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How ‘the single best trade of all time’ netted one investor a $2.6 billion profit

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Bill Ackman had a hunch back in February that the coronavirus pandemic would have a greater impact on the stock market than investors were pricing in, so he essentially made a wager that the bubble would burst and started setting up a $27 million hedge.

The Pershing Square hedge-fund manager then watched as the virus spread and the market tanked, turning his relatively modest bearish bet into a $2.6 billion winner.

He cashed out on March 23.

In an op-ed for the New York Times, author and former investment banker William Cohan called Ackman’s move perhaps “the single best trade of all time.”

Ackman explained the thinking behind the hedge in a recent podcast.

“We said, ‘You know what, we’ve got this massive position … which maybe has the potential to double if credit spreads widen to where they were during the financial crisis,” he told the Knowledge Project. “‘But if they don’t, and the government takes the right steps, this hedge could be worth zero, and the stock market could go right back up to where it was.’ So we made the decision to exit.”

At that point, Ackman explained, he got out with his tidy profit and started buying stocks. He then invested more than $3 billion in risk assets, a move that also proved prescient as the Fed started pumping money into the system and stocks rallied hard off the coronavirus bottom.

Read:Last month Bill Ackman said ‘hell is coming’ — Now he’s ‘optimistic’

Aside from dishing on his big windfall, the billionaire said he admires Tesla’s Elon Musk but questioned whether he should perhaps lay off Twitter
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for awhile.

“I don’t know that Elon Musk has been the ideal public-company CEO,” Ackman said during the podcast. “He had a challenging period there with his tweets.”

Read:Musk urges the government to ‘give people their freedom back’ and reopen America

Ackman also talked about Warren Buffett and how Berkshire Hathaway
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-2.74%

BRK.B,
-2.50%

likely bought back its own shares as well as other stocks during the market drop.

“I’m surprised they haven’t done anything yet that’s visible, but my guess is they’ve been buying stocks a lot,” Ackman told host Shane Parrish. “The big opportunity for Berkshire is Berkshire itself.”

You can listen to the full interview on the Farnham Street blog platform or via YouTube:



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