Bill Ackman—41% of Assets in QSR, CMG & SBUX Combined….And Still Not Well-Positioned


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Roger Lipton

Roger is an investment professional with decades of experience specializing in chain restaurants and retailers, as well as macro-economic monetary developments. He turns his background, as restaurant operator and board member of growing brands, into strategic counsel for operators and perspective for investors.

An archive of his past articles can be found at RogerLipton.com.

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I wrote an article on my blog (www.rogerlipton.com) on October 11, discussing the three major restaurant positions in Bill Ackman’s Pershing Square Capital portfolio that comprise a massive 41% of his $8.3 billion fund.

The companies include Restaurant Brands (QSR), Chipotle (CMG) and Starbucks (SBUX). My conclusion was that Ackman should switch his QSR immediately into McDonald's, sell his Chipotle to take advantage of the huge move in the stock since new management was installed, and hold on to his Starbucks (which has moved up nicely).

I have no reason to think he has made any moves in the last several weeks, but Restaurant Brands, McDonald’s and Chipotle have all reported third quarter results. Starbucks reports today.

From the close of business on October 11 through the end of October, Restaurant Brands (QSR) was down 5.7%, or $85 million on Ackman’s $1.5 billion position. McDonald’s was up 8.8% and would have made Ackman a profit of $132 million. Assuming he sold his Chipotle, he would have foregone a profit of 7.1%, or $63 million on his $900 million investment.

My advice to Ackman, less than three weeks ago, can definitely be considered “theoretical” in terms of the practical ability to switch a $1.5 billion position instantly, or sell $900 million worth of Chipotle on the spur of the moment. Ackman’s positions are established on the basis of long-term prospects. Acknowledging that three weeks doesn’t make a season, or prove a thesis,
Ackman’s portfolio would be a cool $154 million better off, or 4.5% of the $3.4 billion in these three positions. This would come at a time, especially costly, when all hedge fund managers are fighting for every basis point in a difficult market environment.

Our points here are this: (1) too many multi-billion hedge funds, and other institutions are playing hunches rather than making well informed long term judgments. This is a function of not enough really attractive reward/risk investment propositions when trillions of dollars of capital are competing to generate “alpha” after nine years of a bull market; (2) there is too much emphasis on short-term performance, trying to “game” the monthly comps for example,  rather than evaluate long term strategic positioning; (3) in too many cases, the self confidence of multi-billion dollar money managers is unjustified.

These managers are very smart, hard working, in many cases have become very rich (which breeds inflated egos), and can’t be expected to know as much they should about every industry. Rather than make Bill Ackman an undeserved particular example: Eddie Lampert, still a billionaire, had no chance whatsoever to turn around Sears based on his strategies, and there were lots of highly experienced retailers that could have told him so. It has taken ten years to play out, but it was clear to many of us years ago that the brilliant and successful Lampert was wasting enormous time and money on Sears.

If we were speaking with Ackman today, we would suggest that it’s not too late to adjust his portfolio. The last three weeks are history.  Let’s see what happens over the longer term.

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