SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Lessons from Bill Ackman's comeback


Bill Ackman is an American investor, hedge fund manager and philanthropist. He is the founder and CEO of Pershing Square Capital Management, a hedge fund management company. Ackman is considered by some to be a contrarian investor but considers himself an activist investor.

In 2004, with $54 million from his personal funds and his former business partner Leucadia National, Ackman started Pershing Square Capital Management. The fund produced an outstanding performance in its first 10 years, outperforming the S&P by a huge margin.

However, the fund's returns for 2015-2017 were not so great. However, even including those three years, the fund still significantly outperformed the S&P 500:

image.png

Those returns are after fees. The gross results (i.e. actual investment results without accounting for hedge fund fees) are even more impressive: showing Ackman beat both the S&P 500 and Berkshire Hathaway by over 770% with gross compounded annual returns of 18.2%.

image.png

A year ago, the financial media was full of headlines discussing Ackman's performance and withdrawals from the fund. Investors Are Pulling Out of Bill Ackman's Hedge Fund at a 'Rapid Pace'Bill Ackman’s Pershing Square losing cash fastIs Bill Ackman’s Private Hedge Fund Career Over?Has Bill Ackman Lost His Touch? are few of last year's headlines.

Fast forward one year - here are some of the latest headlines: Bill Ackman’s comeback is on fire with the hedge fund manager up nearly 40% this yearBill Ackman's Comeback ContinuesBill Ackman Thanks Warren Buffett for His Fund's Comeback in 2019 and more.

Those "smart" investors who pulled money from the fund last year must feel not so smart right now. Their time horizons were just too short.

Recent study by DALBAR shows that investors consistently underperform the broad markets by significant margins. For the 30 years ending 12/31/2013, the S&P 500 Index averaged 11.11% a year. A pretty attractive historical return. The average equity fund investor earned a market return of only 3.69%.

Fidelity Investments conducted a study on their Magellan fund from 1977-1990, during Peter Lynch’s tenure. His average annual return during this period was 29%. This is a remarkable return over the 13 year period. Given all that, you would expect that the investors in his fund made substantial returns over that period. However, what Fidelity Investments found in their study was shocking. The average investor in the fund actually lost money.

How is it possible?

Lynch himself pointed out a fly in the ointment. When he would have a setback, for example, the money would flow out of the fund through redemptions. Then when he got back on track it would flow back in, having missed the recovery.

This isn't about trading skills. The only skill those investors needed was to stick around. But what they did basically was "buy high sell low." 

I'm sure the results for Pershing Square Capital Management would be similar.

The same behaviors apply to individual stocks. Amazon has gained 38,882% from its IPO in 1997, an annualized return of over 36%. To put that in perspective, a $100,000 investment in 1997 would be worth just under $39 million today. But it also experienced a 94% drawdown and few smaller drawdowns of 15-45%. I bet you will have a hard time finding many AMZN investors who had the guts to stick around and earn similar annualized returns.

Trading services are no different. As soon as a few losing trades and/or a drawdown of any kind occur, some traders hit the eject button and continue in their search for the Holy Grail strategy that always wins. They often come back after the next winning streak, having missed the recovery.

Isn't it the very definition of "Buy High, Sell Low"?

There will be bad days and bad weeks and bad months and periodically even a bad year. Focus on following your trading plan, not the short term results of it. Robust strategies are profitable in the long-term time frame.

Hedge funds, stocks, index funds and trading services are all investments. If your "buy" decision was based on years of solid performance, but your "sell" decision was based on few bad months, you have just become a part of the next Dalbar study.

Related articles

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Fundamental Volatility and Stock Prices

    Every options trader must wonder whether any connection will be found between the company's fundamentals and stock prices (and in turn, option valuation as well). Because options are derived from stock price behavior, the analysis of stock movement is crucial to selecting options wisely; and that relies on volatility in the reported profit and loss over several years.

    By Michael C. Thomsett,

    • 0 comments
    • 61 views
  • Bullish Short Strangles

    A bullish short strangle sounds like a complicated strategy, but it’s really quite simple for those familiar with option terminology. A short put is combined with a short call to where the position starts with some amount of positive delta overall. This distinguishes itself from a delta neutral strangle, where both the short put and short call are sold at the same delta.

    By Jesse,

    • 0 comments
    • 83 views
  • Eight Mistakes Every Forex Trader Should Avoid

    The forex market is currently the largest financial market in the world and, due to its highly liquid nature and low barriers to entry, is only expected to grow. Becoming a forex trader requires minimal effort and with a decent internet connection, a laptop or computer, and some spare money to invest, you can start in no time.

    By Kim,

    • 0 comments
    • 105 views
  • Put/Call Parity - Two Definitions

    Put/call parity is a term options traders use to mean one of two things. The simplest definition and the one most applicable to most options traders compares the similarity in the bid/ask spread and the net debit or credit resulting from this.

    By Michael C. Thomsett,

    • 0 comments
    • 246 views
  • Put Selling: Strike Selection Considerations

    When selling puts, such as we do in our Steady Momentum PutWrite strategy, there are many questions a trader must answer: What expiration should I use? What strike should I sell? Should I choose that strike based on delta or percentage out of the money?

    By Jesse,

    • 0 comments
    • 273 views
  • What Can We Learn From UBS YES Lawsuit?

    News followers may have seen the recent stories on UBS being sued by its clients and investors who participated in UBS’s “Yield Enhancement Strategy (YES).”  Evidently, numerous UBS clients signed up to participate in an iron condor strategy that lost a lot of money.They’re angry, and they’re filing a lawsuit.

    By cwelsh,

    • 2 comments
    • 894 views
  • Pinning Down the ‘Option Pinning’

    What many people on SO have in common is that they have read the books of Jeff Augen on options trading. Although written a decade ago they continue to be an interesting source of strategies for the retail investor. Retail investors have particular constraints that make most of the broad theoretical musings on options rather moot.

    By TrustyJules,

    • 0 comments
    • 386 views
  • Holding Positions into Expiration

    "Every once in a while you must go to cash, take a break, take a vacation. Don't try to play the market all the time. It can't be done, too tough on the emotions." - Jesse Livermore

    By Mark Wolfinger,

    • 0 comments
    • 307 views
  • Tales Of How Big Trades Went Wrong

    One way to learn from your past mistakes is having to go through the painful and challenging experience of explaining them. Another way is to listen to others who might have lived through some disgruntling trades. Joseph Trevisani goes deep into the rationale he followed during the volatile EUR/JPY days of 2007 in this article.

    By Kim,

    • 0 comments
    • 326 views
  • Covered Straddle Explained

    The covered straddle is a perfect strategy for those all too common sideways-moving trends. When a company’s stock is in consolidation, how can you make trades? No directional trend exists, so most traders simply wait out this period.

    By Michael C. Thomsett,

    • 0 comments
    • 474 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs