Hedge fund maven Bill Ackman buys a tenth of Chipotle to help turn the company around
Bill Ackman is one of the most famous hedge fund managers out there — averaging a yearly return of 12%, "one of the best records in the business" according to Reuters.
He also is known for his tendency to make bold bets.
For instance, he is still in the midst of a yearslong quest to take down the nutrition supplement company Herbalife, which he believes to be a pyramid scheme.
Now, Ackman is betting that he can turn around Chipotle. He announced on Tuesday that he's buying 2.9 million shares of the company's stock, a more than $1 billion purchase which will give him ownership of nearly a tenth of the company.
The beleaguered fast food chain's stock price has fallen 45% from its all-time high last year, thanks to an outbreak of food-borne illness that reached 15 states.
Troubles didn't stop there. Back in July, the company's chief creative and development officer was put on leave after facing charges for cocaine possession.
The company has worked hard to bring back customers by being generous with free burritos, setting up a loyalty program and revamping its food-safety program.
The company has also been mocked for some of its social media outreach, with one thirsty tweet standing out in particular:
However, Ackman's stake in the company might represent something of a turning point.
At nearly 10%, Ackman will own a fairly large percentage of the company's shares, the most of any investor except Fidelity Investments.
Vouching for the company, which his firm said in a regulatory filing was "undervalued," is a vote of confidence in the brand. Shares immediately surged after the news on Tuesday, and continued to move up during pre-market trading on Wednesday morning.
While the move might seem bold at first, Ackman's play might actually be a testament to one of the oldest axioms of stock-market investing: Buy low, sell high.
Though it's fairly intuitive that one would seek out bargains in the stock market, as one would when they're shopping for anything else, many individual investors tend to do the opposite.