Opinion – Grain in Grain: Was billionaire Bill Ackman wrong?

This week the manager hedge funds, known in Brazil as hedge funds, Bill Ackman was in the headlines of all the main economic newspapers. The reason was the surprising sale of his position in Netflix stock, with a loss of US$ 400 million and for having stayed for so little time.

I received some questions about this attitude and whether it was time to sell Netflix because of the weaker than expected result. His attitude seems premature and resembles that of an inexperienced investor, but demonstrates one of the main characteristics of a successful investor, discipline.

Wrongly, many investors make investments as if they were at a racetrack. They look for a horse to bet based on their moods and on the one that has been more successful, they are at the mercy of the flow and because they do not have established criteria, they do not change, that is, they keep the same horse until the end of the race. Many times to see that the favorite was not quite that horse.

The point is that in the investment world, the race is endless. Therefore, many maintain a losing position eternally. As they did not have a criterion for the purchase, there is also no criterion for the exit.

The simple loss is also not a reason to sell. It is necessary to have an investment selection criterion that respects its investment policy.

Every investment must be guided by a process. The process defines the return objective, the way of selecting the assets, the risk restrictions and a scenario for which these variables are valid.

When the scenario changes and the investment is no longer justified with the new scenario, it is necessary to change it.
It is also necessary to change the portfolio when the scenario changes and other assets show a better return perspective.

Remember, the future return on your investment portfolio will not be based on what assets have performed in the past, but on how assets are expected to perform in the future.

Therefore, a continuous evaluation is necessary as if every day you wake up with the money and have the opportunity to buy the same assets or others.

Whether Ackman was wrong, only time will tell, but he stayed true to his process and that discipline is responsible for his success.

Another lesson we can take away from this event is: never justify your investment based on a celebrity’s investment.

If you don’t have a process for valuing the asset, be very careful about following others.

By following third parties, you can always end up paying more and selling cheaper, as you perform operations days after knowing what the celebrity has done.

Prepare yourself, study, create an investment policy and have the discipline to follow this policy.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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