Bill Ackman's portfolio consists of just a handful of stocks across both his Pershing Square (NYSE: PS) funds. The hedge fund manager prefers to operate a concentrated portfolio of investments, focusing on his best ideas for long-term capital appreciation. For the most part, he's happy to hold a stock as long as necessary for his investment thesis to play out or be proven wrong.
One might expect Ackman to recommend one of his funds' top or longest-tenured holdings as the best investment to buy and hold for the next 10 years. Perhaps he'd recommend Howard Hughes Holdings, which Pershing Square acquired a controlling stake in with the intention of transforming it into an investment-led insurance business. But readers won't find Ackman's recent recommendation in any of Pershing Square's investment vehicles.
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Despite his ability to identify long-term market dislocations among stocks, groups of stocks, and other assets, Ackman keeps his top recommendation for long-term buy-and-hold investors simple. "Pick an index fund," he said during an interview recently with Forbes, when asked where he'd invest 100% of his capital today for the next decade. Specifically, an equity index fund.
His recommendation echoes that of Warren Buffett, who has been a longtime advocate of index funds.
It might seem contradictory for two investment managers to recommend broad index funds, but the reasoning is sound. Ackman shied away from a single stock recommendation. "I love all my children; I love all our stocks," he told a reporter from Forbes when pressed. Indeed, the value of individual stock picking comes from building a portfolio. Not every stock is going to outperform the S&P 500, but a well-constructed portfolio can. Putting 100% of capital into a single company is foolish, with a lowercase "f."
A stock index fund offers diversified exposure to the equity asset class, which comes with two main advantages, according to Ackman. A widely traded broad-market index fund, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the Vanguard Total Market ETF (NYSEMKT: VTI), is extremely liquid. While the goal is to buy and hold for a decade (or longer), liquidity is important to ensure you can access the full value of your investment when you need it.
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