Bill Ackman, Hedge Fund Trash Talk, and the Straw Man Fallacy

Buffet Ackman

In Bill Ackman’s spat with Warren Buffet… (Image: http://www.marketwatch.com)

scarecrow-wizard-of-oz

…he brought a straw man along for backup.  (Image: http://www.veteranstoday.com)

From the “People in Glass Houses Shouldn’t Throw Stones” category comes the laughably Pecksniffian rich man’s row between hedge fund manager Bill Ackman, head of Pershing Square Capital, and Charlie Munger, who has been Warren Buffet’s fidus Achates/gal Friday for years.

It should be noted that Ackman is a self-inflated weirdo who started crying like a 5-year-old denied a toy while addressing Target shareholders back in 2009 during his high-profile and losing proxy battle against the company. In absurd fashion, he later attributed his breakdown to the poignancy of a JFK quotation (“We will pay any price, bear any burden, meet any hardship“) that he used in his own remarks. Apparently, Ackman is so outrageously egotistical that he believed his quest for Target board seats was comparable to JFK’s intention to “assure the survival and success of liberty.”

The windbaggery started earlier this month when Munger hopped on his exceptionally wobbly high horse and called Ackman’s investment in Valeant Pharmaceuticals (ticker VRX), down about 50% this year and recently under fire for jacking up prices on its drugs way beyond industry standards, “deeply immoral.”

Ackman, exhibiting the social skills of someone shipwrecked on a deserted island for a decade, made his rejoinder at, of all places, a New York City conference held to commemorate Buffet’s 50 years at Berkshire Hathaway. Of Buffet’s investment in Coca-Cola, a 9% stake valued at $17 billion, Ackman said:

Coca-Cola has probably done more to create obesity and diabetes on a global basis than any other company in the world.

Ackman also said that Coca-Cola “displaced the water that children and adults consume with sugar water.”

And there you have it: This humdrum exchange represents the deplorable state of “hedgie”/Wall Street trash talk. If this is the best return jab Ackman can throw, considering he had a month to think about it, then he simply can’t be that clever, and investors should seriously consider pulling their money from his funds. Moreover, he (and Munger) should probably take a lesson from the trash-talking NBA where they sometimes disparage with dash, e.g., Charles Barkley once said of 67-year-old referee Dick Bavetta:

Dick Bavetta and Moses parted the Red Sea together.

And Scottie Pippen said to Karl “The Mailman” Malone moments before the latter missed two crucial free throws with 9 seconds left in Game 1 of the 1997 NBA finals:

Just remember, the mailman doesn’t deliver on Sundays, Karl.

Now these quotes are the stuff of genius and suggest that Messrs. Barkley and Pippen could beat the S&P 500 as easily as their Dream Team handled opponents in the 1992 Olympics (average margin of victory 44 points).

A true hypocrite, Ackman defended his own stake in sugary Mondelez, which makes Oreo cookies, contending that it’s “okay to have a chocolate bar or Oreo cookie” once in a while, and the maker of Oreo cookies wasn’t trying to replace “your grilled chicken with Oreos.” By comparison, he said, Coke’s business model was to “displace water with sugar water.” According to the Mondelez website, the company also owns Bubbaloo gum, Cadbury, Chips Ahoy!, Hollywood Gum (French market leader), Nabisco, Nutter Butter, Sour Patch Kids, Toblerone…the incriminating list goes on and on. (Ackman also has a stake in Burger King).

Ackman’s smugly moralistic remarks also reveal his use of a particularly annoying rhetorical gambit, the straw man, which works the following way: Person 1 makes claim Y. Person 2 restates person 1’s claim in a distorted way and then attacks this distorted and weaker version, proving it false, without ever having addressed Person 1’s actual claim.

Because intellectual bullies like Ackman think they’re smarter than everyone else, they eventually get a bit lazy with their arguments, probably because they assume that we lesser mortals will swallow the silliest sophistry. For example, Barak Obama uses them often:

We, the people, still believe that enduring security and lasting peace do not require perpetual war.

Here, our Hamlet-esque President implies that those who disagree with him on foreign policy believe that peace requires perpetual war. Obviously, none of his opponents feels that way, but Obama’s remarks are dramatic and hoodwink casual listeners. In similar fashion, when Ackman asserts that Coke wants to replace water with sugar water, he’s setting up a straw man. Coke has never said such a thing, but if you believe Ackman’s accusation, then his position in Mondelez isn’t so gut-bustingly two-faced. In reality, Coke hopes you drink its soda until you burst, but Mondelez hopes you eat Oreos and Cadbury chocolates until you get wheeled into the ER for lap-band surgery. And everyone should know that.

If Ackman were really such a do-gooder, he’d be heading up a charitable organization instead of an “activist” hedge fund. He should step down from the soap box and do everyone a favor by not rearing his ugly head until the next Pershing Square Holdings (ticker PSHZF) earnings call, when he can explain whether the current insider trading lawsuit against him has any merit.

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