Hedge Fund Manager Bill Ackman Says Large, Boring Companies Can Now Drop 25% in a Day
Hedge fund manager Bill Ackman stated that large, seemingly boring companies can now drop 25% in a day, something that rarely happened when he entered the industry; about a quarter of U.S. companies are held by a combination of Vanguard, State Street, and Northern Trust, which compresses the float and amplifies the impact of marginal buyers and sellers on stock prices.
He pointed out that today's marginal buyers and sellers are institutions like Citadel or Millennium, which operate with high leverage, have large total positions, and are increasingly short-term focused; most investors are extremely concerned about the short term due to their compensation structures and will not buy unless they are confident prices will be higher before the end of the year.
Ackman noted that these forces lead to significant volatility, for example, IBM's stock can drop 25% when disappointing; for investors who can hold a long-term view, high-quality companies occasionally drop sharply due to short-term disappointments, creating buying opportunities as long as their long-term trajectory remains unchanged.
Passive funds hold most of the float and are structurally unable to sell due to bad quarters, while multi-strategy leveraged funds (pods) price based on short-term and high leverage, both of which cannot easily hold through bad quarters; this structure amplifies short-term shocks, allowing long-term capital to step in during volatility.
This mechanism shifts pricing power from long-term fundamental holders to short-term leveraged participants, with capital flowing to long-term positions that can tolerate and exploit single-day drops, benefiting patient capital while being pressured by strategies reliant on short-term performance and high leverage.
Retail investors and single-day options have also increased speculation, further amplifying marginal price fluctuations.
Source: Public Information
ABAB AI Insight
Ackman is known for his concentrated, long-term holdings in high-quality companies and occasionally using aggressive strategies; he recently attributed the market's significant daily volatility to passive holdings compressing the float and the short-term behavior of leveraged multi-strategy funds. His Pershing Square focuses on long-term fundamentals while also considering macro and volatility opportunities.
On the capital path, passive indices (like Vanguard) hold about a quarter of U.S. companies, reducing the free float; marginal prices are set by high-leverage, short-term pods like Citadel and Millennium, which cannot hold through bad quarters due to compensation and risk constraints; this explains why high-quality companies can experience historically rare single-day drops due to short-term disappointments.
Similar cases include changes in market volatility characteristics after the rise of indexing, and how multi-strategy hedge funds amplify price shocks through leverage and high-frequency adjustments; we are currently in a phase where passive holdings dominate equity, and active pricing is highly concentrated among leveraged short-term players.
Essentially, this is a transfer of pricing power and liquidity structure: it shifts price discovery from broad long-term holders to a few high-leverage short-term participants, amplifying the impact of bad quarters into significant drops; the "inability to hold" gap for long-term capital becomes a structural opportunity, with value shifting from short-term performance to the ability to withstand volatility.
ABAB News · Law of Cognition
- Passive holdings of the float, short-term leverage sets prices, and bad quarters turn into single-day drops.
- Most people cannot hold through bad quarters due to compensation, which itself is an opportunity for long-term capital.
- The thinner the float, the more the leverage and duration of marginal buyers and sellers can determine the price of the day.