I have received a fair bit of criticism over the last few days from some who have claimed that I and our investors have profited from the Covid 19 crisis. Some have said that I intentionally scared people about the crisis to increase our profits.
I recently addressed these critics in a six page letter, but since few have time to read six page letters, I thought it would help to summarize the facts in a few tweets.
I invest capital on behalf of 1,000s of investors through a public company called Pershing Square Holdings.
I invest capital on behalf of 1,000s of investors through a public company called Pershing Square Holdings.
Our investors are both large and small. Since we manage funds through a public company, the price of entry is small. One share can be purchased for less than $20. Some of our investors include other fiduciaries like pension funds.
These pension funds invest on behalf of teachers, health care workers, steel workers, pipe fitters, and police and fire workers among others. And we have 1,000s of small investors who have entrusted their savings to us.
Our first priority is to protect our investors from losing their money. In January of this year, I became gravely concerned about the health and economic effects of the virus. Because we own a number of consumer businesses like restaurants, retail, and hotel companies...
our investors’ capital was at great risk. In order to mitigate this risk, we bought what are best described as insurance policies, called CDS on Wall Street. Because the writers of these policies were not concerned about the risks we had identified, these policies were very cheap
We bought enough insurance to protect the $8.5 billion we had invested in the stock market. Our actions were no different than a home owner buying flood insurance. We saw the tsunami coming and the sellers of CDS insurance were not similarly concerned.
We bought enough insurance to protect the capital we had invested in the market. Unfortunately, our predictions came to pass, and our portfolio of stocks declined by about 30%. Fortunately, our insurance policies increased in value by the same amount so we cashed them in.
We received $2.6 billion from liquidating our insurance policies. Because of our belief that the economy and markets would eventually recover from this crisis, and stocks were trading at bargain prices, we reinvested this capital in companies we know well.
Just this Friday, we invested $500m to provide the Howard Hughes Corp., one of the largest real estate development companies in the US, with the capital it needs to continue its various development projects which will create 1,000s of construction and other jobs.
These jobs and development projects will help the economy recover. HHC’s equity offering on Friday is the first, hopefully of many, equity offerings that will provide fuel for an economic recovery. Without this capital, HHC would have had to mothball many of its projects.
We have been vilified by some for making profits while others have lost money. In reality, we have not made any significant profits year to date as our insurance gains have just about offset our losses on our portfolio.
By reinvesting the $2.6B of insurance proceeds in the stock market, we have helped to support the stock prices of our portfolio companies, reducing other investors’ losses. We have also provided capital to support our companies’ growth which will in turn support the economy.
On the morning of March 18th, in a series of tweets, I urged the President to shut the borders and lockdown the entire country, other than for essential infrastructure, for 30 days to flatten the curve — what some have called bringing down the hammer on the virus.
I then went on CNBC to make the case that such an approach would minimize infection risk and the amount of time the economy would have to be shutdown. I explained that I believed that there was no viable alternative to this approach.
My confidence that this approach would be implemented was based on the fact that the alternative approach would likely lead to an economic collapse. I explained on CNBC that I was actively buying stocks because of my belief that the administration would soon announce a lockdown.
I have been both right and wrong on this prediction. Since my CNBC appearance on March 18th, first California and New York, and then 20+ other states have entered lockdown. The Federal gov’t, however, has resisted an entire country lockdown.
Some have claimed that I was trying to talk the stock market down on TV to maximize profits on the insurance we had purchased. In fact, our insurance had already reached $2.6B in value days prior to my appearance on TV, and so on March 12, we began to cash in these policies.
Prior to my CNBC appearance we had cashed in $1.3B of our insurance and would receive the balance over the next few trading days. The insurance policies did not become more valuable after I appeared on CNBC. Their value remained the same even as the stock market declined.
On CNBC I also disclosed that we were buying stocks like Hilton, Restaurant Brands and Starbucks. By disclosing what we were buying in real time, I was sending a very bullish message to the markets, likely increasing the prices we would have to pay to buy more of these stocks.
Over the next few days in a series of tweets and appearances on Fox, Bloomberg and Yahoo Finance, I continued to make my case for why now was a good time to buy stocks. Thereafter the market has begun to recover. It will not be a straight line up, but I remain optimistic.
Today, we are unhedged, and we no longer own any insurance. We still have some cash to invest so we can buy more if stocks decline further. I continue to believe that the sooner we shutdown the entire country, the more lives we will save, and the sooner the economy will recover.
The problem with rolling state shutdowns is it prolongs the replication of the virus and our country’s economic pain. We need decisive leadership from the states that have not shutdown or from our Federal government. Every day we wait, we prolong our collective misery.
If you agree we should bring the hammer down on the virus, please call or write to your elected representatives and make the case. Doing so now will save us all.
Lastly, for those of you would like to know the details, by the time of my appearance on CNBC on March 18th at 1230pm, we had already invested $2.05 billion in buying stocks. Our buy program began on March 12th, the same day we made the decision to sell our insurance policies.
