Famed billionaire hedge fund manager Bill Ackman was in the news again this week – and again, for the wrong reasons.
This week, it was reported that Ackman’s Pershing Square Capital Management had sold its entire stake in Netflix after just three months. The sale was prompted by the nosedive of Netflix’s share price by 35% on Wednesday on reports the company lost 200,000 subscribers in the first three months of the year. Calculations by Bloomberg put Pershing’s loss at around $435 million.
Here is Ackman’s explanation for dumping Netflix in a letter to investors on Wednesday:
”While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s prospects with a sufficient degree of certainty.”
Ackman’s explanation (in bold above) for dumping Netflix could be applied to investors as a whole – especially in the volatile market that we’re experiencing today.
For the average investor, predicting the future prospects of a particular company or even the market can be challenging. If even seasoned pros like Bill Ackman stumble once in a while, the waters can be choppy for the rest of us.
Ackman’s hedge fund managing career is a cautionary tale for any investor. The story has been different after roaring out of the gates in the early 2000s and earning his investors double-digit gains since 2015. From 2015-to 2018, his fund suffered three straight years of losses, including a $4 billion loss on its stake in Valeant Pharmaceuticals.
The lesson here for any investor is that past success is no guarantee for future success.
Many investors have discovered the volatility of the markets on their own, as I’m sure many entered the market in 2020 and 2021 when the stock and crypto markets were flying high due to a massive infusion of capital from stimulus money.
I’m also confident that many of those new investors have seen most of their gains wiped out as stock and crypto prices have come back to earth with stimulus money drying up and the world dealing with the turmoil of war, inflation, and high energy prices.
Some investors treat the stock market as their personal Vegas, but not all investors play the betting game. The higher they go up the wealth and income ladder for savvy investors, the less willing they are to speculate. They’re still willing to take on risk but the only risk that can be minimized and mitigated.
That’s why smart investors prefer commercial real estate (CRE) beyond any other investment – in stable and volatile times. Sure, there are risks with CRE, but many risks can be eliminated or mitigated through proper due diligence and efficient management.
Although it’s a tall task to see what’s around the corner for companies like Netflix or even the market, smart investors have a fairly good idea of what’s around the corner when it comes to CRE. Sure, there will be surprises once in a while, but for the most part, it’s smooth sailing when it comes to reliable cash flow and growth. Volatile stock and crypto markets cannot offer the same amount of certainty.