Bill Ackman's Top 10 Rules for Success

Some investors chase the next hot stock. Bill Ackman built one of the greatest investing careers by thinking differently, doing the work, and making consistent progress over time.

My method was just, you know what, I'm going to make a little progress every day.

He looks for businesses with a real margin of safety.

A big part of investing is not losing money.

He does the research before making big decisions.

Public filings of companies generally give you a lot of information, but not everything you want to know. And you can learn more by talking to experts.

He learns from failures instead of hiding from them.

Success is not a straight line up. There are major bumps along the way.

He understands what motivates people.

If you want to understand why someone's doing something, understand what incentives they have.

And he separates real investing from speculation.

Speculation is just— it's a bit like short-term trading crypto. And investing is, you know, doing your homework, digging down, understanding a business.

Today, we're breaking down the top 10 rules for success from Bill Ackman. Whether you want to become a better investor, build a better business, or simply make smarter decisions, these lessons can change the way you think. The motivation?

Watch Top 10 with Believe Nation.

If you've been here before, drop a hashtag #believe in the comments below so I can feature you here in a future video. And if you're new, welcome to Believe Nation, the only channel that helps you believe in yourself daily, one video at a time. Okay, let's kick it off with rule number 1: make progress every day.

One, it's important to keep perspective, but the way you manage through that kind of stressful situation— all of us are going to have a moment like this, Unfortunately, it's going to be, you know, a health issue. It's going to be you're fired from your job, your startup fails. You will, you will have, you know, and it's even harder when you've fallen from a high place to a low place. So my method was just, you know what, I'm going to make a little progress every day. Compounding is the solution to the vast majority of progress in the world, and personal compounding is even more powerful because you make, you know, 0.1% progress every day. It doesn't sound like a lot, but annualized You know, it's a huge amount. And so what I said to myself going through this period is, each day I'm gonna make progress. I'm not gonna look back to where I was, because if I look there, I'm gonna get discouraged. I'm just gonna focus on the next step, and then the next step, and the next step. And you don't notice any meaningful change for the first few weeks, but about 90 days in, you're like, okay, I'm here. Here's where I was. Now I used to be up there, but I'm just gonna keep compounding. And the curves of compounding, which I'm sure you know well, start like this, they don't look like much, and then they look like COVID and they sort of eventually kind of take off.

Rule number 2: Have a margin of safety.

Every consumer has a view on different brands and different companies. And, you know, what we look for are sort of these non-disruptible businesses, a business where you can kind of close your eyes, stock market shuts for a decade, and you know that 10 years from now it's going to be a more valuable, more profitable company. So we own a business called Universal Music Group. It's in the business of helping artists become global artists through the recorded music business. And it's in the business of owning rights to sort of the music publishing rights of songwriters. And I think music is forever, right? Music is a many thousand-year-old part of the human experience. And I think it will be thousands of years from now. And so that's a pretty good backdrop to invest in a company. And the company basically owns a third of the global recorded music. That's, you know, the most dominant sort of market share in the business. They're the best at taking an artist who's 18 years old, who's got a great voice and has started to get a presence on YouTube and Instagram and helping that artist become a superstar. And that's a unique talent, and the result is the best artists in the world want to come work for them. But they also have this incredible library of, you know, the Beatles, the Rolling Stones, U2, etc. So, and then if you think about what music has become— used to be about records and CDs and, you know, 8-track tapes for those of whom— and it was about a new format, and that's how they drive sales. And it's become a business which is like the podcast business, about streaming. Streaming is a lot more predictable than selling records. You can sort of say, "Okay, how many people have smartphones? How many people are going to have smartphones next year?" There's a kind of global penetration over time of smartphones. You pay, call it $10, $11 a month for a subscription or less for a family plan, and you can kind of build a model of what the world looks like and predict the growth of the streaming business. You predict what kind of market share Universal is going to have over time. And you can't get to a precise view of value, you can get to an approximation. And the key is to buy at a price that represents a big discount to that approximation. And that gets back to Ben Graham. Ben Graham was about what he called— he invented this concept of margin of safety. You want to buy a company at a price that if you're wrong about what you think it's worth and it turns out to be worth 30% less, you paid a deep enough discount to your estimate that you're still okay. It's about investing. A big part of investing is not losing money. If you can avoid losing money and then have a few great hits, you can do very, very well over time.

Well, number 3 is reframe failure.

If someone's at a top business school or college or whatever, uh, they had to have a lot of success on their way there. And, uh, you learn from success and it motivates you, um, but What I've learned over time is that success is very, you know, success is not a straight line up. There are major bumps along the way and truly successful people just deal with sort of failure well. And a big part of that is saying, you know what, everything that is bad that happens to me is actually good. I just need to reframe my life and think about it. So it's either, you know, you made a big mistake. Okay, so now you've had the experience that you're going to learn from, or You've had a medical setback, but that motivates you to be really into, you know, nutrition and your health.

You know, you—

so almost everything in life that is— that you think of as bad in the short term ends up being good in the long term. You know, you go through a difficult divorce, but it opens— it creates the opportunity for you to meet someone new. I mean, just think about, you know, Almost every life experience you can look at from that through that lens. And I think that helps motivate. I wanna keep you optimistic, which I think is a key success factor. And, uh, it's hard to get down if you say even the bad things that happen to me are ultimately good once I take a, take a look, a close look.

Number 4, do the research.

So Chipotle, what attracted us initially is the stock price dropped by about 50%. Uh, great company, great concept. Um, you know, athletes love it, consumers love it. Healthy, sustainable, fresh food made in front of your eyes. And, uh, you know, great. Steve Ells, the founder, did an amazing job, but ultimately the company's lacking some of the systems and had a food safety issue. Consumers got sick, almost killed the brand. Uh, but the reality of the fast food quick service industry is almost every fast food company has had a food safety issue over time., and the vast majority have survived. Uh, and we said, look, such a great concept, but they, you know, their approach was not— it was far from ideal. But we start with usually reading the SEC filings. So companies file a 10-K or an annual report, and they file these quarterly reports called 10-Qs. They have a proxy statement which describes kind of the governance, the board structure. Um, conference call transcripts are publicly available. It's kind of very helpful to go back 5 years and kind of learn the story. You know, here's how management describes their business. Here's what they say they're going to do, and you can follow along to see what they do. Uh, it's like a historical record of, you know, of how competent and, uh, truthful they are. It's a very useful device. And then of course looking at competitors and thinking about, you know, who could— what could dislodge this company. Um, uh, you know, and then we'll talk to— if it's an industry we don't know well, we know the restaurant industry really well, Music industry, you know, we'll talk to people in the industry. We'll try to understand, you know, the difference between publishing and recorded music. We'll look at the competitors. Um, we'll talk to— we'll read books. I read a book about the music industry, or a couple books about the industry. Um, so it's, it's a bit like a big research project. Uh, and these so-called expert networks now, and you can get pretty much anyone on the phone, uh, and they'll talk to you about an aspect of the industry that you don't understand, want to learn more about. Uh, try to get a sense, you know, public filings of companies generally give you a lot of information but not everything you want to know. And you can learn more by talking to experts about some of the industry dynamics, the personalities. You want to get a sense of management. Uh, I like watching, you know, podcasts. If a CEO were to do a podcast or a YouTube interview, you get a sense of the people.

Also, if you want to take real action after this video, I made a free worksheet just for you. It covers the top lessons from today gives you space to write your biggest takeaways and helps you build a simple action plan. It's 100% free.

Just click the link in the description below to go grab it.

I'll see you there. Rule number 5, look for incentives.

If you want to understand why someone's doing something, understand what incentives they have. It works particularly well in business. Um, you know, what are— if you see a company, you know, doing serial acquisitions, you know, how is the CEO being compensated? You know, how are the shareholders And sort of looking at the business. So just look for incentives and you understand why people do things. So getting those incentives designed correctly is probably one of the most important things one can do as a, you know, if you're on the board of a company, for example, or on a compensation committee, but it applies to everything.

Rule number 6, understand a royalty business.

The best business, I believe, is one that doesn't have to put up, invest capital. But earns a perpetuity growth annuity. Asset management's a great business if you can invest the assets well and you can get paid a fee off a base of assets of other people's money, but there are other businesses that meet that model. Tim Hortons is a franchise restaurateur. They have a brand, they have a system, and then the franchisees put up the capital and they get a royalty on every you know, coffee and donuts that's sold at Tim Hortons. Universal Music is a royalty on people listening to music. Hilton is a royalty on people staying in hotels. They own a brand, other people put up the capital. So most of the companies we invest in can be thought of as annuities or growth royalties. And the key is which, you know, it's predicting which of these royalties will endure. And that's a more complicated question.

Rule number 7, differentiate speculation and investing.

In your lecture on the basics of finance and investing, you mentioned a book, Intelligent Investor by Benjamin Graham, as being formative in your life. What key lesson do you take away from that book that informs your own investing?

Sure.

Actually, it was the first investment book I read, and as such, it was kind of the inspiration for my career and a lot of my life. So important book. You know, bear in mind, this is sort of after the Great Depression. People lost confidence investing in markets, World War II. And then he writes this book, it's for like the average man, and basically he says that you have to understand the difference between price and value, right? Price is what you pay, value is what you get. And he said the stock market is here to serve you, right? And it's a bit like the neighbor that comes by every day and makes you an offer for your house, makes you a stupid offer, you ignore it, makes you a great offer, you can take it. And that's the stock market. And the key is to figure out what something's worth and you have to kind of weigh it. He talked about the difference between— he said the stock market in the short term is a voting machine. It represents speculative interests, supply and demand of people in the short term. But in the long term, the stock market's a weighing machine, much more accurate. It's going to tell you what something is worth. And so if you can divine what something's worth, then you can really take advantage of the market because it's really here to help you. And that's kind of the message of the book.

In that same way, there's a kind of difference between speculation and investing.

Yeah.

Speculation is just a bit like buying, trading crypto, right?

Strong words.

Well, short-term trading crypto. Maybe in the long run there's intrinsic value, but Many investors in a bubble going into the crash were really just pure speculators. They didn't know what things were worth. They just knew they were going up. That's speculation. Investing is doing your homework, digging down, understanding a business, understanding the competitive dynamics of an industry, understanding what management's going to do, understanding what price you're going to pay. The value of anything, I would say, other than love, let's say, uh, is the present value of the cash you can take out of it over its life. Now, some people think about love that way, but it's not— it's not the right way to think about love. But it's, um, yeah, so investing is about basically building a, a model of what this business is going to produce over its lifetime.

Rule number 8: Model success.

My day job— our day job as a firm— is we buy minority stakes in companies and we help make them more successful. Like to own them for long periods of time. But we're not buying control. We're buying 5%, 10%, 2% of business, but we're pretty influential shareholders. But I've always had, you know, always admired Mr. Buffett. You look at Berkshire Buffett's history. 1955, he started a small partnership. By 1962, he started buying a stake in this crappy textile company because it was really cheap. By 1968, he had control of a not particularly good business, and he was sort of stuck. And he sort of got tired of managing money where the money could disappear, where people could add and subtract. And he kind of wound up his hedge fund. He was an activist hedge fund manager, if you go back and follow his history. And he took control of this business and he used it initially. First, he bought an insurance company, bought a bank, and then over time he built, obviously, trillion-dollar business. And I've always, you know, he's been an unofficial mentor of mine.

Rule number 9 is be direct.

My approach in business, in my personal life, in a management role is extreme candor. And I think that if you live that way, you know, you'll run the risk of offending various people over time, but you'll have much better relationships because, you know, if you tell people the truth, first of all, it's not typical. A lot of people, in the interest of politeness or fear of confrontation, or it's just uncomfortable, don't speak the truth. And that goes for people on boards. There are lots of examples of super talented people sitting around the room as an institution is failing. Think of all the banks during the crisis where people were not willing to confront the CEO. So I'm willing to confront the CEO, but I'm completely candid with him about his successes and his failures.

And rule number 10, the last one before a very special bonus clip, is don't follow the herd.

To be a successful investor, you have to be able to avoid some natural human tendencies to follow the herd. The stock market's going down every day, your natural tendency is to want to sell. When the stock market's actually going up every day, your natural tendency is to want to buy. So in bubbles, you probably should be a seller. In busts, you should probably be a buyer. And you have to have that kind of a discipline.

You have to have a stomach to withstand the volatility of the stock market.

I don't know. There are very few people. You look at the most successful people in the world. I know very few of them that haven't had a major failure. You know, if you read through the— they're not the financially most successful people. If you read through the Forbes billionaire list and you read their stories, you know, they've had failed businesses and they've lost everything and they've hung on. You know, they almost died holding on to the ledge.

You know, what's his name? The guy who owns CBS and Sumner Fire— Sumner Redstone. Redstone, yeah.

So there are lots of examples of people who had huge adversity. I think it's how you deal with adversity that determines your ultimate success, as opposed to how you deal with success that determines your ultimate success.

And congratulations, you're one video closer to who you're meant to be.

Believe.

For 10 more amazing rules from Warren Buffett, check the video right there next to me. I think you'll love it. Continue to believe, and I'll see you there.

You have been talking this philosophy for years.

It's no secret. It's no secret.

Why doesn't everybody do it?

Well, it requires patience, which a lot of people don't have, and people would much rather be, you know, promised that they're going to win a lottery ticket.