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Robert Stephens, CFA
Robert Stephens, CFA
Articles (358) 

Bill Ackman on Managing Your Portfolio in a Volatile Market

A simple, activist strategy

May 27, 2020

Managing your portfolio is a challenging task, especially in market downturns. However, lower valuations across many industries could suggest there are still buying opportunities, in my opinion, despite the fact that the stock prices of many companies (especially index companies) have been artificially propped up by the Fed's loose monetary policy.

One investor who has a long track record of buying stocks at prices that are below their intrinsic values is Pershing Square's founder Bill Ackman (Trades, Portfolio). He adopts a long-term, activits view that focuses on company fundamentals rather than short-term price movements when purchasing stocks.

Short-term losses

The uncertain future for the economy means that the stock market is more likely to experience a decline in the short term after its rebound from March lows. Therefore, even though there appear to be many stocks that trade on attractive valuations today, their prices may decline to even lower levels over future months.

Buying a stock and experiencing a loss over the short run should not concern investors who have a long-term view. If the company’s financial outlook suggests that it continues to be a sound investment, how it performs over a matter of weeks or months is largely irrelevant.

Ackman has previously highlighted the difficulty of buying stocks at their lowest point: “Investing is a business where you can look very silly for a long period of time before you are proven right.”

Decision-making

Many investors’ emotions are running high at the moment. Recent market volatility may cause some investors to panic and become fearful about the prospects for their portfolios.

Investors who are able to ignore their emotions and instead use logic when making investment-related decisions may be relatively successful. They may find it easier to make a sound judgment about a potential purchase, and to stick with their existing holdings that offer improving financial outlooks despite their lower stock prices.

As Ackman once advised, “I'm not emotional about investments. Investing is something where you have to be purely rational and not let emotion affect your decision making - just the facts.”

Learning from mistakes

The future performance of the economy is impossible to accurately predict. Even if investors purchase quality companies at attractive prices, there is still the potential for them to return losses due to unforeseen events and volatility.

Losing money on specific stocks and making mistakes happens to all investors. The key takeaway for all investors is to learn from those mistakes where possible and use that information to make better decisions in future.

Don't try to predict the future

It may be tempting to try and predict how the economy will perform in future. However, this strategy may prove to be unproductive, since it is impossible to accurately predict how a range of variables will impact on the economy’s prospects.

Instead, analyzing company fundamentals could be a more efficient use of your time during a volatile period for the economy.

As Ackman once said, “Short-term market and economic prognostication is largely a fool’s errand, we invest according to a strategy that makes the need to rely on short-term market or economic assessments largely irrelevant.”

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