Why You Are a Better Investor Than Bill Ackman by Stephen Gandel @FortuneMagazine February 11, 2016, 3:37 PM EST E-mail Tweet Facebook Linkedin Share icons Bill Ackman on Wednesday evening announced that the publicly traded portion of this hedge fund Pershing Square is already down 8.2% in February. For the year, the fund has lost 18.6% of its value. And that follows an abysmal performance in 2015, when the fund dropped nearly 21%, making it one of the worst performing of the largest hedge funds for the year. But here’s what’s even more unimpressive about Ackman’s performance: You are likely a better investor than he is. Much better, in fact. As of the end of last year, Ackman’s fund is now likely close to flat since it launched a little over three years ago, up a few percentage points at best after fees. During that same period, the S&P 500 rose by nearly 40%. So, anyone who put their money into a low cost S&P 500 fund has done considerably better than Ackman over the past three-plus years. And recently, he’s been a persistent under-performer. Assuming the fund’s performance doesn’t improve in February, Ackman’s fund will have underperformed the S&P 500 for six of the past seven months. Put another way, if you had invested $1 in the S&P 500 at the time Ackman started his latest fund, you would now have $1.40. If you had invested that dollar with Ackman, you would now have $1. And you would have paid him a considerable fee along the way just to get your money back. So, why have you, and everyone else who has invested in a plain vanilla index fund, done a lot better than Ackman? Here’s how: You are diversified. Diversification is a key investing rule. And it’s one you most likely follow. If you have your money in the S&P 500, your investment portfolio is diversified over 500 stocks. But even if you aren’t in the S&P 500, most mutual funds and ETFs are invested in well over 100 stocks. And you probably have a few of those. Ackman’s hedge fund, meanwhile, holds just 11 stocks. That doesn’t include his bet against Herbalife hlf or his other shorts. And that lack of diversification has hurt him recently. Of his 11 stocks, all 11 have been down well into the double digits over the past six months. His worst performing stock, chemical company Platform Specialties Products, has dropped 76% in the past six months. You stay away from overvalued stocks. In the middle of last year, Valeant’s shares reached a high of $262. That gave the stock a price-to-earnings multiple of 27, based on the past 12 months. And that’s if you go by Valeant’s wacky accounting, which excludes a lot of costs. Go by generally accepted accounting rules and shares of Valeant vrx were trading at a p/e of 106. That should have been a big, bright sign that it was time to sell at least some of your holdings. Valeant’s shares had more than tripled in the past two years. But the high valuation didn’t seem to concern Ackman, who earlier in the year had been buying more Valeant stock. At the time, the hedge fund manager had more than $4.3 billion invested in shares of Valeant, or more than 30% of the public fund’s disclosed holdings. Shares of Valeant have since tumbled 63%. You are not over confident. In mid-December of last year, Ackman wrote a letter to his investors proclaiming that his portfolio was up. Meanwhile, the actual stock prices of the companies in his portfolio had plummeted. But he didn’t think that meant the value had fallen. In fact, he said, by his own calculations, the intrinsic value of nearly all of the fund’s holdings, including Valeant, had increased. There was therefore no reason to rethink things. Late last year, Ackman bought even mores shares of Valeant. A month later, in another letter to shareholders, he came up with another doozy to explain his poor performance. He essentially said he was too good at investing. In an effort to mimic his performance, other hedge funds had piled into the same stocks that he had bought. Now that those stocks were falling, the investment managers—the ones who, unlike Ackman, did not have the confidence of their investors—were being forced to sell to appease clients who wanted their money back. And it was that forced selling that was hurting Ackman’s portfolio. So yes, Bill Ackman, your portfolio isn’t down because you did poor research and bought into a bunch of overvalued stocks that have since plummeted in value; nope, it’s because you are too popular. Luckily, the rest of us are just average investors. So average, in fact, that you were able to achieve a better investment record than Bill Ackman. Don’t let it go to your head. Editor’s Note: A previous version of this story said that the public portion of Pershing Square’s fund had underperformed the S&P 500 for six months in a row. In fact, the fund has underperformed the index for six of the past seven months.