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Bill Ackman: a $27 million hedge and a $4 billion lesson

In March 2017, Bill Ackman sold his fund's stake in a drug company after losses reported above $4 billion. Three years later, he spent about $27 million on market insurance just before Covid hit. The two trades tell one story about protecting the downside.

Story · 7-minute read · Updated 2026-10-21

Who they were

William Albert Ackman was born in 1966 and grew up in Chappaqua, New York. His father ran a property finance firm.

He studied at Harvard College and then Harvard Business School. In 1992, at 26, he co-founded an investment firm, Gotham Partners, with a classmate. It wound down in the early 2000s after some losing investments.

In 2004 he started Pershing Square Capital Management. Its style is "activist" investing: buy a big stake in a company, then push its board for changes.

What happened

2002–2008: MBIA. Ackman argued publicly for years that the bond insurer MBIA was far riskier than its top credit rating suggested. Many dismissed him. In the 2008 crisis, MBIA's rating was cut and its shares collapsed. It's often cited as an early win.

December 2012: Herbalife. He announced Pershing had bet about $1 billion that shares of Herbalife, a nutrition company, would fall. He called its business model a pyramid scheme. Herbalife denied this.

Other big investors took the other side, including Carl Icahn. Herbalife's shares rose instead of falling. Ackman closed the bet in 2018, after more than five years. The loss was estimated in the press at close to $1 billion.

2015–2017: Valeant. Pershing built a large stake in Valeant Pharmaceuticals, a drug company growing fast through deals and price rises. In 2015, questions about its drug pricing and accounting hit the stock. It fell from above $250 to around $11.

In March 2017, Ackman sold the whole stake. Filings showed losses on the shares and options above $4 billion. He later called the investment a big mistake.

2015–2018. Pershing's funds had several losing years in a row. Investors withdrew money.

February–March 2020: the hedge. As Covid spread, Ackman worried markets weren't ready. Pershing bought Hedging protection on credit indexes, a kind of insurance that pays when companies' borrowing costs jump. It cost about $27 million.

Within weeks, as markets crashed, that protection was worth about $2.6 billion. Pershing sold it around 23 March 2020 and put much of the money into stocks.

The moment everyone remembers

Many people remember a televised interview on 18 March 2020, when an emotional Ackman warned that "hell is coming" and urged a national shutdown. Some critics questioned the timing, since his fund held the hedge. In a letter to investors days later, he said his message had been about acting early, and that his fund was buying stocks around then, not selling them.

The trade itself is the more useful part. A small, known cost bought protection against a large, unknown loss. If nothing bad had happened, Pershing would have lost the $27 million and moved on.

That's the opposite shape from Valeant, where a big position kept losing for nearly two years.

What it teaches

1. Know your worst case before you start

The 2020 hedge had a fixed cost. The worst outcome was known on day one.

Every trade should work the same way. Decide your exit first, and you know your maximum loss before you enter. See how to set a stop-loss and the risk-reward calculator.

2. A position that keeps falling is telling you something

Valeant fell for months while new problems kept appearing. Holding on hoping for a turn is one of the most expensive habits in investing.

A fixed exit removes the debate. If the price reaches the point that proves you wrong, you're out. See how to handle a losing streak.

3. Being public makes it harder to change your mind

Both Herbalife and Valeant were very public positions. Admitting a mistake is harder when the world is watching.

You may never be on TV. But you might tell friends, or post a trade online. Your plan, not your pride, should decide your exit. Write it down in a trading journal before you share anything.

4. Big wins don't erase the need for small risk

The 2020 hedge was a huge, famous win. It came after years of painful losses. Neither one is a pattern to copy.

What lasts is the rule underneath: a small, fixed slice of risk per trade. See risk management for beginners.

What it doesn't mean

It doesn't mean buying "crash insurance" is a smart habit. Most of the time, protection like that expires worth nothing. The 2020 payoff was rare.

It doesn't mean Ackman's trades can be copied. His tools, such as credit default swaps on indexes, aren't available to most retail traders. And his gains and losses are history, not a guide.

And it doesn't mean he was simply right or wrong. Like most investors with long careers, he's had big wins and big losses. The useful part is the shape of each trade, and how much it could lose.

Timeline

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