💰 5 Fact Friday: How Bill Ackman Crushes The S&P 500

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Hey Money Maniacs,

Welcome back! Let’s get into this week’s biggest stories in the world of money.

Today’s issue covers:

1. Lessons From Bill Ackman 🧠

2. Retailers Kick Off Summer Sales 🛍️

3. CEO Pay Debate Heats Up 🔥

4. Nvidia Finds Resistance 👀

5. Retirement Savings: Pre-Tax or Post-Tax? 💸

1. Lessons From Bill Ackman 🧠

Bill Ackman’s hedge fund, Pershing Square, dropped its 2023 annual report, marking 20 years since its inception.

The results? Staggering.

Day-one investors have seen their equity investment grow at a 16% compound annual rate over the last two decades, compared to a 10% return from the S&P 500.

That 6% difference means early investors multiplied their money by 18x, whereas the S&P 500 would have only provided a 6x increase.

As of March, here are Pershing Square’s holdings:

1. Universal Music Group ($UMG)

2. Alphabet ($GOOG)

3. Chipotle ($CMG)

4. Restaurant Brands ($QSR)

5. Hilton ($HLT)

6. Howard Hughes ($HHH)

7. Canadian Pacific Kansas City ($CPKC)

8. Fannie Mae ($FNMA)

9. Freddie Mac ($FMCC)

But more importantly, what can retail investors learn from Ackman’s incredible investing performance?

1. Focus On Quality: Ackman looks for businesses “whose business models, competitive advantages, barriers to entry, balance sheets, and excellent management teams enable them to succeed despite the negative extrinsic factors."

2. Timing Is Key: Buy durable growth companies when they are underperforming or the market is overly pessimistic about their prospects (e.g. when Google sank last year due to AI fears).

3. Long-Term Vision: Patient investors can be opportunistic during market panics, buying when others are fearful (or forced to sell).

4. Concentrated Bets: Pershing Square holds only 9 equity positions and in 2023, they made only one buy (Google) and one sell (Lowe's). Focusing on only the “best” ideas is a higher-risk higher-reward strategy.

Want to invest like a hedge fund manager? Follow Ackman’s strategies of quality, timing, patience, and concentration to improve your portfolio’s returns.

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2. Retailers Kick Off Summer Sales 🛍️

It may go without saying, but consumers are still struggling with post-pandemic inflation and elevated interest rates.

As a result, consumer confidence dipped to 100.4 this month, down from 101.3 in May, and inflation-adjusted spending on goods fell 0.4% year over year.

Although that may not sound like much, remember that consumer spending makes up nearly 70% of U.S. GDP. Even a slight slowdown can send shockwaves through the economy.

Retailers are bracing for a challenging summer, scrambling to secure their share of a pinched consumer wallet. Their game plan? Discounts, baby.

Amazon is leading the charge with its annual Prime Day on July 16 and 17. Look out for deals on brands like Allbirds, Clinique, Coach, Kiehls, KitchenAid, Sony, and more.

But before consumers splurge on Amazon, other major retailers like Target, Walmart, and TikTok are vying for their attention:

• Target's Circle Week, running from July 1 to 13, promises up to 50% off on thousands of items, including clothing, bedding, skincare, and back-to-school supplies.

• Walmart’s Deals event from July 8 to 11 will feature discounts on home electronics, kitchen appliances, toys, luggage, and school essentials.

• TikTok’s Deals for You Days will begin on July 9, spanning thousands of items across clothing, beauty, and decor.

Will these mega sales be enough to reignite consumer spending? Stay tuned.

3. CEO Pay Debate Heats Up 🔥

Tesla shareholders recently voted to restore Elon Musk's 10-year pay plan, valued at a staggering $44.9 billion.

Musk's compensation package was tied to performance targets, allowing him to earn up to 12% of Tesla's equity if he met “crazy” milestones in market capitalization, revenue, and earnings growth.

Critics laughed at the time, but Musk hit every single target, securing all 12% worth of options.

While Musk's pay package is both unusual and record-breaking, it highlights a broader issue: the widening gap between CEO and employee pay.

In 2023, median CEO compensation hit $16.3 million, while the median S&P 500 employee earned $81,467—a difference of more than 200x.

Some argue this disparity is unfair, exploitative, and indicative of executive greed.

Others believe it's necessary to attract and retain top talent. They point out that executive compensation should align with shareholder interests.

(For example, an investor who bought Tesla when Musk's package was approved would have earned a nearly 12x return in just 6 years.)

So, the key question becomes: Would lowering CEO pay result in worse outcomes? In other words, do top executives truly earn their keep?

According to Amit Batish, who conducted the CEO Pay Study, it is “really up to shareholders to decide” whether CEOs are overpaid.

What do you think?

4. Nvidia Finds Resistance 👀

Nvidia has had quite the rollercoaster lately. After briefly becoming the world’s most valuable company, it quickly tumbled 13%, shedding over $300 billion in market value in just three days.

From $136 last Tuesday to $118 before rebounding to $125, Nvidia's journey is a great example of resistance and support in stock trading.

What exactly are resistance and support?

• Resistance is a price level where a stock faces selling pressure, preventing it from moving higher. It’s like the ceiling that a stock struggles to break through.

• Support is a price level where a stock finds buying interest, preventing it from falling further—think of it as the floor that catches a falling stock.

These levels often form around:

• Significant psychological numbers ($100, $500, etc.)

• Previously important price points

• Moving averages and trend lines

• Major events and milestones (like becoming the largest public company)

Why should investors care about resistance and support?

1. Entry and Exit Points: Identifying these levels helps spot when to buy or sell. If a stock nears resistance, it might be a good time to sell. If it approaches support, it might be a good buying opportunity.

2. Risk Management: Knowing where resistance and support lie can help investors protect gains or avoid buying at the peak. For example, knowing Nvidia corrected after passing Microsoft may highlight an area of future resistance.

3. Market Sentiment and Psychology: These levels reflect how investors feel about a stock. Nvidia hitting $136 wasn’t just a number—it was a milestone that prompted big players like hedge funds to reassess their positions.

Stephanie Link from Hightower captured this sentiment on CNBC, calling Nvidia shares “overloved” and suggesting there are more attractive opportunities in tech.

But the recent pullback doesn’t spell doom for Nvidia. Instead, it’s a classic case of market dynamics at play.

Nvidia reaching the top simply made investors reflect on the ever-present balance between growth and caution. In this case, they decided the risk/reward was better found elsewhere.

We’ll see how they react if Nvidia takes another run at the throne.

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5. Retirement Savings: Pre-Tax or Post-Tax? 💸

Most financial advisors recommend saving at least 10% of your income for retirement. But should that be pre-tax or post-tax?

For lower-income earners or those nearing retirement, the distinction may not make a huge difference. But for high earners and young maniacs out there, the impact can be significant.

Fidelity suggests having at least 10 years of income saved by retirement (more if retiring before 67). Let’s explore how pre-tax and post-tax contributions can get you there.

Example 1: $50,000 Income

• Post-Tax Contributions: Investing 10% of your post-tax income ($3,800) yearly, you'd hit Fidelity's retirement target in ~27 years, assuming a 10% annual return.

• Pre-Tax Contributions: Investing 10% pre-tax ($5,000) takes ~24 years to retire. That’s 3 extra years of retirement.

But let’s say you hold off on early retirement.

If you invest over a 30-year timeline instead, the pre-tax route could net you an extra $220,000 compared to the post-tax route! All for only $36,000 more in contributions.

Example 2: $100,000 Income

• Post-Tax Contributions: Investing 10% post-tax ($7,000), you'd hit the retirement target in ~28 years.

• Pre-Tax Contributions: Investing 10% pre-tax ($10,000) takes ~24 years to retire. That’s 4 more years with your feet in the sand.

Once again, if you extend your investment horizon to 30 years, the pre-tax route nets you $540,000 more than the post-tax route! This extra nest egg comes from just $90,000 in extra contributions.

The takeaway? Small differences, like saving an extra 2-3% of your salary, can compound into hundreds of thousands—or even millions—more by retirement.

That’s all for today. For more insights, follow me on Instagram, Twitter, and at TheMoneyManiac.com.

Also, I’d love to hear your feedback. So please reply with comments – I read everything.

Until next time,
Daniel

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.