market folly

Instead of giving a presentation at the Value Investing Congress, Pershing Square hedge fund manager Bill Ackman engaged in a question and answer session. We'll dive into each of the various topics he addressed below. Keep in mind that we've published notes from John Burbank and Lee Ainslie's presentations, as well as further notes from day 1 of the Congress if you missed either of those.

Bill Ackman ~ Pershing Square Capital

On the topic of JC Penney (JCP): Ackman recently started an activist position in JCP and he says this is the most economically sensitive stock that Pershing Square owns. While it is an activist investment, he has not yet spoken to the company's management. However, he believes it is very cheap and a high quality asset. This is mainly due to its real estate assets (arguably better than Macy's ~ M or Sears Holdings ~ SHLD). Ackman also highlights JCP's strong balance sheet as the company is close to being debt neutral. He also says JCP has significant non-operating assets, something that he interestingly enough stumbled upon during his work on the General Growth Properties (GGP) bankruptcy.


On the economy & markets in general: Ackman is pretty bullish on the economy and thinks the stock market is relatively cheap. He believes that the weak dollar is a huge advantage for US companies but the unemployment situation continues to be a problem. Also, he opined that the environment is ripe for corporate acquisitions and thinks this should help boost the value of equities. The one thing he believes is missing is confidence in both business and the consumer.

Interestingly enough, Pershing Square only has 7% short exposure to equities. As we've pointed out in the past, this is most likely due to the fact that Pershing likes to utilize credit default swaps (CDS) for shorting and hedging. In fact, we've detailed how Ackman bought BP credit default swaps.

Pershing Square only has a 7-person investment team and likes to seek companies with high cashflow. Ackman likes to focus on investments in the US as the companies are easier to deal with and he is familiar with the legal system. Via his past experience with Sears Holdings, he says his biggest takeaway was the ability to enact change. Ackman said that (paraphrasing here): 'our competitive advantage is the ability to buy a stake in a company and make something happen.' Undoubtedly he will lean on this mantra with his new activist investment in Fortune Brands (FO).


On the topic of financials: He notes that many banks have aggressively marked down their books and cited Citigroup (C) and Bank of America (BAC) as perfect examples. Keep in mind that Ackman bought Citigroup earlier this year.

On the topic of General Growth Properties (GGP): Ackman pointed out that GGP has some prime real estate in Las Vegas via the Summerlin property. GGP's new spin-off, Howard Hughes Co, owns this property and will also own the South Street Seaport (a property Ackman sees value in). Via GGP's emergence from bankruptcy and re-structuring into two separate companies, GGP will retain the high quality cashflow properties while the Howard Hughes spin-off will focus on lesser developed assets.

This concludes notes from Bill Ackman's Q&A session at the Value Investing Congress. For more on Ackman's hedge fund, be sure to check out our profile of Pershing Square.

Stay tuned later this morning as we'll be providing live updates of the second day at the Value Investing Congress so follow @marketfolly on Twitter. Be sure to also check back at MarketFolly.com frequently for full notes.