About this video

• Video Title: Bill Ackman: How to Make Your First $1 Million in the Stock Market
• Channel: Investor Center
• Speakers: Bill Ackman (mentioned by narrator)
• Duration: 18:50

Overview

This video explains Bill Ackman's strategy for building wealth in the stock market, emphasizing the importance of investing during times of maximum uncertainty and crisis. It details how to identify durable businesses with strong competitive advantages ("moats") and how to buy them at discounted prices during market downturns to maximize returns.

Key takeaways

• Invest During Uncertainty: The best time to deploy capital is when uncertainty is at its peak, as this is when assets are typically mispriced and offer the greatest potential for returns.
• Identify Durable Businesses: Focus on companies with strong competitive advantages (economic moats), such as category leadership, customer loyalty, economies of scale, network effects, strong balance sheets, and durable business models that are not solely reliant on cutting-edge technology.
• Buy Low, Sell High (During Crises): Crises create opportunities to buy high-quality businesses at significantly discounted prices. By having capital ready and a list of target companies, investors can profit from the subsequent market recovery.
• The "Disappearance Test": A key test for a durable business is to consider the impact if it disappeared tomorrow; if the world would notice a significant void, it likely possesses a strong moat.
• Patience, Courage, and Preparation: Executing this strategy requires patience to wait for the right opportunities, courage to buy when others are fearful, and preparation through research to identify quality businesses ahead of time.

The video mentions the following historical figures and events as examples of wealth building during crises:

• Rockefeller in 1907
• Kennedy in 1929
• Buffett in 2008
• The COVID-19 pandemic
• The tariffs
• The financial crisis (referring to 2008)
• The 2020 crash

According to Bill Ackman, the key characteristics of a "durable" business are:

• Category Leader: Being number one or a strong number two in their industry, which provides scale advantages and efficiency.
• Customer Love and Trust: Possessing loyal customers who value the product or service, leading to high renewal rates and making it difficult for newcomers to steal customers.
• Economies of Scale: Operating at a scale that smaller competitors cannot match, leading to lower costs and barriers to entry.
• Network Effects: Benefiting from a self-reinforcing cycle where more users attract more providers, and vice versa (e.g., Uber).
• High Switching Costs: Making it difficult or inconvenient for customers to switch to a competitor (e.g., having all your music on a platform like Spotify).
• Strong Balance Sheet: Having the financial strength (manageable debt, good cash flow, access to capital) to weather storms and invest for the future without being forced into bad short-term decisions.
• Durable Business Model: Not being overly reliant on a single unique technology that could quickly become obsolete, especially in an AI-enabled world. Durability comes from factors like brand, scale, network, and execution.

Bill Ackman's strategy for investing during crises differs from typical market timing in the following ways:

• Focus on Opportunity, Not Prediction: Typical market timing often involves trying to predict short-term market movements or entering and exiting positions frequently. Ackman's strategy, however, focuses on identifying opportunities that arise during significant, prolonged periods of uncertainty and fear, rather than trying to time minor fluctuations.
• Long-Term Perspective: While the purchases are made during short-term panic events, the goal is to invest in high-quality, durable businesses for the long term (10-20 years). Typical market timing can be more short-term focused.
• Counter-Cyclical Mindset: Ackman advocates for being greedy when others are fearful and buying during market crashes when assets are cheap. This is a contrarian approach that goes against the common instinct to sell during downturns, which is often associated with market timing strategies that aim to avoid downside.
• Not About Frequent Trading: The video emphasizes that this strategy is "not about market timing in the sense of trading in and out every week." It's about recognizing rare, seismic panic events and having the conviction to buy them, then holding for long-term gains. Typical market timing often involves more active trading.
• Focus on Value and Quality: Ackman's strategy involves buying strong, high-quality businesses at mispriced levels during crises. This is different from some market timing strategies that might focus on momentum or speculative trades without as much emphasis on underlying business quality.

Bill Ackman's "disappearance test" is a way to gauge the strength of a business's economic moat. The test asks:

"If this business disappeared tomorrow, what impact would it have on the world?"

If the answer is that a lot of people would care and its absence would create a significant void, it's a strong sign of durability and a moat. Conversely, if the company disappeared and life would go on largely unaffected, it likely lacks a serious moat and could be easily replaceable.