Investors can learn from Bill and Gladys

The uncanny parallels between the coronavirus responses of Pershing Square founder Bill Ackman and NSW Premier Gladys Berejiklian carry lessons for investors.

Both enjoyed success from doing things that others were not doing or had not even considered doing. They showed leadership in their fields of funds management and political management.

This paid off for each of them and their stakeholders. Ackman made about $US2.6 billion ($3.6 billion) through a COVID-19 hedging strategy and Berejiklian saved many lives and kept Australia's biggest state economy from recession.

The pandemic response of NSW Premier Gladys Berejiklian is parallel to the gutsy response by billionaire investor Bill Ackman. David Rowe

Ackman and Berejiklian are clearly from very different walks of life. He manages about $12.5 billion in assets while she manages a state with gross product output of about $647 billion.

Ackman's gutsy COVID-19 move happened in February when his colleagues and most in funds management were complacent. As the virus swept through the Chinese city of Wuhan financial markets were showing no signs of an imminent virus-induced market collapse.

Ackman tells the Sohn Hearts and Minds investment conference, via a recorded video interview, that people in Pershing's tight-knit investment team scoffed at his idea of cancelling Pershing's annual investor meeting in London.

"The other thing that struck me is that no one else in my office, in my peer group, my friends thought anything of this virus and the notion that I would cancel our annual meeting because there's a virus in Wuhan – people thought I was crazy, which got me concerned," he says.

"You know, it's a bit like the boy who cried 'wolf'. You're running around. No one seems to care. So that was interesting."

Don't be afraid to do something that nobody else in the world has done.

— Gladys Berejiklian, NSW Premier

Ackman says a turning point for him was when Chinese authorities shut down Wuhan. Unfortunately, he says, they gave people 12 hours warning and 5 million people left the city.

"My theory was the only way to shut this thing down ultimately will be a global economic shutdown and the markets are not trading as if there's going to be global economic shutdown."

Ackman decided to protect his firm's investment in 10 major US companies by taking out hedges through the credit markets. This strategy, which delivered a $US2.6 billion profit, has been widely recognised as the best financial market trade of 2020.

Berejiklian's COVID-19 story, which was told to the Financial Review's CFO Live conference last month in Sydney, is all about learning from mistakes made by others in fighting the virus and learn from those.

"I say to my team in NSW don't be afraid to do something that nobody else in the world has done," she said.

"I don't know if any other jurisdiction has really the templates and everything else for business COVID safe plans for every single business in the state.

"I don't know to what extent other jurisdictions have done what we've done in re-tooling back in March.

"We actually said to all NSW businesses, we need medical supplies, we need hand sanitisers because of global disruption to markets. We need all this stuff and 1600 businesses came forward, put up their hands and said we can retool.

"We've now got two companies, two consortia, one based at a university the other is a defence consortia based in the Hunter who are building ventilators."

NSW is a model for managing the coronavirus at a time when many countries have let the virus get out of control.

There are at least three lessons for investors from the actions of Ackman and Berejiklian.

First, don't be afraid to go against the herd mentality that dominates financial markets.

Back your own judgement if you have done the work, or as Ackman says "done the math", and figured out a strategy that is within reasonable risk tolerances.

Second, look to factual information as a source of guidance about investment decision making. Ackman and Berejiklian took actions based on on the science, not Twitter-fuelled conspiracy theories.

Third, think about ways of managing risk by removing or ameliorating threats, as Ackman did with his hedging strategy and Berejiklian did with her move to build a secure domestic supply chain of essential medical devices.

This article was originally posted on The Australian Financial Review here.

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