There are only 200 to 300 great businesses in the world worth owning
Bill Ackman's test is whether you would still want to own it if the stock market closed for 20 years.
In Good Company with Nicolai Tangen · Bill Ackman: Concentrated Investing, Permanent Capital, and the Value of Being ChallengedBill Ackman, the founder of the investment firm Pershing Square, counts just 200 to 300 truly great businesses in the entire world.
His test is simple: a great company is one you could buy today, watch the stock market close for 20 years, and still feel enormously certain it would be enormously valuable at the end.
Because the pool is that small, and because a great business rarely sells cheaply enough to become a great investment, he argues there is no reason to own hundreds of stocks. Pershing Square writes large checks to a handful of companies and holds them.
Most funds do the opposite, spreading money across hundreds of names. Ackman says few investors can afford to wait, because their clients can pull money every quarter.
Questions people ask
Why does owning only a few stocks require special funding?
A concentrated portfolio can swing sharply in value, even if the businesses are strong. If investors can withdraw money every quarter or every year, a manager may be forced to sell at the worst moment to meet redemptions. Long term, or permanent, capital lets a manager sit through that volatility and wait years for the investment to pay off.
What does Ackman mean by a royalty-like business?
He means a business that collects steady, recurring cash without having to keep reinvesting heavily to stay competitive. Think of franchise fees, subscription payments, or brand royalties that grow over time. Once the system is built, much of each extra dollar can be returned to owners.
Has this concentrated approach actually worked?
Pershing Square has compounded at around 16% a year over a long period, well ahead of the broader market. That record includes big drops and sharp recoveries, which is typical for a concentrated portfolio. The long term result is the point Ackman stresses: you have to survive the short term to earn the long term.