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Will Bill Ackman’s Bet on Berkshire Hathaway Pay Off?

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  • Bill Ackman, the founder and CEO of Pershing Square Holdings, revealed a stake in Berkshire Hathaway last year.
  • Ackman added more Berkshire shares as the US stock markets crashed in the first quarter. He also added Hilton and Starbucks shares.

Bill Ackman and Berkshire Hathaway stock

Last year, Bill Ackman revealed that his fund, Pershing Square Holdings, bought around 3.5 million Berkshire Hathaway Class B shares (NYSE:BRK.B). The investment totaled $685 million at that time. In percentage terms, the investment represented about 11% of Pershing Square Holdings’ total assets. Bill Ackman sounded positive about Warren Buffett when he called Berkshire Hathaway “undervalued.”

Meanwhile, Berkshire Hathaway Class B shares underperformed the S&P 500 by a wide margin last year. Several commentators criticized Warren Buffett for sitting on cash and not investing the money. Last year, Jim Cramer seemingly criticized Buffett.

Ackman keeps his faith in Warren Buffett

Meanwhile, Bill Ackman kept his faith in Berkshire Hathaway and Warren Buffett. As US stock markets crashed in the first quarter, Bill Ackman aggressively brought stocks. He revealed that he has increased stakes in Starbucks, Hilton, and Berkshire Hathaway. While Starbucks and Hilton have rebounded sharply from their March lows, Berkshire Hathaway Class B shares are sagging.

Berkshire Hathaway Class B shares underperform SPY

Based on Tuesday’s closing prices, Berkshire Hathaway Class B shares have lost 17.4% this year compared to an 11.4% decline in the S&P 500. The stock underperformed the S&P 500 by a huge margin in 2019 as well. Last year, Warren Buffett had his worst underperformance compared to the S&P 500 in a decade. Interestingly, over the last three decades, Berkshire Hathaway has underperformed the markets badly in the last year of the decade. Read How Did Warren Buffett End the Last Decade? to learn more.

Coming back to Bill Ackman, Pershing Square Holdings has been trading at a big discount to its net asset value. The company has repurchased some shares this month to capitalize on the arbitrage opportunity. Now, whether Bill Ackman’s bet on Berkshire Hathaway pays off will likely depend on how Warren Buffett deploys the massive cash pile.

The guessing game will be over soon. We’ll get key updates from Warren Buffett over the next three weeks. Read Did Warren Buffett Buy the COVID-19 US Stock Market Crash? to learn more.

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