Why is it easier to get rich than going short?
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Editor’s note: Bill Ackman is a well-known hedge fund manager. During the epidemic, as a short party, he made a lot of money by virtue of the impact of the epidemic on the US economy and received a lot of attention The author analyzed his transaction and learned seven lessons. This article is translated from Medium, author David O., the original title is “7 Lessons From Bill Ackman ’s $ 27M Bet That Netted Him $ 2.6B”, I hope to inspire you.
Image source: Photo by Rick Tap on Unsplash
Bill Ackerman is a hedge fund manager on Wall Street and the CEO of Pershing Square Capital. He recently made a lot of news, because of a unique game, he turned $ 27 million into $ 2.6 billion in a few weeks.
Interestingly, these occurred after the outbreak of new coronary pneumonia. Shortly before the blockade, he also defended his bets on TV. He believed that the spread of the virus would lead to an economic downturn.
It turns out that he is right. Because of this gambling game, he received a generous return.
Big games like this are not uncommon on Wall Street. In the eyes of ordinary people, these seem lucky. But if you study carefully, you will find a pattern. These games are not random. They meet certain conditions. The following are the 7 conditions (or properties) summarized from Bill Ackerman’s gamble.
1. Reverse truth
This is the first step. To win the big game of overnight riches, you first need to find a reverse truth.
The reverse truth is contrary to common sense and what you think is right. It is the basis of gambling, something you find to be defending and contrary to popular opinion.
There is no doubt that Bill Ackerman ’s bet has this characteristic. He believed that the outbreak of the virus would weakenAmerican economy. No one else thinks so or is unsure. He believed this, which formed his reverse truth.
Any reverse truth will have a time trigger point-often an inevitable thing-to prove its right or wrong.
2. Bet down
There is a famous quote on Wall Street:
The bull market goes up, and the bear market jumps through the window.
This sentence means that the economic growth is very slow, but the decline is fast. Whenever a crash occurs, it is very rapid. The market may lose 20% of its value in a few days.
So the best time to make millions of dollars immediately is a market crash. If you bet the market goes up, even if you are right, the gains will increase slowly. But if you bet on the market down, you can make millions of dollars instantly.
Bill Ackerman is on the downturn. Every big bet that instantly earns millions of dollars is always on the recession.
The reason is that the economic recession is rapid, but the growth is slow.
3. Minimum risk environment
Big bets do not necessarily take a high risk. In fact, there is no need to take risks.
Almost everyone thinks that big bets must be accompanied by high risk. But smart investors know more. Bill Ackerman wrote in a letter to investors that the risk of loss is minimal due to the timing of the purchase. This means that even if they bet wrong, there will be no huge losses.
It is important to protect the unfavorable aspects of a big bet. This is why many people who have bet heavily on the company have not gone bankrupt. If you often make reverse investments, you will definitely make mistakes.
Big bets do not mean high risk. In fact, the bigger the bet, the lower the risk.
4. Choices that can be defended with ideas
If you ca n’t defend your position with thought leadership, maybe you should n’t.
Before it turned out that Bill Ackerman was right, he defended his position on TV shows. Every big bet must be able to defend with insightful arguments. Otherwise, it is only one line away from insider trading (an illegal act).
The argument with smart people is how to prove that your reverse truth is right. If it’s worth a gamble, then after every argument, this truth is clearer in your mind.
Does this mean that people are not afraid of making mistakes? Fear will definitely exist. So the lowest risk environment is very important.
5. Plan for the exit time
Bill Ackerman certainly did not allow the transaction to last long. He did n’t sit there waiting for the perfect ending, I believe he had a plan, and his exit shows this.
If the game lasts longer, he is likely to make more money. This is why many people become greedy and always want to get the most money.
Deciding when to exit is as critical as reversing truth. Timing is critical to success.
6. Know how to use revenue
If you are not clear about how to deal with the proceeds before the transaction, you will easily become greedy.
Bill Ackerman has used the proceeds to buy shares in companies such as Lowe’s, Hilton and Berkshire Hathaway. This is a psychological restraint.
Before earning money, think about how to use it. Otherwise, money will come fast and go fast. I believe Bill Ackerman has long wanted to invest in these companies, and he knows this will be his profit.
However, the choice of income reinvestment is another major decision.
7. Do n’t disclose any details until the end
This is another important lesson. People have suspected Bill Ackerman’s gamble, and he has also defended on TV shows. But until he ended his exit, no one knew the details.
The less details the public knows, the better. It is reasonable to publish only after exiting and succeeding. Don’t give others the opportunity to obstruct you.
Bill Ackerman bets that the virus outbreak will cause serious problems for the US economy. This fact is obvious. But there are many ways to do this, and the special way he chooses is unknown until he leaves the field.
Such a big game is a difficult choice. Ordinary investors need solid financial knowledge to make such a decision. Sometimes the bet is wrong, and there is no proper risk management, which may cause catastrophic failure.
This kind of gambling is not a decision that can be made every day, week or year. There are only a few chances in a lifetime. However, when an opportunity arises, when investors can use it, it is always very attractive.
Translator: Jane