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In today's column: Bill Ackman vs. Carl Icahn, Steve Tusa vs. Larry Culp, and how to invest like Warren Buffett if you aren't Mark Spitznagel.

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Ackman Buys the Dip & GE Gets the Ax

The inside conversation on Wall Street about Pershing’s new investment thesis, the wisdom of Warren Buffett, and JPMorgan in the penalty box.

The bloom is off the rose for Netflix, which has dropped some 40 percent in value ever since Wall Street decided that the former hyper-growth technology platform has become something decidedly less sexy: a maturing, cash-positive media company. As my partner Matt Belloni recently wrote, this is more than just a correction as part of the broader Nasdaq sell-off. Investors are afraid that more competition and weakening subscriber growth portends a harder, more costly path forward. So naturally my friend Bill Ackman, the hedge fund investor, has stepped forward to buy the dip.

Ackman’s thesis is simple: the Netflix stock is oversold. On Friday, January 21, Ackman’s firm, Pershing Square Capital Management, began accumulating more than 3.1 million shares—a position worth more than $1 billion. From a recent low of around $354 a share on January 24, the stock has rebounded to around $384 a share, potentially giving Ackman a profit of some $90 million already. (He has not disclosed the average purchase price on his 3.1 million shares.) In a letter to his investors, Ackman praised Netflix for its strong recurring revenue, “best-in-class” management team, formidable “pricing power,” and the possibility of “substantial margin expansion” over a growing—albeit somewhat less rapidly than desired—subscriber base. 

It’s hard to argue with Ackman’s thesis. He wrote that he was pleased the market’s overreaction to the less-than-robust subscriber numbers in the last quarter gave him an opportunity to buy in at a 40 percent discount. “We are pleased to add Netflix to our portfolio,” Ackman wrote. “Many of our best investments have emerged when other investors whose time horizons are short term, discard great companies at prices that look extraordinarily attractive when one has a long-term horizon.”

In this regard, Ackman seems to be taking a page from his one-time nemesis, Carl Icahn...

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