Bill Ackman only had $40,000 to his name when he started at Harvard Business School.
Bill Ackman’s first stock was Wells Fargo, and Warren Buffett was a key factor in his choice.
The billionaire invested in the bank as a business-school student with only $40,000 to his name.
Ackman determined Wells Fargo, which counted Buffett as a big shareholder, was oversold at the time.
Bill Ackman made bank with the first stock he ever bought — and Warren Buffett was a key reason why he placed the wager.
The billionaire boss of Pershing Square had only $40,000 to his name when he arrived at Harvard Business School in the fall of 1990, he told “The Julia La Roche Show” this week. His parents paid for his tuition, and the sum was supposed to cover all of his other expenses.
However, Ackman soon discovered there was a dearth of investing courses at Harvard. He decided to get some first-hand experience by opening a brokerage account and buying stocks with his money instead.
“This was my tuition in investing, and if it worked out, it could be a career,” he said about his rationale at the time.
Ackman had spent a couple years working in real estate, so decided to focus on companies in that sector – which was mired in a severe recession at the time. Bank stocks caught his eye, as they’d been heavily sold off on fears that lenders would be hammered by the turmoil in commercial real estate.
“My first actual investment was I bought Wells Fargo stock,” Ackman recalled. “I had already started following Warren Buffett, and he was a big shareholder at a much higher price.”
Ackman purchased 1,000 shares at $8.375 each, and another 1,000 shares for $8.625 a pop, according to a person familiar with the trades. He eventually sold the shares for $21.50 each, the person said.
The comment suggests that Ackman paid a total of $17,000 for 2,000 shares, then cashed them in for $43,000 — a $26,000 or roughly 150% profit.
Wells Fargo has executed three 2-for-1 stock splits since 1990, meaning Ackman bought in when the stock was trading at just over $1 on a split-adjusted basis, compared to $41 today.
A branch of Wells Fargo.
Justin Sullivan/Getty Images
Ackman picked Wells Fargo in part because his father’s company, which helped real estate developers obtain financing, had never managed to secure a loan for its clients from the banking giant. As a result, he was confident that Wells Fargo was a conservative lender, and the market’s concerns about its substantial real estate exposure were likely overblown.
Moreover, Buffett’s Berkshire Hathaway had taken a position in Wells Fargo the previous year. The famed investor’s conglomerate kept adding to the holding in 1990, and pounced when the lender’s stock almost halved within a few months that year. It ended the year with a near-10% stake worth $289 million.
Buffett hailed Wells Fargo as a “superbly-managed, high-return banking operation,” and shrugged off concerns about its real estate exposure, in his letter to shareholders for that year, published several months after Ackman invested.
“I had kind of the Warren Buffett imprimatur, and I had a thesis, and that was the basis for the stock investment,” Ackman said. “I bought it, and it fairly quickly went up about 50%, and I’m like, ‘Okay, this is cool.'”
“If the first stock I bought, I lost half my money, I probably would be doing something else,” he added.