Today I am reviewing the accounting textbook Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street’s Bluff. This is an ongoing process, so send me your feedback as to how I can provide you with more value in reviewing these books (send me an email here or leave a comment below).
I’ve been meaning to read Christine Richard’s book for a while. I thoroughly enjoyed David Einhorn’s book, Fooling Some of the People All of the Time, and a few people recommended Confidence Game as a good complement. Having now read both, I fully agree with that assessment. Both are about young hedge fund managers who uncovered shocking cases of corporate malfeasance, took short positions and then encountered startling resistance from the investment community and regulators when they presented incontrovertible evidence of the wrongdoing.
Confidence Game is about Bill Ackman, founder of Pershing Square Capital Management. He identified municipal bond insurer MBIA as being systemically important, yet drastically understating the level of risk it was taking on (fooling the easily fooled ratings agencies). Ackman bet, via credit
default swaps, against MBIA. He then set out to present his case. He was one of the few willing to challenge the company.
He didn’t ask people in the room what they thought about the emperor’s new clothes or if they wondered whether the emperor might be a bit cold… He just pointed his finger and said “Naked!”
As expected, Ackman’s position caused quite a stir which led to increased scrutiny. Unfortunately, the scrutiny was directed not at MBIA, but rather at Ackman and his firm! Analysts, ratings agencies and regulators looked first to discredit the “evil short seller” rather than acknowledging the soundness of his argument and investigating MBIA. Even the media joined in the attack, with the Wall Street Journal and the New York Times taking a decidedly negative tone on Ackman while ignoring his arguments and rushing to MBIA’s defense.
This is a story of courage and dogged persistence in the face of significant, well-funded and highly-connected opposition. Hedge fund managers (and especially short sellers) are all too often portrayed in a negative light. I believe this book (and Einhorn’s book) present a good counterbalance to the media’s bias. The truth may lie somewhere in the middle (e.g. check out the details of Prem Watsa & Fairfax Financial’s struggle with less scrupulous short sellers), but from my perspective, Einhorn and Ackman provide a public service in exposing corruption, and I am happy for them to earn the kind of money they do as a result.
Also, this book shows Ackman’s analytical rigor to be on par with Einhorn’s. Both are a lesson in what it means to do quality research, and should serve as benchmark against which the rest of us should measure our own analysis.
I enjoyed this book, and I think you will too. I highly recommend it.
Disclosure: This book was provided by the publisher