Ackman's Farmer Mac Discovery

A story about how Bill Ackman's thorough analysis of Farmer Mac revealed fundamental flaws that Guy Spier had missed in his own investment analysis.

"I was invested in Farmer Mac because I was looking for companies similar to Freddie Mac and Fannie Mae, which Buffett was invested in. A few weeks after presenting it to our investment group, Whitney tells me Bill Ackman wants to talk to me because he's taking a massive short position.

Bill tells me he thinks the company is borderline fraudulent and invites me to his office to prove him wrong. He had downloaded all their mortgage-backed security documents - several meters worth of files. When you look at Freddie and Fannie's mortgage-backed securities, each one has hundreds of thousands of different individual mortgages, distributed across the country with different income categories. But when Bill downloaded Farmer Mac's, there were only 3 mortgages inside. The mortgage sizes were far larger too.

Bill said, 'This is business lending, this isn't a mortgage-backed security. There's no way you can call this a mortgage-backed security.' I debated him saying it had a government guarantee, but he maintained they were engaging in business-related lending that didn't deserve to be there.

We later got a meeting with management. When Bill asked them these same questions about why their securities were so different from traditional mortgage-backed securities, they had no good answers. At one point the CEO just said 'Well maybe this might not be the right investment for you.' It became one of only three stocks I've shorted in my life."