The current issue of Vanity Fair has a profile of William Ackman, the billionaire hedge fund manager who’s trying to bring down Herbalife. Ackman’s friends and enemies call him Bill; I know him as Billy.
You see, Billy Ackman and I grew up together in Chappaqua, New York. He was a year ahead of me in school. Our families went to the same synagogue. I knew his parents, and his older sister and my sister were in the same class. We weren’t friends, and he never made much of an impression on me. He was smart, but in the way many kids in Chappaqua were smart: he got good grades, obsessed about college, went to Harvard.
What I didn’t know was this:
In 1984, when he was a junior at Horace Greeley High School, in affluent Chappaqua, New York, he wagered his father $2,000 that he would score a perfect 800 on the verbal section of the S.A.T. The gamble was everything Ackman had saved up from his Bar Mitzvah gift money and his allowance for doing household chores. “I was a little bit of a cocky kid,” he admits, with uncharacteristic understatement.
Tall, athletic, handsome with cerulean eyes, he was the kind of hyper-ambitious kid other kids loved to hate and just the type to make a big wager with no margin for error. But on the night before the S.A.T., his father took pity on him and canceled the bet. “I would’ve lost it,” Ackman concedes. He got a 780 on the verbal and a 750 on the math. “One wrong on the verbal, three wrong on the math,” he muses. “I’m still convinced some of the questions were wrong.”
Ackman has made billions of dollars since 1984. According to Vanity Fair, he owns a $22 million mansion in the Hamptons, an estate in upstate New York, a co-op in a “historic” building on Central Park West, and a private Gulfstream 550 jet. He started his own hedge fund with a quarter-million dollars from Marty Peretz, who was his professor at Harvard (the only reason I could possibly imagine for taking a course with Peretz is that you think he might some day help you in just this way). He goes bone-fishing (whatever that is) in Argentina. He likes to say things like “Tennis, I practice. Presentations, I don’t.”— which I gather is hedge fund for “shaken, not stirred”—and “You know what? It’s time for me to do something for cancer.”
But with all that, he still remembers his SAT scores—and the number of questions he got wrong—as if he took them yesterday.
You see, Ackman is one of those guys for whom phrases like “smartest guy in the room” mean something. That’s a phrase I’ve been thinking about of late. I know smart people, but their minds are so various and incommensurate, it’d be impossible to rank them according to intelligence. They’re all smart, but in different ways: one sees deeply, one sees quickly, one sees things no one else sees.
But Ackman operates in a world—and it’s not just Wall Street; you can also find it in DC, the media, the law, and some parts of academia—where rankings of this sort mean something. They have to: no matter what the endeavor, someone always has to come out on top or in first. Whether it’s the most money, the biggest house, or the fastest cyclist.
It happened last summer when Ackman decided to join a group of a half-dozen dedicated cyclists, including [billionaire hedge-fund dude Daniel] Loeb, who take long bike rides together in the Hamptons. The plan was for Loeb, who is extremely serious about fitness and has done sprint triathlons, a half-Ironman, and a New York City Marathon, to pick up Ackman…The two would cycle the 20 or so miles to Montauk, where they would meet up with the rest of the group and ride out the additional 6 miles to the lighthouse, at the tip of the island. “I had done no biking all summer,” Ackman now admits. Still, he went out at a very fast clip, his hypercompetitive instincts kicking in. As he and Loeb approached Montauk, Loeb texted his friends, who rode out to meet them from the opposite direction. The etiquette would have been for Ackman and Loeb to slow down and greet the other riders, but Ackman just blew by at top speed. The others fell in behind, at first struggling to keep up with the alpha leader. But soon enough Ackman faltered—at Mile 32, Ackman recalls—and fell way behind the others. He was clearly “bonking,” as they say in the cycling world, which is what happens when a rider is dehydrated and his energy stores are depleted.
While everyone else rode back to Loeb’s East Hampton mansion, one of Loeb’s friends, David “Tiger” Williams, a respected cyclist and trader, painstakingly guided Ackman, who by then could barely pedal and was letting out primal screams of pain from the cramps in his legs, back to Bridgehampton. “I was in unbelievable pain,” Ackman recalls. As the other riders noted, it was really rather ridiculous for him to have gone out so fast, trying to lead the pack, considering his lack of training. Why not acknowledge your limits and set a pace you could maintain? As one rider notes, “I’ve never had an experience where someone has gone from being so aggressive on a bike to being so hopelessly unable to even turn the pedals…. His mind wrote a check that his body couldn’t cash.”
Apparently this story “is so widely known in the hedge-fund eco-system that it has practically achieved urban-legend status.” You might think people who make and break economies over breakfast would have something else to talk about. But when every last activity in life is a race, and someone must always win or lose, a weekend ride becomes just as much a revelation of the whole as a morning trade.
What’s odd in Ackman’s case is how loathed he is by his colleagues. So much so that they’ve banded together to take him down in this Herbalife deal.
Ackman says he suspected, when he “shorted” (i.e., bet against) Herbalife, that other hedge-fund investors would likely see the move as an opportunity to make money by taking the other side of his bet. What he hadn’t counted on, though, was that there would be a personal tinge to it. It was as if his colleagues had finally found a way to express publicly how irritating they have found Ackman all these years. Here finally was a chance to get back at him and make some money at the same time. The perfect trade. These days the Schadenfreude in the rarefied hedge-fund world in Midtown Manhattan is so thick it’s intoxicating.
So why is Ackman the object of such hate?
It’s Ackman’s perceived arrogance that gets to his critics. “The story I hear from everybody is that one can’t help but be intrigued by the guy, just because he’s somewhat larger than life, but then one realizes he’s just pompous and arrogant and seems to have been born without the gene that perceives and measures risk,” says [Robert] Chapman. “He seems to look at other members of society, even legends such as Carl Icahn, as some kind of sub-species. The disgusted, annoyed look on his face when confronted by the masses beneath him is like one you’d expect to see [from someone] confronted by a homeless person who hadn’t showered in weeks. You can almost see him puckering his nostrils so he doesn’t have to smell these inferior creatures.
Notice what Chapman says: Ackman treats his colleagues as if they were the homeless. In other words, it’s fine, even expected, to treat the homeless—and all the other little people—that way. As Ludwig von Mises wrote to Ayn Rand: “You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your conditions which you simply take for granted you owe to the effort of men who are better than you.” What’s not fine is to treat the big people that way.
Ackman’s mistake is that he takes the “smartest guy in the room” business too seriously. He really thinks he’s that dude. So much so that he’s willing to treat the other guys in the room as if they weren’t. That’s a no-no, and now they’re going to take him down for it.
Nietzsche understood this dynamic all too well. In an essay from 1872, “Homer’s Contest,” he remarked upon the centrality of competition to the Greek state. Not economic competition but other forms of contest: military, athletic, aesthetic, and so on. The idea was that “every talent must develop through a struggle” with one’s peers, but the point of that struggle was to serve the good of the state.
From childhood, every Greek felt the burning desire within him to be an instrument of bringing salvation to his city in the contest between cities: in this, his selfishness was lit, as well as curbed and restricted.
But when a competitor’s ambition is so unhinged, when he not only tries but actually manages to make his way to the top, and stay there, he must be removed. For the good of the state. That, says, Nietzsche, is the origins of the practice of ostracism. And if his competitors can’t do it, the gods will: they step in and take him out.
Why should nobody be the best? Because with that, the contest would dry up and the permanent basis of life in the Hellenic state would be endangered….the preeminent individual is removed so that a new contest of powers can be awakened: a thought which is hostile to the “exclusivity” of genius in the modern sense, but which assumes that there are always several geniuses to incite each other to action, just as they keep each other within certain limits, too.
Back to Wall Street: If the “smartest guy in the room” is going to serve the purpose for which it was coined—to spur little Billy Ackman’s to work hard, get into Harvard, and make lots of money—it has to remain an elusive prize. Something to strive for, never to be claimed.
No one, it turns out, can ever really be the smartest guy in the room. For two reasons. First, to make sure that everyone keeps fighting to get in, and stay in. Second, to make sure that everyone who doesn’t get in is kept out.