Bill Ackman: The Attributes We Look For In A Great Business

In his latest interview with Interactive Investor, Pershing Square’s Bill Ackman was asked about what attributes a stock must have to make it into his Pershing Square portfolio. Here’s an excerpt from the interview:

Ackman: It’s got to be a business that we can predict what the business will look like over a very long period of time.

If you believe that the value of a financial asset is the present value of the cash you can take out of the business over its life, in order to build that discounted cash flow model you’ve got to put in little numbers in the cells, if you will.

You gotta have a view on how revenues are gonna grow. You’re gonna have to view on what operating margins are gonna be over time in order to get there. It has to be a business that is very… has very defensible characteristics.

It can’t be a business where a couple of students quit university and a year later they built a disrupting sort of technology.

So we’re looking for these very very what we call durable businesses. Warren Buffett uses the term business with a moat around it. That’s what we’re looking for here. A business that we have a very very high degree of confidence is going to continue to take share, continue to generate… have attractive margins, and will do well over a very long period of time.

So those are I think the most important criteria, and then beyond that it’s price, we want to buy that business at a price which offers us a very attractive return over time.

You can watch the entire interview here: