Bill Ackman is a renowned hedge fund manager and the founder of Pershing Square Capital Management, a firm managing over $12.9 billion in assets since its inception in 2004. His impressive portfolio includes household names such as Brookfield, Hilton, Chipotle, Restaurant Brands, Howard Hughes, Nike, Canadian Pacific, Alphabet, Seaport, and his most recent investment, Uber.
In an interview 4 years ago on Bloomberg’s The David Rubenstein Show, I watched Bill Ackman share his eight basic commandments of investing—principles that have guided him and his team through every investment decision. Bill Ackman emphasized that real expertise in investing comes from making mistakes, learning from them, and refining your strategy. His own challenging experience with his firm’s Herbalife investment served as a turning point, reminding him of the value of returning to his core principles.
These investment rules and criteria serve as a reminder to both myself and other investors that successful investing is all about discovering and buying the highest quality companies.
Bill Ackman’s eight commandments are more than just a set of guidelines—they represent a mindset that values:
- Discipline: Sticking to your core investing principles, even during market turbulence.
- Accountability: Learning from investing mistakes to avoid repeating them.
- Consistency: Maintaining a steady investment strategy to build long-term returns.
- Reflection: Continually assessing and refining your investment approach.
Bill Ackman’s Eight Investing Rules and Requirements
Inspired by a desire to instill discipline and focus within his team, Ackman had one of his team members engrave these eight rules onto a stone tablet—reminiscent of Moses’ Ten Commandments. This unique tablet now rests under every team member’s desk at Pershing Square, serving as a constant reminder of the standards they uphold. By adhering to these investing commandments, Ackman and his team have maintained the rigorous approach that drove the firm’s early success and continues to steer their investment decisions today.
Ackman’s investment journey has not been without its setbacks. The challenges he faced with the Herbalife investment provided him with a critical learning opportunity. Instead of straying from his well-established principles, this experience reinforced his commitment to them. Ackman believes that every mistake is a stepping stone to greater wisdom and that a disciplined adherence to proven rules is essential for long-term success in the volatile world of investing.
For both seasoned investors and those new to the field, these timeless principles offer valuable insights into risk management and strategic decision-making.
Here are Bill Ackman’s eight investment commandments
- The business must be simple and predictable.
- It must generate free cash flow.
- The company must have a dominant market position.
- There must be large barriers to entry for rivals (i.e., the business should have a moat).
- The company must generate a high return on capital.
- The business must have limited exposure to uncontrollable extrinsic risks.
- The company must have a strong balance sheet without needing access to capital to survive.
- It must have excellent management and good governance.
Last but not least, Bill Ackman explains his investment plan in simple terms: “We want to buy the best businesses in the world.” He also makes it clear that it’s important to purchase these top companies at attractive prices below it’s intrinsic value.
Case Example of Bill Ackman’s 8 Investment Rules and Criteria: Chipotle Mexican Grill
Bill Ackman’s Pershing Square Capital Management currently has a substantial investment in Chipotle Mexican Grill worth $1.65 billion, he owns 28.8 million shares first invested into Chipotle Mexican Grill back in 2016, when the company had troubles with it’s food safety and handling. Chipotle Mexican Grill is now 14.6% of Bill Ackman’s Pershing Square Capital Management’s portfolio.
- The business must be simple and predictable.
Chipotle Mexican Grill, Inc. operates a well-known chain of restaurants serving burritos, burrito bowls, quesadillas, tacos, and salads. Founded in 1993 in Newport Beach, California, Chipotle has always stayed true to its core Mexican-inspired menu without deviating from its simple, focused approach. This consistency makes its business model highly simple and predictable—a key factor that allows investors to reliably forecast the company’s future cash flows by discounting them to their present value to calculate Chipotle’s intrinsic value.
- It must generate free cash flow.
| 2020 | 2021 | 2022 | 2023 | 2024 | |
| Free Cash Flow | $290.5 million | $829.6 million | $844 million | $1.22 billion | $1.52 billion |
| Free Cash Flow Margin | 4.9% | 11.1% | 9.8% | 12.4% | 13.4% |
According to the table above, extracted from Chipotle’s 10-K annual reports, the company has consistently generated positive free cash flow. Not only is this cash flow consistently positive and predictable, but it has also shown steady growth, along with an increasing free cash flow margin. This strong financial performance highlights Chipotle’s robust business model and reliable growth trajectory.
- The company must have a dominant market position.
According to CSI Markets, Chipotle holds the second largest market share among Mexican restaurants in the US, capturing approximately 17.18%—trailing only behind Taco Bell. In the broader restaurant industry, Chipotle commands a 7.07% market share. Additionally, in its recent Q4 2024 quarterly report, Chipotle Mexican Grill reported a 13% year-over-year revenue growth. This impressive performance signals Chipotle’s ability to gain market share and boost its revenue in an increasingly competitive restaurant market.
- There must be large barriers to entry for rivals (i.e., the business should have a moat).
What sets Chipotle apart from it’s other Mexican restaurant competitors and other fast-food casual restaurants in general is, Chipotle’s ability to carve out a significant niche in the fast-casual market with its focus on fresh and customizable meals, with Chipotle appealing to those seeking higher-quality, fast-casual dining. This strong brand image resonates with health-conscious consumers and drives customer loyalty.
Chipotle’s competitive advantage lies in its strong brand, operational efficiency, robust supply chain, and digital innovation—all of which create high barriers to entry in the fast-casual dining sector. Its commitment to serving high-quality, Mexican-inspired cuisine has built customer loyalty that new competitors find hard to replicate, solidifying Chipotle’s dominant market position.
- The company must generate a high return on capital.
| 2020 | 2021 | 2022 | 2023 | 2024 | |
| Return on Invested Capital | 8.4% | 12.4% | 15.2% | 18.5% | 20.1% |
Return on Invested Capital (ROIC)—often used interchangeably with return on capital—measures how effectively a company uses both equity and debt to generate returns. Chipotle’s historical ROIC shows that the company consistently maintains a positive ROIC and achieves annual growth, underscoring the strength and efficiency of its business model.
- The business must have limited exposure to uncontrollable extrinsic risks.
Chipotle has worked hard to limit its exposure to uncontrollable extrinsic risks, especially after the food safety crisis in 2016 when E. coli, norovirus, and salmonella outbreaks led to a sharp drop in sales and investor confidence. In response, Chipotle implemented stringent food safety measures—including enhanced handling practices, DNA testing of ingredients, and comprehensive employee training—while also upgrading its digital ordering system and launching a successful loyalty program. Under the leadership of CEO Brian Niccol, these proactive steps have rebuilt customer trust, improved brand perception, and minimized future risks, positioning Chipotle for continued market expansion and long-term profitability.
- The company must have a strong balance sheet without needing access to capital to survive.
Chipotle’s balance sheet showcases its robust financial health, with zero long-term debt and impressive cash generation capabilities. As of Q4 2024, Chipotle holds $1.42 billion in cash and short-term investments and generated $2.1 billion in cash flow from operations. Additionally, its capital expenditures for Q4 2024 totaled only $593.6 million, which is just 28% of its operating cash flow. This strong financial performance highlights Chipotle’s ability to finance its expansion and operational expenditures without relying on debt, solidifying its position as a financially independent without needing access to capital.
- It must have excellent management and good governance.
Chipotle’s success is a testament to its excellent management and good governance, highlighted by CEO Brian Niccol’s transformative leadership. After facing significant food safety challenges, Niccol revitalized the brand through strategic initiatives such as enhanced marketing, streamlined store operations, a dynamic loyalty program, and a robust digital ordering system. These efforts not only restored consumer confidence but also boosted sales and profitability, firmly reestablishing Chipotle as a leader in the fast-casual dining industry. With a strong focus on innovation, customer experience, and employee benefits, Chipotle demonstrates that effective management and sound governance are crucial for sustainable long-term success.
Final Thoughts
In conclusion, Chipotle Mexican Grill exemplifies Bill Ackman’s eight investing commandments with its simple, predictable business model, robust free cash flow, dominant market position, and exceptional management. Under CEO Brian Niccol’s transformative leadership, Chipotle has built a strong balance sheet, minimized extrinsic risks, and driven sustainable growth. This disciplined approach not only restored consumer trust but also solidified Chipotle as a key holding in Pershing Square Capital’s portfolio. Ultimately, Chipotle’s enduring success underscores the power of principled, strategic investing in the fast-casual dining industry.”