There are five characters in this story ―

1. William Ackman (better known as Bill Ackman), the billionaire investor.

2. Pershing Square Capital Management, the hedge fund he founded in 2004.

3. Warren Buffett, who needs no introduction.

4. Berkshire Hathaway, the world’s largest holding company (a company that invests in other companies) founded by Buffett, and

5. Howard Hughes Holdings (HHH), a real estate company where Ackman was the Chairman for over a decade until last year.

And now, Bill Ackman wants to be the next Warren Buffett.

If that doesn’t make sense, he’s considering buying a larger stake in HHH and turning it into a powerful holding company. Or, as he puts it, ‘the Berkshire Hathaway of today’.

That’s a bold claim. After all, Berkshire Hathaway didn’t become a giant company overnight. It started as a struggling textile company in New England. But in 1965, Buffett took over, sold off its cash-burning assets, and invested in more promising businesses. A classic example? Fruit of the Loom. The clothing company filed for bankruptcy in 1999, and Buffett waited patiently for its value to plummet. Then, in 2002, he swung by to buy it at a whopping 97% discount to market value, eventually turning it into one of the world’s leading clothing brands.

It’s a classic piece of Berkshire Hathaway’s playbook: Identify undervalued businesses, turn them around, and create a holding company that shareholders can’t resist.

That’s exactly what Ackman is trying to do. He wants to increase his stake in HHH from its current 37% to 48%, take over as CEO, and turn it into a behemoth like Berkshire Hathaway.

Can he really do that? Well, I’m not sure.

At first glance, Ackman and Buffett seem like polar opposites, despite both being value investors. Ackman is known as an activist investor who shakes up companies he believes have untapped potential. He is not afraid to shake up management, push for big changes, and force a transformation to unlock shareholder value quickly.

Buffett, on the other hand, is a passionate value investor, the kind who picks undervalued companies that could be great in the long run. He injects capital into them and then patiently steps back to let the company run its course, trusting that it will recover over time.

But interestingly, Buffett was not always the passive or hands-off investor we know today. Consider Berkshire Hathaway, a great example of Buffett’s activist and aggressive investing. Buffett called it the dumbest stock he ever bought because he bought it out of spite. Yes. In 1962, Buffett acquired a significant stake in Berkshire Hathaway. He agreed to sell his stock to Seabury Stanton, the company’s CEO at $11.50 per share. But Stanton gave him a low price of just $11.375 per share.

This upset Buffett a bit. Instead of selling or walking away, he did the opposite. He started buying more stock, took control of Berkshire Hathaway, and fired Stanton. While that may sound trivial, Buffett himself called it a $200 billion mistake because he spent years restructuring the failing textile company and turning it into the powerhouse it is today.

This kind of aggressive, high-risk activism sounds a lot like Bill Ackman’s thinking today.

Take Herbalife, for example. Ackman once criticized it as a pyramid scheme and shorted its stock (that is, selling stocks you don’t own and waiting for the price to drop). The stock fell at first.

But then it skyrocketed. As a result, Ackman was forced to exit his position, absorbing about $1 billion in losses in the process.

Another interesting thing here is that Buffett hasn’t been an aggressive investor forever. He’s evolved. He’s shifted to a more passive, long-term approach since taking control of Berkshire Hathaway.

And guess what? Ackman says he wants to do the same. He announced in 2022 that he’s done with activist short selling and is shifting to a more Buffett-like, long-term investing style.

But does that mean Ackman will succeed?

Not really. Having similar trajectories doesn’t make Ackman the next Buffett or make HHH the next Berkshire Hathaway. I have three solid reasons for this.

First, HHH is certainly undervalued. But that’s not a lost cause. It’s far from a struggling company in need of a savior. Its shares are certainly down considerably from their 52-week high, but investors know how valuable they can be.

Consider Pershing Square’s takeover bid for HHH. Ackman initially offered $85 per share, but Pershing shareholders were not willing. They believe HHH is worth closer to $120 per share. So Ackman raised his offer to $90, a premium over the current market price of $73. And it seems more like a desperate chase than a strategic move.

Think about it. The company sits on vast tracts of undeveloped land, some of which will be used to house a massive film studio in partnership with Sony, a project that aims to produce blockbuster movies over the next decade. So when you factor in its future potential, HHH is probably worth more than its current market price per share. That’s not what Buffett would consider a discount value investor.

Second, if Ackman truly believes in turning HHH into the next Berkshire Hathaway, why is he offering cash to the selling shareholders? Why doesn’t HHH instead allow its investors to own a piece of the newly merged entity? That would be a sign that it believes in its plan and that shareholders will make money along with it. It could use cash, along with Pershing Square’s funds, to turn HHH into the powerhouse it envisions. But it doesn’t, and that raises a big question: Is it fully convinced of its own plan?

Finally, Pershing Square plans to charge HHH a 1.5% management fee to “better manage its funds.”

Hmm…

That’s strange, because instead of injecting capital into the company, it’s actually withdrawing money.

Now, you could argue that Buffett is doing something similar with Berkshire Hathaway. He’s using his capital to diversify and grow the business.

But there’s one big difference. Berkshire Hathaway was a dying textile company. Demand for its products was declining, and it didn’t make much sense to put more money into the company.

HH, on the other hand, is a real estate company. Real estate isn’t dead. It has a lot of potential. Growth needs more capital, not less.

At this point, it feels like Ackman is chasing an undervalued jewel, but the math doesn't add up. Just saying he can build the next Berkshire Hathaway doesn't magically make him Warren Buffett.

So yeah, for now, we'll just have to wait and see if Ackman is fooling us.