It’s been six months since Pershing Square Tontine Holdings (NYSE:PSTH), Bill Ackman’s special purpose acquisition company (SPAC), went public, raising $4 billion through the sale of 200 million units of PSTH stock and warrants.
While there have been many rumors about the billionaire’s ultimate target, as of Jan. 15, Ackman’s been unable to announce a deal. Meanwhile, the SPAC shares have risen to $29 as I write this, a nice 45% return over a half a year.
If you weren’t able to get in at $20 and wonder whether you should buy at $29, here’s why there’s still some room on the bandwagon.
Ackman’s on a Roll
In the past two calendar years, Ackman’s delivered annual net asset value (NAV) returns for his investors of 58% (2019) and 82% (2020), respectively. And who can forget his March trade of the century that saw a $27 million bet turn into a $2.6-billion profit?
The man knows how to ride the rollercoaster of volatility to success and failure. Ultimately, like Warren Buffett, his record should be judged on his entire volume of work and not just the most recent investments.
As PSTH shareholders patiently wait for the SPAC to make a combination announcement, those considering an investment at current prices ought to feel better about their bet, knowing that the billionaire’s confidence is probably higher than it’s been in years.
For some, that might scare you off. On the other hand, I consider confidence to be a critical factor when making large transactions, as PSTH’s combination will surely be.
I believe Ackman’s doing the work necessary to hit an M&A home run. According to Calgary-based Accelerate Technologies, the average number of days for a SPAC combination to be announced from IPO is 373 days or a little more than a year.
Ackman’s only six months in. As more “mature unicorns” work toward going public in the first half of 2021, you can be sure they’ll be giving Pershing Square a call.
Time is not of the essence in this instance. Not by a long shot.
Consider the Downside to Buying PSTH Stock at $29
InvestorPlace contributor David Moadel recently made the case that SPAC stocks should remain relatively tethered to their IPO unit price until a combination is announced.
“Landcandia and Switchback clung near $10 for quite awhile. Traders weren’t climbing over each other to buy these stocks before they made merger deals. That makes sense because they didn’t know what businesses Landcadia and Switchback planned to combine with,” Moadel stated on Jan. 13.
“The same could be said regarding Pershing Square Tontine Holdings. The investing community doesn’t know which company it will seek to acquire.”
So, in the case of PSTH, its true value, Moadel would argue, ought to be closer to $20 than $29 at this point. That makes sense if you believe in an efficient market. However, we know that the current markets are anything but efficient.
Moadel also argues that it’s all about one man’s reputation and little to do with any substantive information about a combination. He refers to some of Ackman’s past mistakes.
Sure, Ackman’s made many. But who hasn’t that’s been in the game a long time? Carl Icahn’s mess of Hertz (OTCMKTS:HTZGQ) comes to mind. And, if you’re interested, you can read about three of my doozies from 2020.
The point is: Who would rather give $10,000 of your hard-earned capital to blindly invest as they pleased? Bill Ackman or John Doe, your neighbor? Unless he’s a veteran investor, the answer’s pretty easy.
The Bottom Line
There’s an expression in sports that you ride the hot hand. If a goalie’s won a bunch of games in a row, even if he’s not the starter, you let him play his way out of the net.
I don’t think it’s inappropriate to say that betting on Ackman is very much the same situation. I can guarantee you there are a bunch of smart institutional investors who’ve piled on the Ackman bandwagon.
For example, Guggenheim Partners owns more than 24 million shares of PSTH. It put $480 million of its investors’ capital into Ackman’s plan. Guggenheim’s not going anywhere.
Normally, I’d agree with my colleague. This is not one of those times. If you’ve got a 3-5 year hold, I don’t believe $29 is too costly a bet at this point.
I guess we’ll find out some time in 2021.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.