He Quit a Losing Stock Before Ackman Pushed for Change
Daniel Balthasar says Bill Ackman engaged the board at Air Products and doubled Ackman's stake in a relatively short period.
In Good Company with Nicolai Tangen · Friday Wrap-Up: Inside Active Strategies and Learning from Bill AckmanDaniel Balthasar thought he had found a bargain. Air Products, a company in a stable industry with healthy long-term prospects, was trading much cheaper than its peers. Balthasar, an investor who helps pick stocks for Norway's sovereign wealth fund, bought shares and waited for the gap to close.
The gap did not close. The stock kept lagging, and then the bad news started. The company issued a profit warning, a public notice that earnings would fall short of expectations, and then another, and then another.
He kept losing money through the warnings. After holding on through repeated disappointment, he threw in the towel and gave up on the stock.
Investor Bill Ackman then decided to get involved in Air Products. In Balthasar's account, Ackman "engaged with the board" and "made some changes to the company." Balthasar described it as a very successful investment for Ackman, doubling Ackman's money after a short time.
The result gave Balthasar a plain rule for the next cheap stock he sees. In his words, "every stock that's cheap is cheap for a reason." For that value to show up in the share price, he learned, something in the company has to change.
Balthasar put it this way: "I was just investing in hope for change. And Bill came in and he made the change happen."
Questions people ask
What is a profit warning?
A profit warning is when a company tells investors that its earnings will be lower than previously expected. Prices often fall on the news because investors reset their views of what the company is worth.
How does an activist investor like Bill Ackman try to change a company?
He buys a large stake and then pushes management and the board to make changes, such as cutting costs, selling parts of the business, or replacing leaders. If the changes lift profits, the stock price often follows.