When Trimming Costs You Millions

Sometimes selling early hurts more than selling late. Legendary investor Bill Ackman learned this lesson in the third quarter when his Pershing Square Capital Management hedge fund trimmed its position in Alphabet Inc. (GOOGL) (GOOG)—right before the Magnificent Seven stock went on a tear.

Ackman's fund reduced its Alphabet Class A exposure by 10% during Q3, cutting the position from 5,362,980 shares down to 4,843,973. The fund also held 6,324,031 Alphabet Class C shares at quarter-end. Overall, it was a quiet quarter for Pershing Square: no new positions initiated, and aside from the Alphabet reduction, only minor tweaks to three other holdings.

The timing? Not great. Alphabet Class A shares closed the third quarter on September 30 at $243.10. Since then, the stock has climbed over 20%, trading at $292.41 at the time of writing. That means Ackman's fund missed out on potential profits of roughly $25.6 million on the 519,007 shares it sold during the quarter.

The move likely surprised some investors, considering Ackman had increased his Alphabet stake by 21% just one quarter earlier in Q2, while also unveiling a new position in fellow Magnificent Seven member Amazon.com Inc. (AMZN). The about-face raised eyebrows.

We don't know exactly when during Q3 Ackman sold those shares or at what price, but with Alphabet hitting all-time highs throughout the fourth quarter, the fund definitely left money on the table.

But Don't Cry for Bill Just Yet

Before anyone starts a GoFundMe for Ackman over those missed millions, let's zoom out. His Alphabet bet remains massive, and it's paying off handsomely.

At the end of Q3, Pershing Square Capital Management still owned 6,324,031 GOOG shares and 4,843,973 GOOGL shares. Those positions have absolutely soared since quarter-end.

Based on current prices, here's the scorecard:

GOOG: $1.85 billion in value, up $311.8 million since the end of Q3.

GOOGL: $1.42 billion in value, up $238.9 million since the end of Q3.

Combined, those two positions have gained over $550.7 million since September 30. Not a bad quarter's work.

Alphabet Class C and Class A shares ranked as the fourth and seventh-largest positions in Ackman's hedge fund at the end of the third quarter, and they've likely climbed even higher in the portfolio rankings since then.

So yes, Ackman sold a chunk of his Alphabet stake a bit early. But his remaining bet on the tech giant continues to deliver for him and Pershing Square investors. Sometimes you trim at the wrong time and still win big.