"This Is Why I Own Fewer Stocks" - Bill Ackman | Investment | Concentrated Portfolio

So for a bunch of reasons, I mean I've always had the view that, you know, why not own the best 10 or 11 investments as opposed to ideas 12 through 25, or 12 through 100, which is more typical. And, you know, I think there are very few great investments at any one time. So the ability to concentrate is an enormously valuable asset of a strategy. The problem with it is most it leads to bumpier returns. And it leads to more attention on mistakes or things that aren't going well. You know, I don't know a portfolio manager that doesn't have a stock that's down in his portfolio, right? But you don't read articles about — I mean we're getting an awful lot of attention for a pretty high-profile situation that's struggling. But I think, you know, it depends on what your business model is, but if you want to make high rates of return over a long period of time, it's hard to do that being very diversified. I mean if you look through the Fortune 400, wealthiest people in the world, most of them made their fortune in one business or a portfolio of two businesses. Very few made it in a portfolio of 100. So it's that. And the other benefit it allows you to run a much simpler investment firm. We have an eight-person investment team. If we had 30 names, we couldn't manage that portfolio the way we do with a small team. By having a small team, you can hire better talent.

I haven't seen that article. I mean I think we've done very well relative to any index alternative. Certainly. So I mean it depends on how you judge us. I think if you judge us on a 90-day basis, I have no idea how we're going to do relative to an index. But I think this is a strategy that over time should earn a meaningful premium over any kind of benchmark. Or you shouldn't give us your money.

It depends. I mean, one of the best investments we've ever made took us four hours to do the work. It was during the financial crisis.

Wachovia Corporation. So, I was on my BlackBerry eating breakfast at the Brooklyn Diner in front of my building, and there was a story that went across — I was just, you know, Wall Street Journal headline or Reuters headline, excuse me. It went across saying that Citigroup was to acquire the Wachovia banking subsidiaries for $2 in Citigroup stock. Stock was halted. This was kind of an interesting transaction because they were buying the subsidiaries for Citigroup stock. I figured, 'Hm, this is interesting. What happens to the holding company?' So, I went back to the, you know, kind of went upstairs to the office, and cracked open the 10-K, and another member of the team, Mick McGuire, he and I worked on it. And what was interesting is the thousand-page 10-K of Wachovia Corporation, I think 900 pages were on the banking subsidiary. There were fewer than 100 pages on the holding company. You know, by buying the banking subsidiary, Citigroup was leaving a holding company which had cash, in Wachovia securities, AG Edwards, they had paid 6 or 7 billion for it 6 months before, Evergreen Asset Management, and they were taking a $27 billion loss on the sale of the subsidiary. And it also had a liability called non-cumulative perpetual preferred stock, which if you ever want to have a liability in your life, this is the single greatest liability to have. It's a form of equity where you never have to pay a dividend, and when you don't pay them, they don't accumulate, and the worst case is they get a couple directors on the board, and you say hi to them each year, meaning, and you have this very... Now I said, 'Look, this could be our Berkshire Hathaway.' And at the end of the day we figured the assets, you know, four hours we determined the holding company was worth at least $11 to $14 cash, a tax refund that you can carry back the $27 billion loss, recover cash taxes that had been paid. You have this cash vehicle, Wachovia Securities, which is a good wealth management business.

You know, and A.G. Edwards is another interesting asset. These are businesses you know well. And the stock opened after it was halted at $1.84. So, we said, 'Look, it's worth 11 to 14, $1.84.' We bought 42% of the volume for the next four days.