There may not be an investor anywhere who played the March 2020 COVID-induced market crash more deftly than Bill Ackman.
The founder and CEO of Pershing Square Capital Management realized the seriousness of COVID-19 in February 2020 and bet against corporate bonds in anticipation of a major selloff. The bearish bet worked. Just weeks later, Ackman was sitting on a $2.6 billion profit as stock markets around the world shed trillions of dollars in value.
Ackman also made money betting on the rebound from COVID-19. Anticipating runaway inflation after lockdowns eased, Ackman purchased options on Treasury bonds that would rise if the Federal Reserve raised interest rates. That wager earned his fund a $1.25 billion profit.
These trades put Ackman among the greatest investors in history. Some of his other victories include investments in Chipotle Mexican Grill Inc. CMG, pharmaceutical company Allergan plc AGN and Starbucks Corp. SBUX.
But it hasn’t always been smooth sailing for Ackman and Pershing Square Capital. One bad trade once threatened everything he had built — so much so that Business Insider described the fallout as “the fall of a Wall Street God.”
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The bet in question was Herbalife Nutrition Ltd. HLF, the health and wellness supplement company that Ackman denounced as a pyramid scheme and took an aggressive short position on. Ackman was so certain of Herbalife’s imminent implosion that he vowed to follow his short-sale trade “to the end of the earth.”
But the opposite happened. Herbalife stock initially sagged under Ackman’s assault but rallied as much as 30% as other investors flocked to the company. The Federal Trade Commission declined to label the company a “pyramid scheme” despite Ackman’s insistence to the contrary. According to Fortune magazine, Ackman lost $500 million on the trade against Herbalife before folding.
How did Herbalife survive? The company had and continues to have serious problems, not the least of which is the widespread perception of it being a multilevel-marketing (MLM) scheme. But the troubled company had one thing keeping it afloat under Ackman’s assault as it tapped into a sector with trillion-dollar tailwinds behind it.
The health and wellness sector is forecast to grow from $4.89 trillion in 2022 to $7.66 trillion by 2030. For perspective, the artificial intelligence market is only expected to total $2.35 trillion by 2030, according to Grand View Research. The groundswell is possible thanks to several global trends, from the elevation of hundreds of millions more people to the middle class in China and India to a surge in demand for self-care after COVID-19 lockdown traumas.
The booming health and wellness market may not be enough to save Herbalife in the long term. But investors looking to play this trend could consider the startup Sensate, which has patented a first-of-its-kind anti-stress device using infrasonic therapy to help the body’s central nervous system recover from stress. The company achieved 363% revenue growth from 2020 to 2021 and is backed by several venture capital firms.
See more on startup investing from Benzinga.
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