I often see comments in social media that it’s not possible to time the markets and that the best approach is to dollar cost average. When the markets fall sharply, as they have been, these types of views tend to accompany further statements like “nobody could have known this was going to happen”.
But at least one investor seems to have gotten it right. Billionaire investor Bill Ackman recently discussed how he put on a hedge in late February as he worried about the Coronavirus and the impacts it could have on the markets.
Business Insider reported that Ackman made a nearly tenfold gain on his bearish investment and has recently cashed in on his two and a half billion dollar profit. He has since used his profits to buy more stocks.
Ackman was criticized by some when he was interviewed by CNBC on March 18 as his emotional message seemed to suggest impending doom.
But he intended to point out that the virus should be taken seriously, and action needed to be taken. He further explained the need for a lockdown and how the government should support the economy by paying for wages for individuals unable to work because of the virus.
Oddly enough, things have pretty much played out how he suggested since March 18th. The US has introduced a $2 trillion stimulus plan and lockdowns are being enforced in many places around the world.
Those that criticized Ackman did so as they felt he was talking the markets down. Many urged CNBC to stop the broadcast as it was happening in hopes of curbing the decline in equities during the interview.
But Ackman clearly stated in his interview with CNBC that despite the potential risk, he was confident the US would do the right thing, and that he was buying stocks. The S&P 500 bottomed two days after his interview and is up 13.5% from the low at the time of writing.
Between his CNBC interview and another interview with Bloomberg earlier this week, he’s made clear that he has invested his $2.5 billion profits by adding to his existing portfolio. The companies he’s specifically said he added to in these interviews are Starbucks (SBUX), Berkshire Hathaway (BRK.B), Agilent (A), and Hilton Worldwide Holdings (HLT).
It remains to be seen whether the current rally in the markets is a recovery or that a long-term bottom is in place. But from where things stand, Ackman made a correct bearish calls when many thought the markets could go a lot higher. And then, he made a bullish call just as the markets were about to bottom, at the least, over the near-term.
Investment decisions like these make me wonder why some people insist that the markets can’t be timed. Granted, investors make wrong calls all the time, but the precision in Ackman’s call as of late is certainly nothing short of impressive.
Obviously it’s much more difficult for the average investor to see the things the way that professionals do and for the most, the dollar-cost averaging strategy remains the best approach.
But Ackman’s recent investment decisions goes to show that at least a few investors out there can time the markets, and are quite good at it.