Bill Ackman: Investment Strategy, What the Market is Missing, How AI Breaks Businesses

A legendary activist investor. Pershing square CEO and founder Bill Acling. Taking a short position and going public with it is a pretty serious business. Interestingly, some of the best businesses in the world who are training at the lowest multiples. We're kind of the rebirth of the closed-end investment company universe.

What did you think of Zara, the CEO of OpenAI? I'm sorry, CFO. I felt like the CEO. I was stopped with that stuff. Actually, I was super impressed. Maybe a lot more bullish on OpenAI, and I thought, "Right?"

I thought she should be CEO of OpenAI. That's what I thought. I think Sam should be chair. I think he's much better.

“There was a question I wanted to ask her that we didn't get time, which was what's it like working with Sam?”

I mean, that's going to be interesting.

It was always super awkward.

Super awkward. I wanted to kick this off, so thank you so much for being here. We've tried a number of times to get you to all in, and it's great to finally have you. You obviously are a legend that doesn't need much of an introduction. Lately, in the last number of college years or months or quarters or what have you,

it seems like your investment philosophy may be changing. Your model, where you've been the activist, and you've entered positions, and exit positions, and lately you've talked a lot about more kind of permanent long-term holdings. We'd love to hear a little bit about if that is actually a change, and how your evolution in your investment model has kind of changed over time.

Sure, so I would say the biggest change over time is an appreciation for the importance of what you call business quality, long-term, durable, protected, non-disruptible growth. What's a early days, your smaller, more liquid investor, you don't have to think as long-term, as you become a bigger, concentrated investor, and over time you learn the importance of durable.

“Kind of grow. That's the most important factor. I would say I'm as activist as I've ever been,”

but more of it's on Twitter than I would say in the corporate context. And the reason for that is when I started in Persia Square, no one sort of knew who we were,

and so I actually wanted our first investments with Wendy's International, Wendy's own

Tim Horton's, the Canadian coffee and donut chain, and the value of Tim Horton's was more than the entire value of Wendy's. We had this very simple idea, by Wendy's, spin-off, Tim Horton's, double her money, and we bought 10% of the company, and I called the CEO and he didn't return my call, and I called him again, he didn't return my call. I literally couldn't get a return phone call at the beginning, so we actually called a friend of worked at Blackstone, and Stu Schwartzman agreed

to write a fairness opinion on what Wendy's would be worth if we spun off Tim Horton's. We kind of melded in and filed it publicly in six weeks later, they spun off. It's important. And then the CEO finally called me back, and he thanked me, and he had gotten fired, and but he thanked me, because he had a huge exit package, and he was very happy, but so in the beginning we couldn't get a return phone call, so we had to, and we were small, so we had to go to a conference,

and we had to, you know, do presentations and go on CMBC. What happens over time is you join boards of directors, you become known as an investor, you know, we're kind of a constructive shareholder. I know pretty much every CEO in S&P 500, either directly or one person removed, and you know, maybe I age, aged a bit, but you build kind of a reputation, and today we buy a stake in a company, sometimes they'll put out a tweet saying, and we welcome Persian Square as a

shareholder, but they open the door for us, you know, in the beginning we had to bang down the door, and today, so we get very deeply involved in our companies, if it's needed, other companies we own, there's no nothing for us to do, just be to, you know, just clap. So you are, and you are considered a value add investor. Yeah, but we only want to add value, the conversation last night was kind of an interesting one, you know, the best investments are one where you don't

need to join the board and do anything. Well, that may be in a startup, but in a mature business,

“it may be, you know, I think in the public company context, one of the valuable things we can do,”

you know, the problem of being a public company today is kind of the very short-term nature of markets, analysts, et cetera, and obviously to run a business, a business is a, you know, a good one, is a forever thing. You want to make decisions in the context of decades, sometimes, or certainly

three, five years, and how can you do that when someone's asking about the tax rate in the second

quarter? And having a big shareholder on the board, where you can kind of test ideas out with the big shareholder before you expose them to the public, or the big shareholder can say, "I'm supportive of this initiative even though it's going to hurt earnings in the next few quarters is a helpful thing." I just want to connect this last conversation with Sarah to this, are you an investor in the AI complex, and how do you underwrite business model quality from

what you see on the outside in the entire complex? I mean, yes, effectively, we're an investor. We're actually today we own Microsoft, we own meta, we own Amazon, actually, I think you're either directly

How do I think about AI and a business model context? Yeah, business model quality. When you're concentrated in investor, or investor generally,

and you're long-term investor, the most important and most challenging thing to do is determine

what's the risk of disruption? What's the risk of two guys, two women from Stanford and a garage,

“you know, coming up with something? That risk, I think, has gone up dramatically. This is the greatest”

era in history just to build a business, right? There's unlimited access to compute, you know, certainly for a startup, unlimited access to capital, and a lot of incredible talent, which means that the probability of you're being disrupted has gone up enormously. So the hardest thing you have to do is an investor is understand, and that's really where you spend most of your time. What's the tendency in a moment like this, then do you swing towards a chaos, or do you reposition

to things that are maybe more durable and defensible from AI, where the disruptability is less?

What's interesting about markets is people always bring their eye to the new new thing.

And the new new thing is sort of chips and semiconductors and energy, and that's where, you know, that's shorter-term capital is going. What tends to happen is really high quality things get left behind. And the same thing really happened, you know, I was there in 2000, you know, in that sort of bubble, this is different. I'm not saying this is, but there's some analogies. And the analogies are people got excited about internet stocks, and Berkshire Hathway traded at the lowest valuation.

I think it ever traded at its history, as people said, "Oh, okay, that's all old stuff." I think a similar thing is happening today, in a sense, to Amazon and Meta, Microsoft. Those are the ones that... These are the old-fashioned companies in kind of this, you know, the Open AI. So they're undervalued in your mind. Yes. What else is undervalued? What about the SaaS apocalypse, so is it oversold at this point? Again, I think it's a careful analysis.

“I worry more about a Salesforce than I do about your kind of, I think you have to do the work.”

I think it's one company at a time, but I think if, you know, if you're software company today, you have to be as AI enabled as you can, I think there have been sort of monopolistic type profit taking off of customers when someone had a kind of a niche software product that's charging, you know, 30,000 a year or something like this. I think those companies are really at risk. You know, Microsoft, when the average customer is paying, I don't know, 50 bucks a seed or

some small number, that platform is worth a lot more. One is less at risk. I want to go back to COVID because you had an incredibly viral moment where you were on CNBC at that moment and you pounded the table and you said, this is what's going to happen. And literally the market just ripped and you were well, first it went traded massively down. You were right on that side of the trade and then you were on the right side of the trade when it ripped back up. And then I think it was maybe

a month or two ago. I think publicly you basically pounded the table and said, this market's going way higher. Can you just put us in your head? Like, where does that desire to be so active and, you know, it gives you so much room to be wrong, but then when you're right, it does add to the lore of Bill Akman, which you have a lot. So, how do you balance that? Where does it come from? Like, why in these moments do you just get so convicted that the conviction just has to

spill out and then you're just so out there? So I've always been like my high school yearbook

epithet was most verbose. And actually my friend actually lives around here, he is quote that he put next to my name in my yearbook. It says a closed mouth gathers no foot. That was his. And so that's kind of what I've lived by. I've always had this sort of desire to speak the truth about things. And, you know, was just talking with Jake actually had breakfast this morning and we were talking

“about my ronda post. You remember that one? So like, you know, there's just certain things that”

need to be shared and discussed, but with respect to markets, I actually what happened was I was concerned about the country because I felt we needed to have basically a two-week pause, you know, this is March of February, I guess it was March of 2020 and I assumed we were going to just do a short-term shutdown, let the virus cool down as hospitals were going to get overwhelmed. And the president hadn't done that yet. I was kind of surprised by this and that was what inspired

me to go to TV as a way to reach President Trump and say, look, we need to shut down the country just for two weeks, you know, and I said, look, you do this, okay, the virus will blow over, stocks are at an incredibly cheap valuation. If we handle this correctly, you're going to take a ton of money and we're buying. You know, valuation is like a tether on the market, right? When it gets too high,

other way as well. When stocks get too cheap, there's this, you know, the rubber band's actually

pulling valuations up. And so there are certain moments where it gets to that place and sometimes actually, if you call that out, it causes people to have kind of a psychological reset. What happened recently that caused you to call that out sucks just got crazy cheap, just incredibly cheap, of really high quality companies. Right. I don't know. I find extremely cheap and fundamentals. Fundamentals based on, you know, what's the value of a financial asset, it's

present value of the cash, it generates over its life. On that basis, stocks of really high quality companies are really cheap. Is there any way to underrate and, you know, I don't want to pick on specific companies, but we have the three that are going public and then you have like a pallent here, let's say. And these things have become very popular in pop culture, in retard maxing, on subreddits, on, you know, the public's consciousness, high net worth individuals,

wanting to buy into SPVs that are double, loaded and then getting wiped off the cap tables, is there any way to underwrite 100 times revenue, 50 times revenue, 150 times revenue in these

“companies, or at least just tremendously overvalued because of the demand side. I think you”

underwrite a SpaceX the way you underwrite a venture capital investment. Interesting. Explain that, unpack it. So everyone here at the best adventure, right, you know, you bet on, you know, who's running it, right, the talent is enormous. It's people, they taught me, I had a professor of business school, he said, people opportunity context deal. So on people SpaceX, one of one, yeah, opportunity,

one of one, context, you know, incredible and actually, you know, feel bad for Blue Origin,

but not harmful to SpaceX. The fact that, you know, they're, they get way behind, then you get to deal, okay? That's the more complicated question for SpaceX. Again, we don't know what the valuation is going to be, but if it's a billion, I've trillion, 750 billion dollars, then you say, okay, well, let's think five years out. What does this company look like? You know, what is Starlink? What's the trajectory of Starlink? You know, SpaceX is near Monopoly in terms of low costs, space launch.

That's going to become increasingly important and even Amazon is going to have to become an even bigger customer because they're not in blue origins. You know, and time, I would say, has become increasingly valuable in the AI era, right? You delay a model. We were talking, David and I were talking about the administration and his kind of stepping in for the president, not to sign that executive order just kind of slow us down. Allegedly. You lose a month. You lose a couple of

months today and it means a lot. So I think the only question I have and I haven't done the math, you know, I actually invested in X, I invested in X, AI. I'm in an SPV. Ron Barron said, Bill, you got a vested space. So now I have, so obviously I'm rooting for a kind of a good outcome.

“I just doesn't, I haven't done the, yeah, you have to. What about it? It's a crescent AI and”

spankment here. Okay. I'm sorry. Inthropic opening AI Palantir also fall into this category, do you underwrite those as venture investments as well and have you done the work on those? They're venture investments that do what's helpful is they're not seed or series A, right? They're, you know, D, E, but they're still like venture investments. These companies have proven they can generate a lot of revenues and actually what I was just saying on Sarah, I thought she had a

very, very thoughtful explanation on how they think about committing capital, right? And that's the thing I haven't heard from on OpenAI, which is why if I were opening AI, I would be getting that message out because, you know, from the outside, you're like, it's a pretty interesting business model. You got a company that's spending making capital commitments. They're massively in excess of, you know, revenues and how do you do that and get, you know, it's, it's degree of difficulty, I would say it's hard.

You're perched on the boards of, let's call these more traditional Fortune 500 type businesses and your conversations with those CEOs. How are they thinking about AI? Is it something that they're

“tipping into into with pilots? Are they doing transformation initiatives? Do they think?”

This doesn't really apply to us. We'll deal with it later. What's your sense of how they're adopting or facing AI? I would say every CEO in America today is like, how do I use AI? How does it apply? My business, how does the threat? They've got to find an internal champion. Maybe after we recruit someone from the outside, I would say on the hierarchy of things they worry about, it's probably number one as both an opportunity and a threat. So, if you're not paying attention to it,

you'll, you'll, I mean, your board is going to be, you know, asking you the first question every meeting

about what, you know, what, how are we dealing with the AI threat, how are we dealing with the AI opportunity? So, it's absolutely top of mind. Are you seeing much early success? I mean, are through your, you know, again, through your visibility into these companies? I mean, there's a lot of mixed signals that we get, like McKinsey did a study and said that 95% of it enterprise initiatives actually fail. Jamoth, you've made this point around 89. A lot of these enterprises

Valley these days is a four deployed engineer, which is basically like an IT consultant who can

“close the gap between the promise of AI and the ROI of it. And I think people are just trying”

to figure out how, how do we, how do we use this thing? I mean, have you seen much actual success? Is this the, is this the question right now? Is this how do we bridge this gap? So, I haven't seen much success other than, I mean, I, I'll, I'll give you the Persian square story, you know, we're turning a little company, how we're using AI today. The first use case is really on the legal side. And, you know, kind of almost almost so you call it compliance back office type, you know, functionality.

I think we're still super, super early in terms of big companies using AI effectively. Can I ask, um, or test a thesis with you, you know, the venture underwriting model where you think about people, you're underwriting a founder and their capacity to lead and redirect the organization in, uh, changing environment and technology environment, market environment and whatnot. And we have seen repeatedly similar success at scale if the company still found or led,

where the founder feels like they have the authority to make all the radical decisions needed to make sure that that company persists and changes as needed in a changing environment. Have you looked at founder-led companies versus non-founder-led companies where perhaps the founders really do have an inherent advantage in being able to navigate the changing environment and actually generate outsized returns over time. And I asked this particularly other relates to

the SaaS apocalypse. And if you take a look at the companies that are founder-led today versus not, if you're not founder-led, you have an incentive to not make a mistake and get fired. If you're founder-led, you don't give a [bleep] your job as to make sure the company.

“Yeah, I think the answer is exactly what you said. I think the problem is that the average life of an”

S&P 500 CEO is probably, I don't know, four years or three or three and a half years or something like this. And you're focused on, you know, kind of shorter-term compensation. You don't generally don't have a big economic stake in the business. You're a founder. This is your entire life. It's your entire reputation. It's not like you're going to go get another job. You've got to kind of make it work. And also when you're in the boardroom, you have the authority of either being a major voting

voice or you've got a huge economic stake in the company. And when we joined a board of a company, we're often the largest or the largest non-index fund type shareholder. That kind of gives us a little bit of a disproportionate voice in the boardroom. Imagine if you have that and you're CEO of the company, right? So I think that does give you, and also if you've gotten to be a successful founder over time, guarantee that you've made a number of very challenging calls over time

that turned out to be right, otherwise you wouldn't be there. And so you look at Mark Zuckerberg, right, when he bought, I don't know, Instagram, everyone's like shocked at the price paid or what's app. And they seem like, you know, sort of outside the company only had whatever 19 employees or something when he paid, the billion something. But you make enough of those calls. And you can make

“the other challenging calls. This antithetical to a Ben Graham investing model, like you have to have”

a different set of skills as an investor to identify this talent. Yes. Ben Graham is a really important voice for investors and that he said, look, you got to think about a business. A stock certificate is an interest in a business as opposed to just this piece of paper. That's probably one of his

most important kind of a for instance, but he was investing for the most part in liquidations.

He was in fact, you know, in the days of Ben Graham, where there weren't, there's no Edgar system. And in order to get a 10K filing yet to go to the headquarter of the company, there were a lot of stocks trading at, you know, basically the cash on the balance sheet. And his business model was, you know, buying these things that's stupidly cheap prices and eventually the, but Ben Graham made most of his money investing in, I don't know, a guy co or something.

You know, not just, um, a little bit about, you know, there's this sort of activist and significant shareholder, but then there's Howard Hughes and you've talked a little bit about Berkshire, Hathaway, 2.0 or just being inspired by that Shumap, you were inspired by it for a long time. Oh, Bill, Bill, just took Pershings for a public. Yeah, but with with the Howard Hughes corporation specifically, tell us about that effort, because you're operating that business.

There's a book, uh, I think it's called the Financial History of Berkshire Hathaway. That's for geeks.

It basically, this guy went back and read every ten cute, whatever you actually went through the

filings, looked at every deal that Buffet ever did and you follow him over 60 year period of time. And the vast majority of the value he created at Berkshire was through it, actually the ownership of insurance operation. And what's interesting about insurance is that, you know, running an insurance company of two jobs, one is you, you know, right business, right, you take risk, you collect premiums and exchange for the obligation to pay future claims. And then you get that,

you get money on front, and your responsibility is to invest that money. The vast majority of insurance companies focus only on the liability side of the balance sheet. Buffet was really the first to do, but focus on actually more on the assets side of the balance sheet than on the liability side. And over time on that liability side. If you manage the assets of an insurance

efficient machine over time. And the question is why haven't other people done this? And the answer

“is if you're really good at investing, you go work for hedge fund, you go work for fidelity,”

you go work for Wellington, but you don't go work for insurance company. So the insurance company's ability to recruit investment talent is very limited. Buffet owned half the company who is really good at investing, which is why it worked. So what we're doing is we're, you know, Buffet started with a crappy textile company. He effectively liquidated it over time, reinvested insurance, and then invested the assets well. Howard Hughes is actually really interesting company, but it's a business

of Wall Street has not cared about for a long period of time. We created it out of the bankruptcy of General Growth, who was a spin-off of all the other assets, and it's a company that owns these small cities. So I bet a lot of people here have heard of Summerland because a lot of the tech community has moved from California to Las Vegas, but we own this small city, 26,000 acres of land, we own all the commercial land, we own all the residential land, we sell lots of home builders, we build

a downtown, we build buildings. It's a bit like the Irvine company, you know, Don Dren created probably

“a hundred billion dollars of personal wealth, managing a small city. So it's super cool company,”

but the timeframe is decades as opposed to quarters. So Wall Street's never cared, it's always

traded a huge discount. So Buffett bought into a textile business that a discount to liquidation value at 63 dollars a share, your owning Howard Hughes that a discount to liquidation value. What we're doing is instead of reinvesting all the cash, the business generates into real estate, we're going to reinvest all the cash into insurance, we're going to next within the next week or so. You're in the business of building this fire wheel. We're going to build this into a compounding machine over the

next 50 years, it's something I've always wanted to do, and we have the benefit of understanding both the insurance side of the business, and we can manage the assets well. And you can buy it at whatever 60 cents in the dollar. How do you think about investing the assets of this insurance company? So what Buffett did is he took a hundred percent of the insurance float and put the money in short-term treasures. So he took no risk on kind of policyholder funds, and he took a hundred percent of the

“surplus of the insurer, the equity and investing in common stocks, and that's what we're going to do.”

And I think we can build a really profitable insurance company, we're starting at a very small scale,

the company's got like a 4 billion dollar market cap, and the goal is to build it into a

trillion dollar thing over time, compounding. The other thing Buffett did well is that he didn't issuing stock, or not for a very long time. So we started with a million shares, and today he has effectively like a million. I think this is the future for very talented managers like yourself versus the traditional long short funder. Do you think they sit side by side? I think it's hard to do this because you need control of a public company, and you have to be not in a get rich quick

mindset. And if you're in the get rich quick, it's easy to go to Citadel on Millennium or one of these. Why does it have to be public? Why does it have to be public? It doesn't. It doesn't have to be public. Why did you choose to take it? We got here by accident, right? So the most successful equity investment we've remade is that this company called General Growth. We bought the stock of a company going bankrupt. Sort of the most contrarian investment you can make. Stock went from, you know,

$20 billion mark gap to $100 million. And we bought basically a third of the company or 27% of

the company at $200 billion mark gap. There's $27 billion of debt. And the bankruptcy emerged. And the strategy we said is what the assets are worth more than liabilities. We're going to do the first restructuring where the equity gets to keep their investment in the company. Two years later, we've merged from chapter 11, the stock went from $34 to $34. But part of the restructuring was spinning off this thing called Howard Hughes. And it was really all of the junk that didn't

belong in the company that the analyst hated. And so we did it sort of an inadvertent investment. And, you know, 15 years later, we haven't really created much value with it. So we said, look, we've got to, you know, the market doesn't like this thing. The company has to earn a return in excess of its cost of capital in order for a stock to go up. And the, you know, Elon's done in the amazing job keeping the cost of capital of his company's really low. You know, SpaceX

goes public at a trillion, $750 billion. We'd probably be the lowest cost of capital equity capital transaction in the history of the world. The problem of this company, because it's real estate, because it's development, because it's land ownership. The market says a cost of capital is really high. And you can only earn a certain return of real estate. So what we're doing is we're repurposing the real estate assets. We're transforming the company into a much higher returning.

So the last few years you've become incredibly famous. I mean, just to kind of put a five point on the word, how does that change in influence the way that markets work? Because like, you know, your voice gets amplified now. You also have other places where other voices get heard. Many people whose names you don't even know. You go under Wall Street, that's it's every random Tom Dickon Harry with an opinion. Tell us the way the markets have changed with notoriety,

fame, social media, influence, not just yours, but in general. Yeah, I don't think markets have

the mine coin guy, you know, the game stop guy. Yeah. You know, that is a change in markets when a stock-controlled at a valuation, well above its value, simply on the personality and the ability to gather up armies of followers, you know, the fascinating thing about liquidity and valuation is the higher a stock price goes and it's got to sound sort of intuitive but it's not. The more valuable the company becomes, you know, there's actually the increase in value of the company

increases the value of the company, right? Because it lowers the cost of capital, it gives you more flexibility, gives you the ability to issue stock, raise capital, acquire other businesses. And so, you know, getting back to the Elon example, it's really his, I mean, let's say he's a better example of this. We've not taken advantage of this at all, maybe we should, but he builds an army of believers, followers that enabled Tesla to be built, you know, and as we wrap up with a somewhat

of a point of question, you're an incredible investor. If there are people, if we want to be

“maximally aligned with Bilakman, is the best way to be an LP in Pershing Square or is the best”

to go into the market and buy? So, we have two, I think there are three ways you can invest with us that are all different and a little cheap different things. One is something that is called Pershing Square, which is the management company of Pershing Square. I think it's one of the most interesting kind of intellectually businesses because it's a, it's the entity that receives fees on these three permanent capital vehicles we manage. It's a royalty on the compounding of investments

in these entities. And there's no capex in the business. So, we're going to pay out basically all of our profits and we're going to grow as quickly as the underlying assets compound. So, if you invested a dollar in Pershing Square, you know, 22 years ago, that became, you know, 20, I should know this number. It's like 27 or 28 times, net-a-ball fast, okay, over over 22 years. Had we charged the fees of this public vehicle, that number would have been, you know, 37 times. I'm sorry,

no more than something in the mid-40s. Okay, what this means is, you know, have a public vehicle that charges only a 2% fee. We've got a 1 in London that charges in the incentive fee. If we compound at the rate we have historically, we'll have 35 times the assets under management in 22 years.

So, we'll go from 25 billion of assets to something approaching a trillion. We don't have to

hire another person, and we don't have to spend another dollar if you will, and overhead. That's a pretty interesting business. So, I like that one. So, Persian Square. Do you want to invest with us as an investor? Invest in something called PSUS. You want to portfolio of our best ideas, and it's trading under the 18% discount to cash. You want to believe that we can build the next Berkshire Hathaway. You want Howard Hughes. We've got three different ways.

“Yeah, I've got some hard to use. I think following you on Twitter and going direct movement”

does allow you to communicate directly your vision, and that actually makes it much easier to place the bat. And so, I do think it has a profound impact because prior to your extremely long

tweets that have been parity now, there's an incredible meme of a bill-acting tweet coming in,

which is, but you did an extended iPhone, that's the point. No, that was my Halloween costume. Yes. You would have written something, sure, or you just didn't have the time, yeah. If, I guess, I don't let other people read, you know, do you like how I write on my own stuff? Anybody read it? On the Ronda tweet, which had some legal implications, I did have my communications guy and a lawyer. A friend who's a lawyer read it, but I only gave him a few minutes

because I was so excited. Once I write something, I really like. I just want to head to EI and I agree. Yeah, I agree. Yeah, I agree. Yeah, I have the four pieces. Every month does this, too. He's starting to get a little bit frantic when he's writing something and then he's like, I just hit him. I just hit him. Even, but it's a very powerful thing to be able to share your view and push a button and reach two point.

“You know what I'm saying people saw? I'll have to, well, only just to picture on stage and I'll send it out. Look, look, where do they?”

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