during the first quarter by about US$580 million. Unfortunately for him Lowe's has continued to track south since the selling. Ackman has been building the position since 2018 - betting the retailer can outlast its other major competitor Home Depot. It seems to have paid off. Because of the US housing boom, the company's revenues hit an all-time high in 2021. 

It's just a pity that the share price doesn't follow it. 

Food, glorious, food (and other investments)

Food is also a key theme in his other major positions. Taco destination Chipotle (NYSE:CMG), Burger King and Tim Horton's owner Restaurant Brands International (NYSE:QSR), and Domino's Pizza (NYSE:DMP) all make up nearly 40% of the portfolio.

Beyond food, Ackman owns nearly 5% of Hilton Hotels (NYSE: HLT) - saying the pandemic hasn't actually derailed travel. He argues independent hotels have been forced to seek affiliation with global brands like Hilton, due to the pandemic. 

Keeping with the real estate theme, Ackman is a large backer of Dallas-based real estate developer Howard Hughes International (NYSE: HHC). He is also the company's chairman and through Pershing Square, owns more than a quarter of the business.

Finally, and for something completely different, he owns a minority stake in Canadian Pacific Railway (TSE: CP). But don't be fooled by the small weighting - Ackman's history with the company goes as far back as 2011 when he managed to replace most of the Canadian Pacific board over balance sheet claims. 

Conclusion

While Ackman has certainly had his victories, he's also on a losing streak. His losing trade on Netflix was well publicised but it turns out that his high-risk strategy isn't paying dividends in a world where equity valuations have come crashing back down to Earth. 

One last thing to note is that Ackman has been banging the drum on interest rates. He's been hedging on rate hikes since late 2020 but in a series of tweets, Ackman argued the Federal Reserve has not been aggressive enough in addressing rampant inflation.

Uncertainty is the enemy of markets particularly in the short term. That is why I believe that the sooner and more aggressively the Fed raises rates to subdue inflation.

Well, those rate rises are finally here - but so are the readjustments to his holdings.

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