Star investor and Pershing Square boss Bill Ackman tells us what he thinks could happen to the economy and interest rates over the next year. He also discusses a possible stock market divergence.
Lee Wild, head of equity strategy, interactive investor: Hello. With me today, I have star investor Bill Ackman, CEO of FTSE 100 company Pershing Square Holdings (LSE:PSH). Hi, Bill, thanks for joining me today.
Bill Ackman, founder and chief executive Pershing Square Holdings: Good to see you.
Lee Wild: Now, we’ve just entered the final quarter following a disappointing Q3, how do you think stocks are going to play out over the rest of 2021, through what is typically, historically, a seasonally strong period for equities?
Bill Ackman: Yeah, so I never make short-term stock market predictions because I think that’s a really difficult thing to do and the probability of getting it wrong, I think, is high. I think all our businesses are going to report good results, and does that mean the stocks will go up? I can’t speak to the next short period of time, but over time, as businesses report, you know, the value of a business is the present value of the cash it generates over its life. A quarter report of strong earnings and cash flows and growth over a previous period is suggestive of growth in the intrinsic value of the business. And we don’t think any of our businesses are overvalued, we think the opposite, we think they’re undervalued. So undervalued companies reporting good results, stocks should do well absent some, you know, overarching macro or market development. Again, I speak over time.
And the other thing I would point out is that Pershing Square Holdings is trading at about one of the widest discounts to net asset value (NAV) it has traded at historically. It’s approaching a 28%, 29% discount to NAV and I find that just remarkable, I don't know of other stocks like that, right? We own some of the highest-quality businesses in the world and you can buy them at almost a 30% discount to the price you see on the screen by buying it through us. That seems anomalous to me. So I would think that discount’s going to narrow and that is something that can happen on a shorter-term basis. So, for example, if we find a new investment for the capital that we’ve raised in this bond offering and we announce new investment that’s interesting, that should remind people of the opportunity to earn incremental returns on their capital.
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We’ve had another relatively strong year this year, after a couple of extraordinary years. And I think Universal (EURONEXT:UMG) itself, while the stock’s up nicely, you know, maybe a third from the price we paid just when closing the shares a month ago, it’s trading at about the same multiple as Warner Music (NASDAQ:WMG), which is a controlled company, a more levered company, a number-three player in the industry. Universal’s growing operating income at 21% per annum for the last four years, Warner about half that. We’ve got the best management in the industry, the most market share. So I think the market is yet to give Universal an appropriate premium and that’s one of our biggest holdings; and I think again, that just takes time. So I think the biggest opportunity for value creation at Pershing Square Holdings is the discount narrowing, it’s just too wide here.
Lee Wild: A couple of things that investors are worried about. They’re worried about valuations but you’ve just addressed that regarding your own portfolio. They’re also worried about supply-chain issues which are causing problems globally. Now there’s a lot of talk about a major correction [being] due [and] I know you don’t like speculating on short-term movements, but where do you [stand], on that argument about whether a correction is around the corner. I mean, whether that be just taking out a bit of froth from the market, do you think they’re right?
Bill Ackman: Again, I really can’t speak to the short term in terms of what the stock market’s going to do. You know, what’s interesting is, you know, we don’t, I would have to analyse every meaningful percentage of the companies in the S&P 500 to give you a view on whether it’s cheap or expensive. There is a lot of speculative stuff going on. I think, fundamentally bitcoin is a speculative instrument and is trading, I think, at the all-time highest. You see a lot of speculative stuff going on in a much broader group of cryptocurrencies. All that being said, I think there are some real cryptocurrencies that have, are associated with what they call projects or business models, that can justify fundamental value for a currency. So I think there’s really interesting stuff going on in technology with cryptocurrencies.
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I do a lot of venture capital personally and that gives me a peek into what’s going on in the world. I think there’s a lot of great developments. But… and I do think we’ve had an unprecedented amount of fiscal and low-rate support. It seems like we’re, this Delta variant, the statistics are looking a lot more favourable in our country and certainly in Europe, in the UK and more broadly, I see a path through the virus. And we’re going to have a world where people are really going to want to live again, so I think you’re going to see a big pick-up in the service economy, hospitality, travel, people spending money.
So I just think that’s a pretty strong backdrop, you know, low rates, well-capitalised banks, well-capitalised consumer, a desire to live again. You know, we could have a very, very strong economy; I think we probably will. You know, the constraints are constraints but they’re driven by all the demand and I think people are going to come back to work. People are going to be in offices again. So I’m generally bullish on the economy and I’m more bearish on rates.
Lee Wild: So, you’ve mentioned a few themes there. I was going to ask, given how 2021 has played out, what’s your view on the big themes that investors globally really should be preparing for in 2022? Are there are any stocks, sectors or ideas, investors should be thinking about and owning?
Bill Ackman: OK. I think the world’s an uncertain place and we’re not traders at all, right, we’re looking to own things that if the stock market closed for a decade, we’re happy to own. That’s certainly true for Universal and our other companies in the portfolio. But we own these super-durable, robust businesses because I have no idea what the world’s going to look like in six or 12 months. Or I have a pretty good idea, I have a view of what things are going to be but they may not be that way. So you want to own businesses that have pricing power if inflation turns out to be a lot more durable than temporary. I think inflation expectation has changed fundamentally; that’s also a driver of inflation. So I think we’re going to see inflation, I think that is going to be a threat.
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So I think there’s going to be more likelihood of stock market divergence, some companies doing very, very well, some companies doing very, very poorly. You know, companies that can’t pass through wage inflation and goods inflation to their customers are going to do poorly, if I’m right about inflation. So the better the business, the better it does, I think. And you want to own the best businesses in the world in an uncertain world, in an inflationary world. If you’re good or better than we are at trading commodities, you know, there’s probably a ton of money to be made. I just don’t, it’s not what we do.
Lee Wild: Great. Bill Ackman, CEO of Pershing Square Holdings, thank you very much for joining me today.
Bill Ackman: Sure, thank you, Lee, appreciate it.
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