Street Capitalist: Event Driven Value Investments

At the Wall Street Journal Deal Journal, a recent post featured William Ackman of Pershing Square Capital and his strategies for short investors. One key idea that I took away was:

Find a theme and export it: Ackman says he invested in Sears and Sears Canada because the retailing companies financed their credit-card receivables on its own balance sheet, which wasn’t well-understood by the markets. He used the same kind of thinking to tackle Target, which he believed was strong company with a solid debt profile and also one of the only retailers to still finance its credit cards in-house.In the case of Sears, Ackman evaluated it as its component parts, including Sears Hardware, Home Services, Sears Canada, Land’s End and Sears Mexico, all of that is before you get to the company’s extensive real estate value. “The only thing wrong is the stock price,” he said, a line that drew laughs, because Ackman acknowledged later, it bore a similarity to the old joke about “other than that, how was the show, Mrs. Lincoln.”

Bill Ackman Part II: Eight Easy Steps to Becoming a Short-Seller (WSJ)

I’ve noticed a few themes playing out so far this year: railroads, real estate rich fast food chains, shorting bond insurers, shorting investment banks/mortgage companies, brazilian banks, and so on.

Today, Bloomberg announces Ackman’s new short.

Hedge fund manager Bill Ackman, who correctly predicted shares of MBIA Inc. and Ambac Financial Group Inc. would tumble, said he now is betting against Financial Security Assurance Holdings Ltd.

Financial Security may be insolvent because it sold investment contracts backed by mortgage securities that have tumbled in value, Ackman, 42, told a conference hosted by law firm Jones Day yesterday in New York. Financial Security, a New York unit of Brussels and Paris-based Dexia SA is one of two bond insurers to retain their AAA credit ratings after rivals were roiled by losses from collateralized debt obligations.

“The market has not woken up to FSA,” said Ackman, who runs the $6 billion Pershing Square Capital Management hedge fund. Ackman says he will make hundreds of millions of dollars if MBIA and Ambac go bankrupt. “FSA is AAA stable, just don’t look too close.”

We’ve already seen Ackman’s thorough due-diligence employed in his analysis of MBIA (MBI). This could be another fine short opportunity, especially if you’re betting that the credit markers will continue to deteriorate.