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Bill Ackman’s Golden Beginning: The Wells Fargo Bet Inspired by Buffett

Before Bill Ackman became a household name in the world of finance, his beginnings in the stock market were modest but promising. His journey commenced with an initial stock pick, influenced by none other than the Oracle of Omaha, Warren Buffett.

Fresh into Harvard Business School in 1990, Ackman had a $40,000 budget, courtesy of his parents. This amount was meant to cater to his living and miscellaneous expenses. However, the budding investor was taken aback by the lack of investment-centric courses at Harvard. So, in the spirit of a true entrepreneur, he opted for real-world learning, using this capital to step into the stock market.

His starting thought? “This was my tuition in investing, and if it worked out, it could be a career.”

His background in real estate hinted at potential opportunities in that domain, especially with the sector undergoing a recession. This backdrop created a unique allure around bank stocks, which were bearish due to apprehensions about the repercussions of the commercial real estate turmoil.

Enter Wells Fargo, the first stock Ackman would purchase. What’s intriguing is the backstory. Ackman’s inclination towards the bank was two-fold: First, his father’s real-estate venture had consistently failed to secure loans from Wells Fargo, suggesting to Ackman that the bank might be discerningly conservative. Secondly, Warren Buffett had already signaled confidence in the bank by being a notable shareholder.

With just a smidge over $17,000, Ackman acquired 2,000 shares of Wells Fargo. He’d later sell those for about $43,000, raking in a handsome profit of around 150%.

And here’s an interesting tidbit for stock aficionados: If we account for the three 2-for-1 stock splits by Wells Fargo since 1990, Ackman’s initial buy-in price was a mere dollar on a split-adjusted scale. A striking contrast to its $41 value today!

But the cherry on top of Ackman’s investment cake was the Warren Buffett seal of approval. Around the same time, Buffett’s Berkshire Hathaway was steadily increasing its stake in the bank, eventually amassing a near-10% stake by the end of the year. Buffett, in his classic style, praised the bank for its stellar management and robust returns, brushing off the concerns related to its real estate engagements.

Reflecting on his successful venture, Ackman remarked, “I had kind of the Warren Buffett imprimatur, and I had a thesis, and that was the basis for the stock investment.” But the billionaire is also candid about the role of luck, noting, “If the first stock I bought, I lost half my money, I probably would be doing something else.”

In essence, Ackman’s maiden investment venture serves as a lesson for budding entrepreneurs and investors. It’s a blend of intuition, research, inspiration, and perhaps a pinch of luck that sets the stage for a golden investing future.