Bill Ackman: The Biggest Fight of His Life

The risk of disruption

0:00So the thing that you need to think through is the risk of disruption. And what AI has done is massively increase the risk of disruptions.

0:13You've had a challenging year this year with Lucy. What happened? You know, otherwise healthy child. What happened was she had, unbeknownst to us, a what's called an arterial venous malformation, which is a kind of structure in the brain where the the way the doctors describe it is the arteries, you know, typically blood flows into the arteries, and then to the capillaries, and then to the veins. And when you go from arteries where there's a huge amount of blood flow to capillaries, the blood flow slows down, and then to the veins.

0:43So in her case, she had like a bridge that went from the artery directly to the vein. So over time, there was too much pressure going into these veins in her brain, and one of those veins burst. And then a large amount of blood, you know, filled her brain, which is a confined volume. And so, you know, it's a bit like a balloon blowing up inside your brain, and that put pressure on the surrounding brain and the skull. And obviously the skull doesn't move.

1:13So the pressure goes downward. It puts pressure on the midbrain. The midbrain is, you know, what keeps you breathing, keeps your heart beating. And the really unfortunate thing, we believe this happened around nine in the morning, based on her orary. She lived, you know, a young woman, lives alone in Williamsburg. And I texted her at four o'clock that day. I had called her another time that day. Other family members had done the same. But only when she hadn't picked up her luggage. She was, you know, she was leaving for Abu Dhabi for a wedding. A friend of hers was getting married the following day.

1:44And she was picking up her luggage from her mom's house. And she didn't show a couple, when she was two hours late, and no one could reach her that week. I was sleeping at the time. But my oldest daughter went to find her. And they found her lying. She found her lying on the floor of her apartment. Barely breathing. You know, face down on the right side. And she thought she was dead. Called 911. She could hear her breathing in a very labored way. And then, I don't sleep next to my cell phone. My daughter doesn't know the landline number for my house.

2:17So she was able to call someone in the building. Guy in the building knocked on the door. You know, pounded on the door. And handed me the phone with my daughter on it. And then, hopped in a cab. The EMT didn't know which hospital to take her, because they didn't know what had happened to her. One of the big problems, sometimes, you know, the EMT thinks someone's just drunk, and that's why they fell. And the way you treat a drunk person is you just let time go by. Right? Time going by for a person with a brain hemorrhage is very, you know, the more time the brain is under pressure, the more damage that can take place.

2:49Got to the hospital at 1205. And she was just, you know, sitting on a gurney there while they were trying to figure out what she had. Eventually, they gave her a CT. They figured out she had a hemorrhage. They called the surgeon. And what you need to do is you need to release the pressure on the brain as quickly as possible. And the way you do that is you remove about 40% of the skull to allow the brain to expand beyond the skull. And we moved her from, you know, Elmhurst Hospital. By the way, very pleased with how they cared for her there.

3:20City Hospital in Queens. We moved her to Mount Sinai where, you know, Neary and I spent some time helping Mount Sinai. So we got, we knew the team there. And they also have very good neurosurgeons and a neuroscience brain practice. And, you know, she was on a breathing tube. You know, she was wearing some, she had bandage, of course, in her head. And it said, no bone. Right? To make sure that nurses knew not to be careful. And that's how we started.

3:50And so, you know, the, I basically gave the doctors the, what I call it, the dare to be great speech. I said, you know, let's, let's see what can be achieved by, you know, whatever you need from us, unlimited resources. You know, let's look at latest and greatest technologies. I mean, they basically told us, you know, look, Bill, we don't know what kind of deficit she's going to have. You know, 19 hours of pressure on the brain, you know, I didn't learn actually until weeks later, they don't normally do the surgery to save someone when it's been more than five hours because the assumption is brain death, basically.

4:22So 19 hours, she's as close to death, you know, hours, minutes, I don't know exactly. And so we didn't know what would, what would become of her, but I'm a very optimistic person. And she's regained over time her cognition. She's the same Lucy we knew. She's got the same sense of humor. She's really kind of remarkable. She, you know, woke up not being able to, to walk, to speak. And unfortunately to see her walking is coming back. I think she's going to regain her ability to walk.

4:54Her speech very slowly is coming back. You know, there's something like 17 vowels beyond the vowels that we were taught. And she can do about 15 of the 17 now. She's, you know, each day she's almost learning a new consonant. She can say a few words, certainly no, she's quite good at. And then vision, she's even shown some progress there. But I've, you know, I spent a lot of time, you know, working with the doctors and, you know, my pitch to them was, let's see what we can do for her and everything we learn for her.

5:27We can help others and, you know, Neri and I are going to make this available to everyone.

Building a brain institute

5:32And three months after, I guess, I was coming back from my birthday party and I got a call from a friend. We were talking to Mount Sinai actually about doing a redevelopment of their Fifth Avenue campus to build a brain institute, some kind of brain center. And we had very aligned with our idea. The problem with that is probably a 10-year project and super complicated, obviously taking down an existing hospital, moving people, bringing people back.

6:02And a vacant biotechnology building became available on 65th and 11th Avenue, 10 blocks from the office. And 60 days later, we closed in the building. We signed a contract to buy the rest of the site. It's a 3.4 acre site. And our goal is to build the world's greatest brain institute. You know, everything from, you know, a focus on the patient. How do we get treatments to patients? And there's a ton of interesting things going on in technology. Obviously, everyone knows Neuralink, but there are probably a dozen other companies working on brain computer interfaces and other ways to get data from the brain.

6:37And, you know, of course, AI, right? So not only are we able to get more and more data from the brain, we're able to interpret that data better than ever before. So, you know, I'm hoping Lucy can speak normally on her own, just working at it. I'm hoping her vision returns. But if she has deficits in those areas, there will be solutions in the relative short to intermediate term. You know, envision a world in where you wear a pair of glasses that basically have a camera, and the camera takes in, you know, the vision and kind of ports it to your visual cortex.

7:11And that's how you see. I mean, that will be how, I mean, Elon says, you know, he's going to have a rudimentary way for people to see within a relatively short amount of time. And within five years, actually, I reached out to pretty much everyone for help on this. And he told me, he said, five years, well, people have better vision than bionic vision, in effect. The way Dr. Kellner describes it to me is that, and Lucy's lead on this whole thing, a lot of neurologists and even neurosurgeons or nihilists,

7:42they don't believe that the patients can make really material recoveries, and they can. And we've heard, you know, a lot of interesting stories of recovery, which are great to share with Lucy, but we're going to be able to do a lot more. And New York's actually probably one of the best places to do this, and there isn't anything like it. So we're excited about it. What you guys have done in response is just incredible. Yeah, so what's interesting is that all of the skills, experiences, relationships, resources that I've developed over my career work set me up to be incredibly well positioned to help my daughter and to help other people that have this problem, right?

8:23I'm like a real estate investor, right? So I was able to buy the building, you know, at a fraction of what it cost. And, you know, architecture, design, also married to a very talented architect who's going to play a pretty important role here. So I think we're going to do something really interesting. And we've had an incredible outpouring of people who want to be part of this, who in many cases, we want, we love people who write to us, you know, who've dealt with this on a very personal level, have a brother, a sister, a mother, a parent who've suffered, and they've seen kind of the nature of the treatment that's available today, and they want to change that.

8:59It's interesting.

Coping and finding purpose

9:00And actually, you know, people say, Bill, how do you deal with something like this? Well, the first thing I had to do is figure out how to help my child. And as I made progress with that, this other thing is an amazing, you know, makes me feel like something good is coming out of, you know, I have this view that you, every bad thing, something good comes from it. You know, this is among the good that's coming from what she's going through. And that makes me feel good. Did you always have that view or was that learned? I figured that out over time.

9:31When? Was there a moment when that? Well, you know, I've had a few near-death experiences in business. And in each one of those cases, I was materially better off after that. So those are kind of, you know, good lessons. The what does not kill you makes me stronger thing is definitely true. And by the way, for my child, for Lucy, I think this is going to be good for her. Say more about that. Look, she's a wonderful, amazing person.

10:02But if you can recover from something as devastating as this, it's going to make her into like a superhuman person. And she was, she is a wonderful human being. I mean, one of the things that's helping her recover is, you know, one, you know, her mom has been there every day. You know, I moved my office into the hospital, you know, within a day of her moving into the hospital. I did two IPOs, the two Pershing IPOs, I did from room 1107, room 107 on the 11th floor of 11 West at Mount Sinai Hospital.

10:35Power of Zoom. So I did, I would do a Zoom meeting for 45 minutes, and then I would go spend 15 minutes with my daughter. And then I'd do the next meeting. And so I had my daughter as the inspiration, you know, for these two IPOs that we were working on. And we only moved her out of the hospital August 8th. And she's been rehabilitating in Bridgehampton. And then she's coming back into the city, you know, for a little procedure. And then she's moving into her own apartment that we've been, we bought an apartment in our building within a few weeks of the incident.

11:09And we've been designing it to be, you know, the best rehab recovery place for her to live. And, you know, socialization, social interaction is absolutely critical for someone recovering from something like this. The emotional support that you get and everything. And her friends have been amazing. Her friends have been with her every day. Every day, one or more of her friends shows up and talks to her, eats with her and engages with her. And, you know, she's like this super giving person, ton of friends.

11:41Everyone loves Lucy. And so she's getting an amazing return on that, you know, because her friends are showing up to save her. All of this makes me feel that humans can be so amazing. Yeah. I mean, you know, the, you can recover from almost anything. Yeah. Yeah. And, and by the way, there's a lot more hope for people who've had strokes, brain injuries, military TBI type stuff.

12:11And there are a number of people in the field that have been really frustrated with, you know, how far we've not gone, who want to be the ones that fix this.

Fixing hospital rehabilitation

12:23What's been preventing us from going further? Like why, why haven't we pushed the limits on this stuff? The answer is some combination of the insurance industry and just economics and hospitals, how they work. I mean, a neurosurgeon wants to do their surgery and then move on to the next one. Neurosurgeons are highly compensated, but they get paid for doing surgeries. They don't get paid for the recovery of the patient over time. You know, rehabilitation, every hospital has some kind of rehabilitation program, but in many cases, it's embarrassingly inadequate.

12:53And the insurance company might pay for only six weeks of care. And then they get sent home and their home is, you know, not the ideal place. And you, and you need, it's in a major, takes a village. What if they're the principal breadwinner and they're, and they're devastated by this? Maybe the other family member has to go out and work as opposed to care for them. You know, they, one of the most depressing things I was told by the head of rehab at, actually at Mass General, we've been talking to. And she said, Bill, you know, what Lucy's achieved is remarkable.

13:23She's had, you know, incredible care. The typical person, one, they wouldn't do the surgery. Two, if they do the surgery, you know, the typical patient, you know, ends up in a nursing home with, when they check out of the hospital because the family can't take care of them. And they die a few months later from pneumonia because just the care that can be achieved in a nursing home. It's like super depressing. And so, you know, this is one of the cases where, you know, I, I'm financially unconstrained in my ability to help her. And so we can maximize the care. Now what we're going to try to figure out in the Institute is how we do this in a way that everyone can have the benefit of the care.

13:58And, and technology is going to help a lot. A great speech therapist could be $500 an hour. That, you know, insurance will pay for whatever percentage of that, but only for some period of time. But people can keep recovering years and years later. But of course, AI could be an amazing speech therapist. So there, there are lots of ways that technology are going to enable us to help people recover from these injuries. And by the way, this all, you know, we're calling it, the focus is brain rehab recovery and longevity, right? What does a brain rehab recovery Institute do?

14:29It, it focuses on brain recovery and your physical recovery. The brain plus your physical recovery, it's fundamentally longevity. And the other thing that hospitals don't, aren't very good at is nutrition, right? The food in hospitals is frightening, right? They have someone who has a, you know, heart attack. And the next morning they're having like pancakes with syrup with orange juice. In Lucy's case, you know, we made food for, for every meal. The Institute's going to have amazing food because nutrition is, you know, critical. So there are a lot of things we can do.

14:59Taking advantage of this financial circumstance, I'm going to use it in a way that will enable us to build something optimal. And I think ultimately self-sustaining. You're an incredible father. Like what an amazing response to terrible circumstances. You know, I would, I would feel if I couldn't do it, I would be one of the most frustrated people in the world. I literally feel like I was designed to help her. Like everything I knew how to do. You mentioned the aura ring, the data on the aura ring.

15:29What was the data that indicated something was? So I've been in touch with the CEO of Aura. He actually reached out on Twitter. And I think you can certainly with an Apple watch and hopefully with an aura ring. So what happened was if you look at her spike, actually put it on Twitter at like nine o'clock or so, it, there was a, there was a very quick spike in her pulse and then kind of a drop off that looked, you know, kind of unusual. And if you combine that spike and a drop off with someone falling, like the Apple watch has an alert when someone falls.

16:02Right. Well, if it, that happens and it happens when there's a huge spike and they're, they're. You can reasonably assume. You can say, you know, did they have a heart attack? Did they have a whatever, you know, these are things you can look at. And I think aura ring should have the same capability. And they're, I think they're working on it.

Managing stress and work

16:18How do you keep your mind in a healthy place? Like what do you do to keep your, your head right? I play tennis almost every morning or do some form of exercise. I think that's probably the most important thing I do because it's the one thing I do over the course of the day where I'm, I'm completely focused on the ball that's coming at me as opposed to whatever else is going on. So I think that is a really important form of meditation for me. That's one. I got a good night's sleep. I spent time with my family, things like that. Do you still meditate?

16:48I haven't in a while. I did for this challenging year and I, you know, I was middle of divorce. I was kind of on my own and it really helped. And I probably should find 20 minutes a day to meditate. How do you manage it all? I mean, you have four effective public entities. You have this with your daughter. You have a seven year old. You want to be a great husband. How do you harmonize all of these things? So Pershing Square has come a long way from when I started it.

17:20When I started it, I was sort of the chief bottle washer guy. And I would come up with all the ideas and I have an analyst that would help me prosecute them. And that's how we, and there was activism. I was the guy, et cetera. Over 22 years, we've built an amazing team. We're in an industry where the half-life of someone who works for a firm, you know, people are paying, you know, the top people can move from one place to another and get huge, you know, $100 million bonuses for showing up, things like this. And the result is a lot of turnover in the industry. We have no turnover at Pershing Square.

17:51Is that good or bad? Well, if there's someone that we've, you know, we've had no turnover. Obviously, we've made some mistakes and we've replaced some people over time. But if you look at the investment team, the investment team has been the same team for now nine years with a couple of new additions. And that's actually a really good thing. You know, if you have a constant revolving door with new people, you don't really know that you can trust people over time. You know, are they really telling you the truth? Are they really telling you all the risks and rewards of a particular situation?

18:21When you've built a relationship with people and you work with them for nine years and you have this culture of transparency and candidness, I don't for a second ever question anything that's being told to me by a member of the investment team. They're telling me the flat, you know, candid truth. That's a very comfortable place. So the answer to your question is the Pershing investment process is incredibly well run by a very experienced team that I play an important role in at the ultimate say.

18:51But I am no longer the guy that generates the bulk of the ideas. I'm someone that generates a minority of the ideas in the portfolio. So that's helpful. And then the business itself, you know, the way it's structured is, you know, Ben is responsible for running a lot of the business elements of Pershing Square. So that frees me up to think. It frees me up to work on more strategic stuff. And it frees me up to come up with the occasional, you know, kind of idea. So Pershing kind of takes care of itself. Well, we have a number of public entities.

19:21We have an amazing accounting team. And, you know, those public companies all sort of do the same thing. They're really just, you know, there's the management company that earns fees from the entities we're on. That's Pershing Square Inc. PS, ticker. There are two funds that are publicly traded that own effectively the same portfolio. You know, there's certain governance responsibilities we have for those entities. But they're really actually, each of them have independent boards of directors. So our role there is as the kind of external investment manager.

19:51We have excellent boards at both of those. You know, the typical closed-end fund board is a bit of an embarrassment. I don't know how closely you follow the space. But, you know, you've seen Boas Weinstein going into proxy conference. The typical closed-end fund board is a group of people who, not to be, I don't want to pick any, I don't know, let's say BlackRock for the moment. I think I read somewhere that, you know, they sit on 86, the same six directors sit on 86 closed-end fund boards. It's hard to do real governance when you sit on 86 boards of directors, right?

20:21The typical limitation is four, you know, by ISS. We hired actually real directors. We pay them like real directors. They're not serving on multiple, you know, 50 other. So we have really good boards. And what we do is fundamentally simple. So Pershing kind of runs itself to some degree just because of delegation, incentives, alignment. You know, we have the best alignment because no one's paid on individual stocks or based on performance. At the end of the day, performance is going to be the biggest driver of our management company because the compounding of the underlying assets is what grows our fee stream.

20:54So it's just a very aligned entity. You know, I own about 45% of the company. The team owns another, I think, 35% of the company. And then we have, you know, a minority interest held by the public and some strategic investors that invest with us. So it's, you know, if you get the alignment right, you get the people right, and you've got, you know, some principles written on a stone tablet and you've been doing it for a while, but you're super competitive. Sure. I know you want to be the best investor in the world. Sure. And so you're, this is like one path.

21:26And then there's another path. It's like dad and husband. Sure. And I would say the one thing I would say in the last, you know, the setup of this AOI thing has consumed some mind share of mine, as you would expect over the last 60 or 90 days, because I'm assembling the team. Just like with, you know, there's a moment, it's a bit like we were at a proxy contest. We took control of a board of directors. Now we've got to bring in a new CEO. Once we bring in the CEO and the teams in place and announced and everything else, I don't get involved in the day-to-day operations.

21:56And the same thing is going to be true for the AOI. It's going to be like another portfolio company in some sense. Although, you know, we're all going to sit on the board, you know, I'm going to chair the board. But there is a, you know, it is similar to, I don't think I could be doing setting up the AOI and we had a proxy contest underway at the same time. AOI is the Ackman-Ackman Institute, just for everybody listening. Yes. Every few years, a new platform earns its place at the top of every smart advertiser's media plant. The people who find it early build advantages that are very hard to close.

22:27Apple Oven just had the most remarkable run in ad tech history, and now they've opened that engine to businesses like yours. Over a billion people play mobile games every day, focused, not scrolling, with no feed competing for their attention. Apple Oven puts your brand in front of the right customers and optimizes purely for your growth. Brands like Wayfair, Kitsch, Ridge, and Nectar are already scaling on it while most of their competitors don't even know it exists. Ready to find your next million customers? Go to apploven.com slash Shane and launch your first campaign today.

23:05I built an AI version of myself with Heijeng. What you're about to see in here is my digital avatar. I asked it why some professionals build an audience while most stay invisible. And here's what it said. Hey Shane, the professionals breaking out right now aren't the most talented ones. They're the most visible ones. That's their edge. They show up on video constantly. And nobody else can keep the pace. Record yourself once, and I close that gap. So you become the face people trust. That's Heijeng. Record yourself for 15 seconds and get an avatar that keeps you posting without filming.

23:39So you don't need to become a full-time content creator. 30 million people already use it, from financial advisors and real estate agents to 85% of the portion 100. Your first three videos are free at Heijeng.com slash TKP. That's H-E-Y-G-E-N dot com slash TKP. When do you do your best thinking? Often is when I'm on vacation, actually. Some of my best ideas are ones where I'm literally totally relaxed or I'm in the shower. You've done a lot of research about bubbles.

24:10I'm curious, like how would you explain what a bubble is? A bubble is when human nature, when a lot of money is being made and people have a lot of FOMO and they want to participate in having money being made. And it leads more and more money going into the same trade, if you will, until overvaluation takes place. And then, you know, ebullience and then eventually the bubble bursts.

Recognizing market bubbles

24:37They seem to happen around these technological changes like railroads, automobiles, transistors, the internet. Sure. Are we in one now? Well, we're certainly in a transition. You could say AI is absolutely transformational and it's the most transformational technology, I think, of all of our respective lifetimes. There are bubble-like elements. There's a lot of crazy stuff going on, you know, in the private world of venture, I think. We're starting to invest in some, you know, talk about a bubble where Pershing is now investing in some venture stage businesses.

25:10You know, met with a company, let's say two weeks ago, and they weren't raising money. Two days later, they close around. You know, like they were preempted by some investor who put $50 million in at a $400 billion valuation. And then two weeks later, they raised another $50 million at a billion-dollar valuation. You know, so there's a lot of people fearing missing out on, you know, the future. And so, a lot of capital going into venture, a lot of competition, and a lot of preempting, and leading to very high valuations.

25:41You know, I saw a company, you know, Series A round at a $5 billion pre-money. How do you avoid that FOMO? It depends on where you are in life. You know, Warren Buffett was, you know, remarkable for his discipline over a 60-year career. And actually, interestingly, in the last real bubble, the internet bubble, that's when Berkshire stock hit like an all-time low because people said he's kind of lost it. While all these other people are making money, he just didn't participate. But he just shouldered on. I think it's a question of short-term versus long-term perspective.

26:12What advice would you give founders right now who might be trying to raise? It's a great time to raise capital. And assuming you raise the capital, don't spend it so quickly expecting money will be there forever. What this is reminiscent of is in the internet bubble, there was effectively unlimited amount of capital available for kind of suspect business plans. And then there was a piece in Barron's one weekend, and it listed all of the internet companies in the public markets and how much cash they had left based on kind of their burn rate, how many months to go before they went to zero.

26:49That was probably the week before the market blew up. What happens to a private company that has no capital is a certain discipline associated with bootstrapping yourself. And then you've taken $50 million or $100 million, and you completely change the way you deploy capital, betting that anytime you need money, you could just tap the markets. There will come a time. There'll be some form of a blowup, a pretty high-profile one where people lose a whole bunch of money, and that will cause a reset. And I think the companies that are disciplined in how they spend the capital so they have years of runway will be the survivors, and the ones that have to raise money in three months will be gone.

27:24My advice to founders is treat every dollar as if it's your own money and spend it really carefully. And don't expect the kind of ebullient, freely available capital thing to exist forever. So raise money now, but keep it in the bank. Don't spend it. Yeah. Or spend it judiciously.

Public versus private investing

27:40How do you see the difference between investing, which is what you've typically done in the public markets versus private markets in terms of ventures? Sure. In the public markets, we're investing in what we call super durable growth companies, businesses that are the most dominant companies in their respective spaces. They're highly profitable. They have strong balance sheets. And the key sort of success factor is predicting kind of their ability to continue to either gain or maintain market share and grow their business and have pricing power. In the public markets, you know, yes, the CEO matters, but we've always had the view, well, if we don't like the CEO, we can find a better one.

28:17In venture, you're really betting on the person and more than the business plan. And you're investing in a company that is, you know, maybe pre-revenue or it's losing money. You're betting on their ability to grow at a fast enough rate that ultimately they go from being a capital consumer to one that's going to generate cash over time. So it has some similar elements, but it's much more founder dependent, CEO dependent than the public markets. You know, the best public market companies, something happens to CEO, you can find another great person to run it.

28:50The best private companies, you know, without the CEO, it's, you know, you probably write it off. How much are you weighting sort of the idea versus the person? I weight the person more than the idea, because often the original idea is not the idea that turns out to be the success. And the founder is going to hit a roadblock, original idea doesn't work. You know, my most successful venture investment, I didn't like the idea. This was Kupang, which was Bomb Kim, and his business plan was to create the Groupon of South Korea.

29:22And even at that time, which was 2009, I thought Groupon was a really bad business model. But he made a very powerful case for why South Korea was a great place to launch an internet business, and I liked him. And ultimately, he built the Amazon of South Korea, really nothing to do with the original business model. So the most successful, you're really betting on their ability to manage through, you know, the challenges that emerge and figure out a business model over time. How is AI changing the investment profession? The most important thing an investor has to do is assess the risk.

29:54I mean, the value of a business is the present value of the cash generates over its life. And its life, you know, the early years of the life matter more than the later years. But you need to predict with a pretty high degree of confidence what a business is going to look like, 10 years out, 20 years out, 30 years out, if you want to make an illiquid long-term investment in the business. And we look at even liquid investments that way. You want to invest in something that, you know, if the stock market were to shut for 10 years, you're happy to own it. It's good discipline. So the thing that you need to think through is the risk of disruption.

30:25And what AI has done is massively increase the risk of disruption. So you've got to be very, very thoughtful about, you know, the businesses. You know, businesses, you know, go back to Warren Buffett. If you go back and read Warren Buffett, the greatest investor of all time, he was not able to perceive, you know, the risk of disruption created by the internet, for example. You know, Wikipedia disrupting world book. Well, now we have AI. It's a much more complicated problem. All of us are guaranteed to look foolish with one business or another that we didn't anticipate the risk of disruption because of AI.

30:57What businesses do you think become more valuable as a result of AI? I actually met with one of the founders of Cognition yesterday. Very interesting company. And their software or their AI, in effect, enables, you know, banks, you know, big financial institutions, for example, that spend a ton of money on, you know, dealing with legacy systems because of an agglomeration of acquisitions they did over time. They can kind of rewrite the cobalt into, you know, modern code and do it in a matter of days as opposed to many months.

31:31And I think the cost to run big financial institutions is going to come down meaningfully because of AI.

AI impact on business

31:38Big spenders, if you will, in tech are going to bring some of that. They're going to become a lot more efficient. Now, the question is, are they going to be able to keep the profit, right? If everyone, everyone's going to be forced to use the best software to run their business more efficiently and become more AI native. And the question is whether they get to keep that profit or where the profit or the margin gets passed on to the customer. And that's a function of the nature of the business and pricing power. You know, the problem with money generally is its commodity and banks are in the business of providing, providing money.

32:08So it's, it's a complicated question. Depends on the business. I think AI will enable the creation of many businesses that heretofore could not be created before. And AI will enable entrepreneurs, people to become entrepreneurs who have never been entrepreneurs before. Just even the most recent, like overnight release of Meta, I haven't had a chance to play around with it. But guys in the office were talking about how easy it is to use, I think it's Muse, whatever it is. Yeah, Muse.io. Yeah. Yeah. How easy it is for people to now create their own agents to do stuff for them.

32:38The pace of improvement is by far the fastest of anything I've ever seen. You know, if you think about Microsoft in the old days, you know, 1.0 versus 2.0. It might be, you know, a couple of years or more between updates of consequence. You know, here you get an update of consequence in days. It's a bit like driving a Tesla and they're, you know, overnight, they're updating the software. Does that scare you as an investor? I'm generally not frightened. So scare is probably the wrong word, but I would say you have to be very thoughtful about the moats and how wide they really are.

33:11And I think it's the most complicated question for an investor, how to predict the risk of disruption. Businesses that seem like the most dominant businesses in the world, there will be some that will just disappear. Let me tell you about the best new product that I've used in the past five years. It's the Matic vacuum. This thing vacuums, it mops. Matic does everything. Other robots bump into things, but the Matic sees things. It actually avoids the problems. And the Matic automatically adjusts between my carpeted surfaces and my hardwood floors.

33:42It's also super easy to schedule. I have it run every night while I'm in bed. And every morning I wake up to clean floors. Messes happen. And when they do, Matic rolls into action. Go to maticrobots.com today and put Matic to work for you.

34:01Ever hit 3pm and feel like your brain just quit? For a lot of people, that's not caffeine or sleep. It's electrolytes. And water alone won't fix it. That's why I drink Element every day after lunch. Zero sugar, no dodgy ingredients. Just a real dose of sodium, potassium, and magnesium. I know you're all thinking electrolytes are for athletes, but you don't have to be an athlete to benefit from it. And it tastes great. Stay sharp in the afternoon and grab a free eight count sample pack

34:33with any purchase at drinkelement.com slash TKP. That's drinkelement.com slash TKP. How do you go from, I'm interested in this company, to now we're writing a check for a billion dollars into it? Usually, it's not a company we just woke up and heard of. So, we're looking for the best businesses in the world. So, over time, we kind of build this, you know, call it a library of companies that we've followed for a long period of time. We've liked the business. And we haven't had a chance to own it because, you know,

35:06we may have done a lot of work, but we said, look at this price at 35 times earnings or whatever, it's hard for us to get to a 20 plus percent rate of return, which is our ambition. So, we do the work and then put it aside on valuation concerns. And then we wait for the day that either some macro event happens, COVID, that gives us a chance to buy that kind of a business, or even, you know, the SaaS apocalypse. Yeah, SaaS apocalypse. Which caused, you know, pretty much everything to do with software to get repriced.

35:36That gave us an opportunity, for example, to buy Microsoft, in our view, at a very attractive valuation and a host of other really high quality businesses. But the process is we typically have two members of the team do a deep dive on a company. They'll start obviously with kind of the SEC filings, 10Ks, 10Qs, conference call transcripts. Then we'll kind of assemble what the key issues are that we're trying to understand. We spend a fair amount of time on expert networks. We'll talk to former employees of the company. We'll talk to other industry experts. We'll talk to people like competitors to kind of get to,

36:08you know, the underlying issues. And then we kind of build a model of the business and kind of get an assessment of, you know, how does this pencil, what kind of return, does this generate at the price we can buy it for today? You know, those are some of the elements. Then that team will put together like a deck and they'll present it to the group. Now, that two-person team is usually is not Ryan or myself. Ryan's our CIO. I'm our, I guess I'd call it the portfolio manager.

36:38And we do our own sort of independent assessment, which gives us enough information to be dangerous to ask the right questions. And then we have the balance of the team, another five people who haven't done the work in the name. And that group comes together to discuss an investment. And out of that meeting may come a decision to make an investment in the company, or it may say, okay, there's still some open issues. Let's get to the bottom of this concern. And then they'll go back and do the work and come back to the team. That's the basic process. How are you guys using AI internally in that investment process to either speed up the work or do work that you normally couldn't do?

37:08Yeah, today we're really using AI more as a research tool to learn about a certain subject that's relevant. It hasn't, I would say, crept too deeply into our process. We're not using it to build models. In a world where everyone has the same access to AI, it's hard to be differentiated. I think there, you know, what's left to humanity is kind of the outside the box thinking, the creative process, the insight that's gleaned from looking at all the facts, whereas AI is a bit of a review of everything

37:38that happened before. And if you look at our most successful investments, they've usually been cases where we've done something that someone hasn't done before. You know, buying credit default swaps before, you know, a pandemic, for example, or investing in the stock of a bankrupt company or shorting the credit of a AAA company before the financial crisis. Those are among our best investments. And they were, you couldn't have found it in a model. You know, AI would not have told you to do any of those things. A lot of value investors have underperformed sort of like post-2010, 2011, but you haven't.

38:11Why do you think that is? We've been very good about continually sort of increasing our standards for business quality. We want to own the best businesses in the world that have a very low risk of disruption, and I think we're quite disciplined about that. And the other thing is that we're not just a long-only equity investor. We have opportunistically made a pile of money in a couple of cases when we've had a view about macro events that's different from others. And when you have that and you can find an asymmetric way to make that bet,

38:42you can make a lot of money. So we made a lot of money kind of going into COVID because we, I would say, were weeks ahead of the world and of a few that there would have to be a global economic shutdown. And we made a lot of money because we said there has to be massive inflation. So we bet that rates would rise. One of the things we did that, you know, we've talked about it before, but we had this very large loss circa 2015, 2016. And after that experience, I said, we've got to take our investment principles and literally engrave them on a stone tablet and put them on our desk. It's a very good way.

39:12Having a checklist is actually not a bad way to make sure you avoid mistakes. And we have a good checklist. What's on that checklist? The nature of the businesses we're investing in simple, predictable, free cash flow generative companies, the kinds of management teams that we're looking for, focus on large cap, kind of liquid public companies, an aversion to short selling. That was something, a good lesson. And on the asymmetric side, we're looking for a case where we have a view

39:42that's different from the rest of the world. And then we can express that view with an instrument where the payoff is very large relative to the amount of capital that we put to work. But, you know, it's a very simple, we're looking for the best super durable growth companies in the world. We spend a lot of time thinking about moats. And obviously we want them run by the best teams in the world, or if it's not run by the best team in the world, we want to have someone in mind that we could install if we need to replace the team. Why did you stop short selling? I never actually liked short selling,

40:12because it's asymmetry in reverse, right? You can lose infinity, and your amount you can make is finite. But I was... We shorted the bond insurers going into the financial crisis, and that was a very... That was the MBIA one? Yeah. But most of the money we made, we made on the credit default swaps as opposed to shorting stock, and then we did nothing. And then someone pitched me on a fraudulent pyramid scheme, and then we did the work and said, it's a fraudulent pyramid scheme. And we said, how can we lose money shorting a fraudulent pyramid scheme,

40:43and then delivering to the FTC a detailed analysis? They'll have to investigate, and the people being harmed are the most disadvantaged people in society. So we thought it was an amazing setup. And we like to make investments where the wind is at our back. And we said, look, the wind's at our back. We're helping a group of disadvantaged people are being taken advantage of. It's an evil company. This has to work. And we underestimated the risk of market dynamics, i.e. Carl Icahn showing up, buying the stock, putting capital to work against us,

41:14and it just reminded us that it's a really shady business. The company that you were, they're shorting the pyramid scheme, we won't mention the name, but that generated these huge attacks against you. There was websites against you. There was a famous CNBC segment that I think came as a result of that. Was that? What about the personal cost to you when you're willing to put out a contrary opinion like that? Well, it's much easier to be an investor in companies. You make a lot more friends, right? You buy a stock. Other people pile in with you. It goes up. Everyone wins.

41:44You short a stock. And in that case, we were the vast majority of the short interest. So everyone else was sort of on the other side. Then you had a company that we were an existential threat to. They were willing to use whatever they had been attacked over time by critics, by media, by otherwise. And they built up a lot of infrastructure to go after the critics. So they were kind of well-prepared to kind of go after us. And then it became a bit of a hedge fund trade where let's go squeeze bill. That was kind of the unfortunate part of it where in some sense the industry is like,

42:17okay, these guys are over their skis. We can squeeze them out. And that was not the fun part. You were relatively quiet, I would say, from a public life point of view compared to what you were before. And now in the last few years, you've been a lot more vocal. Why now? I've always been kind of a free speech kind of thing. You know, go back to my high school yearbook. I was listed as most verbose. And my yearbook epithet was a closed mouth gathers no foot. So I was sort of known for being expressive about my point of view.

42:49You know, one of my important drivers in life was I always wanted to be able to say what I believed. You know, as my follower count grew on Twitter, it gave me on the margin more influence. And as I cared about various issues, you know, I wanted to help advance the narrative. And that's why I've been more public about it. And I've been rewarded by it working, you know, beginning with smaller things. And you can actually influence the administration in the course of history with a tweet, which is pretty cool. A lot of evil can go by if no one's willing to say the emperor's not wearing clothes or more.

43:24I want to come back just one second to the AI thing for a move on from it. Like, how are you using that personally? I'm using it a lot more recently. You know, my daughter's had a major health incident. And AI is amazing at, you know, vetting, helping you make medical decisions for a child. It's an incredibly powerful tool. And I think every doctor should actually be checking their work with, you know, Dr. Claude. Or pick your favorite website, your favorite AI. Do you think companies like Brookfield get more valuable where it's like a tangible almost infrastructure becomes more valuable in a world of AI?

44:02And there's another bet, and I'd love to hear your reaction to this, which is, you know, sort of thrive as starting to buy these sports teams under the assumption that we have this barbell, right? We have AI in one hand, and on the other hand, these tangible experiences are going to become more and more meaningful to people. And presumably, they'll pay more for those experiences. So, on Brookfield, I think it's an incredibly well-run, amazing company. They're very good at infrastructure, and they're very good at financing. They're very good at building things. So, think data centers, think power.

44:33You know, there's effectively infinite demand for compute. And, you know, they're very well positioned.

Evolution of shareholder activism

44:40So, I think Brookfield is an AI winner for sure. They'll provide a lot of the backbone, you know, power and otherwise. You know, I'm a big Josh Kushner fan. You know, I don't know how much of the recent baseball investment is Thrive-related or personal. I'm not quite clear to me, but I do think that there's a lot of people sitting home being lonely. But you go to a big sport event, you know, the feeling that you have at a Knicks game, maybe at the end of the game, half the crowd is unhappy.

45:14But while it's underway, it's sort of a very human elation type experience. Now, I don't know that baseball teams are, you know, they're not valued in a way that I think about valuing most assets. I think they're valued more like an artwork than a financial enterprise. You know, the vast number of sports teams, as far as I know, if they make money, it's not a lot. And it's not like the owner is expecting them to generate massive cash.

45:45You know, they're taking a small return today on the basis that it's going to generate a lot more cash flow in the future. I would think the vast majority of sports owners are prepared to spend every dollar that they're allowed to, you know, in expanding their franchise. Are you going to buy a sports team? No. You went from being an occasionally loud activist to trying to enact change behind the scenes. Why the change? And is it more effective this way? Right. It's because we were able to effectuate change behind the scenes and we weren't when we started. Right. When we went into the business, we didn't have credibility or reputation.

46:16We hadn't been in the boardroom. I was 20, you know, 20 plus years younger. And in that world where you have limited financial resources, you have limited reputational resources. You can buy 5% of a company and you have to win on the power of the idea to get the big institutions to support you. You might have to end up in a proxy contest, et cetera. 20 years later, I've been on multiple boards as I have other members of the team. We have a track record for, of success of investing in a company, being a long-term investor.

46:48In the early days, they would say, oh, you're just a short-term investor. Well, over time, we've been able to prove that we're actually, our interests are in the interests of the long-term holders of the business. And so today we buy a stake in the company. We literally get letters from the CEO, you know, recently made a number of new investments. And in a couple of the cases, we actually got very nice. Three of the five or six cases, we got letters from the CEO saying, you know, thank you so much for investing in our company. You know, I read your second quarter letter. You think about the business and the way we do, you know, let us know when we can come see you. And if we have any ideas, you know, for them, I'm sure they'll be very receptive in taking them.

47:22In that world, we don't have to be an activist. Do you think if you're going to go activist, you should have to hold your shares for a certain period of time? I don't think you should be legally required, but I think, yes. I think activism, more direct answer to your question, that is focused on causing the stock price to go up in the short term, but causing the company long-term harm obviously makes no sense. You know, cut your expenses dramatically, i.e., and underinvest so that we can report a more profitable quarter. That's not going to lead to a good outcome or, you know what, lever up the company and return the capital to shareholders.

47:55You know, the most extreme version was greenmail, which has largely been outlawed, but you can view certain kinds of activism as a form of almost greenmail. You know, let's benefit the short-term holders at the expense of people who are stuck owning the stock, and the board's job is to kind of shut that stuff down. And I think shareholders today, you know, the Vanguard, BlackRock, you know, the index fund owners are not going to be, they're forever owners. They're not going to support some kind of short-term initiative that will cause long-term negative consequences.

48:26You talked about index funds there for a second. What advice do you have for the ordinary person who's, like, making a paycheck and wants to invest? So, if you want to be an investor, it's something you've got to allocate real-time to. It's something you have to study and learn. You've got to do your homework on companies. So, that's a decision. If you just want to have exposure to the stock market, I do think index funds are a very good approach, and they've beaten most active investors over long periods of time. How would you do that? Would you do dollar-cost averaging on a monthly basis? Would you be like, oh, it's high now, so I'll hold off?

48:56Like, how do you think about it? I think the key is to, one, start young. So, the sooner you can start putting aside money that you can invest for the long term, the better for your retirement, you know, the power of compounding. I wouldn't sit around holding cash because you think the market's expensive. You mentioned stock options earlier. I want to come back to that. How do you think about stock options from a mature company perspective where it's like, let's say, Meta or Microsoft or an example like that where they could pay cash easily, but they use options? Well, they use restricted stock as some form.

49:29I mean, the benefit of some form of restricted stock or options is the vesting. It gives you some ability to retain talent in a way that just paying someone cash every year doesn't. So, I think it's still a very useful tool. It also obviously creates more alignment. People actually care about the share price, which I think is an important discipline for employees. Now, Pershing Square, the management company, which was the gift we gave with purchase, we don't intend to issue any meaningful amount of options or restricted stock.

50:00We have an employee base that, you know, already owns. We spread equity very widely throughout the firm. So, you know, 80% of the stock or so is held by the team. So, we're in the fortunate position of not having to issue equity or options for a very long time. But maybe 20 years from now, we have a new generation that doesn't have any equity in the company. We may choose. It can be a useful tool. I was very happy the market gave me an opportunity to purchase some of that when it came out. It went down to like $23 or something. Yeah, I bought some too. So, I want to talk about Netflix for a second. You bought this.

50:30You sold it like a month later, and then now you've re-bought it. What went into that decision? You were wrong. Now you're right. How did you change your mind? Netflix is one of the companies, if you will, in the library that we had done a lot of work on. Over time. And what created the opportunity, at least the first time as we thought about it, was they had missed subscriber growth guidance. Stock got crushed. And, you know, we think Netflix is an amazing business with a very dominant position.

51:01And we bought a meaningful stake in the company. We then met with management. And we shared our detailed deck with them. They completely agree with our thesis on the company. So, we felt we were kind of super aligned with management. We talked about things like why Netflix. And we said, why don't you have an advertising model, lower cost advertising model? They said, we're never going to do it. About three or four weeks later, they announced earnings. And if you go back and review the earnings call, management seemed like shell-shocked.

51:32They were, you know, they missed the subscriber numbers again. They seemed very surprised by this. They talked about, we're going to have to adapt. We're going to have to launch an advertising model. You know, literally three weeks before they said they would never do it. And, you know, my takeaway was you make an investment in a company and then you learn new information that's inconsistent with the original thesis. You either have to buy a lot more because the stock's gotten cheap and you believe that the new information is not material. Or you have to exit because the thesis is broken.

52:04And we made the decision to exit on the thesis, if you will, being broken. Now, the letter we wrote to our investors, we said, look, we're selling for this reason. We think management is going to be able to work through this problem. But what Pershing Square invests in the highest certainty companies in the world, and we think the dispersion of outcomes here has widened dramatically. They may get it right and maybe a home run, but they also, there's a much greater probability that they don't get it right. They don't know anything about advertising models and whether that's going to be successful or not.

52:34And so, with the wide dispersion of outcomes, we have a better place to deploy the capital. We took the money, we bought Google, Alphabet. Because again, for us, it's not, we don't need to make it back the same way we lost the money, right? We can always take a tax loss, which has some value to us, and redeploy it in something else, which is higher certainty. And again, if you look at the Pershing Square portfolio, we own the highest certainty predictable companies in the world. This lost its certainty element, at least in our mind. Now, what's happened since? They executed extremely well. They built a very successful advertising model.

53:04They became an even more dominant company. They became a much more cash flow generative business. And, you know, the streaming wars, they won. You know, the Disney's of the world, the Paramounts of the world, you know, have kind of been pushed aside. Netflix, you probably turn off the lights practically before you turn off your Netflix. And they're incredibly well positioned to innovate. They're the place you go with any creative person to sell your content or to produce your content. And then, but the stock, because they executed really well, went back to a very high multiple and not interesting.

53:36And then relatively recently, the stock got cut in half again. So now we had the high certainty business we thought we owned, and they proved themselves at a price that made sense. We bought it back.

Transforming Howard Hughes

53:46The business that you're involved with that I think people know the least about is Howard Hughes. How did you get involved in that, and why are you so excited by it? Sure. So Howard Hughes was an entity we created to make another investment successful. So we invested in a company called General Growth. We bought the stock during the financial crisis. The stock was down 99.5%. We bought 25% of the company. And we did so a few months before it filed for Chapter 11. And it was actually, we were pushing the board to file for Chapter 11.

54:18They were trying to avoid it. It was a case where it was inevitable. But our view is we could run a restructuring where the shareholders could keep their investment in the company, maybe with some dilution. And that's, I joined the board of the company, we led that restructuring. What created complexity in General Growth versus its direct competitor, which was a company called Simon Properties, which is still quite successful today, was they had addition to Class A shopping malls. They owned a lot of land, and they did a lot of development in a business that they acquired from Rouse. They owned these so-called NPCs or small cities.

54:50And the market hated that business. They said, look, let's make General Growth look exactly like Simon by taking all of those businesses, all these kind of land plays, these NPCs out of the company, and anything else that didn't look like a Class A mall. We took all the non-core stuff and stuck it in Howard Hughes on the theory that, and by the way, it's the first time that I've ever seen, normally when you spin off a company from another company, the spinning company stock price drops by the value of the thing you spin off because it's kind of like a dividend. In this case, we spun off of Howard Hughes, and General Growth stock went up, like the overhang from this.

55:26David Simon called it Shitco. He was putting in a competitive bid, our structure, which a deal we did with Brookfield was to create this entity. We called it Howard Hughes. He was making fun of it by calling it Shitco, but it was really Shitco because it was just everything that- The assets nobody wanted, so to speak. Then we hired, I thought of quite a very good entrepreneurial team. David Weinberg ran her list to work through these assets over time until the portfolio was quite focused in the last five or six years to just NPCs. We said, look, the market's finally going to understand why this is a really good business.

55:58NPCs are master plan communities? They're small cities at this point. We own the Woodlands in Houston, which is a small city, 150,000 people, something like this, with high-rise office towers and shopping centers and schools and churches. I describe the business a bit like SimCity the game, where we act as the benign owner of these communities. What's in it for us is we own all of the commercial land and all the residential land. We sell the residential land to home builders.

56:29We don't sell the commercial land. We use it to build whatever the community needs. If you take a very long, multi-decade view, this is a business that over time generates a huge amount of cash. And we have a series of these small cities. But after 14 years of Wall Street wanting nothing to do with the business, we said, look, it's time for us to kind of transform Howard Hughes into something else. And the reason why Wall Street doesn't like the core Howard Hughes business is, you know, land and development sort of have a bad long-term track record.

57:01And while our land is very different from just any land, it's literally, imagine you owned New York City and you owned all the vacant commercial land and all the vacant residential land. And you owned it over a hundred year period of time, right? You make an absolute, you literally make trillions of dollars. That's really the opportunity. And actually the land that we own is in places where people are moving to, Texas, Las Vegas, Hawaii. But still as a public stock, it's always traded at a big discount to the value of its assets. So over time, we've, you know, we've bought a significant stake in the company.

57:34We now own 47% of the company and we're transforming into what we call modern day Berkshire Hathaway. What did Buffett do? It started with a dying textile operation. Over time, he liquidated the textile operation. He reinvested the capital and insurance and banking and a candy company and other businesses over time. And he built a conglomerate ultimately, but a conglomerate that compounded its capital at a very high rate over a long period of time. And it did so without issuing very little stock. So what we've done since we've made our investment in the company, since I became executive chair, since Ryan became their CIO, is,

58:10we acquired an insurance company called Vantage Holdings, a P&C specialty insurer and reinsurer. Most recently, we recruited, I believe, the best management team in the insurance industry. And we're going to build this little insurer into a big insurer over time, that very talented team underwriting the risks that we take on. And then Pershing Square is managing the assets. What Buffett did that was unique is he ran an insurance operation. And actually in the beginning, he didn't do a very good job with that. It took him time to learn how to run an insurance operation.

58:40But he managed the assets not in just a portfolio of fixed income securities, which is the typical approach for an insurer. But he took basically all of the float generated from writing insurance, and he put that money in short-term treasury so that there was plenty of capital available to pay claims. Then he took the balance of the assets, the insurer, and he bought common stocks. And Buffett was a very good common stock investor, as we know. And so the insurer ultimately over time made money on the liability side by making a profit-writing business, collecting more premiums than it paid in claims.

59:11And then it earned an attractive return on its assets. And when you earn an attractive return on assets and you have basically negative cost liabilities, you can run an insurer that generates a 20% or more annual rate of return. And that's what we're underway to do at Howard Hughes. Now, no one notices and no one cares. Why? Because it's still a real estate company that people hate. But the nature of Howard Hughes' core business is over time, it self-liquidates. So each year, we sell hundreds of millions of dollars of land. Over time, our land assets will go away.

59:42Each year, we sell hundreds of millions of dollars of condominiums in Hawaii. We've got $4 billion of condominiums under contract in the process of being delivered. We generate something approaching $300 million of net operating income from the real estate assets. So historically, we took all of the cash we generated and reinvested in real estate. We bought another MPC in Phoenix, for example. We're no longer going to do that. We're going to reinvest whatever capital is necessary to make these small cities continue to be amazing places to live. And they're always highly ranked as among the best places to live in the country.

1:00:14But beyond that, we're going to generate billions of capital that we're going to deploy initially in insurance. And when you mean deploy, that goes into the equity component of sort of the insurance company, which allows you to write more premiums, but allows you to invest sort of the equity. That will become capital. We've already put $300 million of additional capital in Vantage since we bought the company. And over time, as we generate more cash from the real estate operation, we're looking at things we can do to accelerate the transformation from a real estate company to an insurance-holding company.

1:00:48But what Buffett had was he had a big stake in the business. He owned half. We owned 47%, and that allowed him to think long-term. So we're taking the long-term approach. We've recruited a very, very talented team. And so I think we have the liability side set up for us to be doing smart things in insurance, and we're going to do a good job managing the assets. I have so many questions about this. So modern-day Berkshire Hathaway, that term gets thrown around a lot.

1:01:18What does that mean to you? It means we're going to operate much the same way Buffett did in terms of insurance will be that, I mean, the driver of the value of Berkshire Hathaway over time is its insurance operation. When Buffett talked about buying Coca-Cola or other American Express or other companies, those are assets purchased in the insurance company. So we're going to take a long-term view on the way we manage this insurance operation, and we're going to grow the business without issuing a lot of common stock. So they're a finite number of shares outstanding.

1:01:48And the beauty of insurance, it's actually a very cash-generative business. So what you're going to see over the next several years is the business transforming. Today it's probably 70% real estate and maybe 30% insurance by capital, and then it will migrate over the next five years to something, maybe 75% or 75% insurance, 25% real estate, unless we figure out a way to do that more quickly. This podcast is supported by Anthropic, the public benefit corporation behind Claude.

1:02:21Everyone's got a hard question about AI. Anthropic was built to surface those questions and share what it finds along the way, because there's hope in hard questions. Ask yours at Claude.ai slash Spotify and keep thinking. That's Claude.ai slash Spotify. So if you were to list the keys to Berkshire success, sort of like looking back, it's the, he had control so he could make. Take a long-term view. He wasn't exposed to the short-term wins of his shareholders.

1:02:52He had permanent capital. He didn't pay dividends. He retained all the capital the business generated. He had a very, a talent for investing in common stocks, and he was able to recruit talented people to run the various businesses of Berkshire Hathaway. And he also didn't dilute his shareholders by issuing a lot of stock options or by issuing stock and acquisitions. Why don't more people copy that? It sounds so simple. It's not sexy to be in the investment operation of insurance company. I think that's a big part of the reason why people don't do this.

1:03:24Now, it's difficult to get to a 47% stake of a public company. Usually doesn't happen. You know, this is sort of a creature of history. Do you think a lot of Berkshire success there boils down to the fact that, I mean, Buffett could have been paid two and 20 at some point, but he took this modest salary and sort of grew his wealth alongside the shareholders. Like how different would the success of Berkshire look had he taken two and 20 on, not that you're doing that, but like on the portfolio? I think his willingness to work for free, in effect, was a very helpful thing to the ethos around Berkshire.

1:03:59Probably made negotiations around compensation for other employees easier. Look, Buffett ran a partnership where he got something like 25% of the profits over a 6% return and the costs were covered by the partnership. And by the time he retired from that business, they get $100 million under management, of which $25 million was his, and that $75 million was held by other investors. But I think he figured out that if I keep running in this partnership format, why not have permanent capital? I don't have permanent capital. He was getting tired of dealing with investors who were giving him money, taking him money that were affecting his results.

1:04:32He probably did the math and said, look at the power of compounding. If I own half of this little Berkshire Hathaway thing and I generate a 20% return for the rest of my life, I'll end up in a very good place. And the marginal promote is not that important to me. And by the way, he was able to run the investment operation as a one-man band, which I think also enabled him to do this. I remember talking to Charlie Munger one night about, and I asked him what the most underrated aspect of Berkshire Hathaway's success has been, the part that people don't talk about the most.

1:05:03And he said, we were almost never forced to make decisions by circumstances. So we always had options. How do you think about that? What's your reaction? We designed our business around that. You know, the unique thing about Pershing Square is if you look at the various... So we manage an offshore entity called Pershing Square Holdings. Employees own 28% of that company. We manage Howard Hughes. It's owned directly and indirectly about the same by employees plus the Pershing Square funds.

1:05:33And then we just took public an entity called Pershing Square USA and employees invested, you know, 500 and something million dollars in the entity. So, you know, what's unusual about us is we have sort of these anchor stakes in each of the public vehicles we run. And each of them is sort of a permanent capital entity, which means that, you know, if there's a panic in the market and people want liquidity, they can sell the stock of each of these various companies. But the capital stays in the vehicle, which enable us to buy stock, you know, during the COVID crash or to buy stock, you know, during the financial crisis.

1:06:04I think one of the very smart things Buffett did is he decided at a certain age that, you know, how he wanted to live his life. And he didn't want to live a life dealing with constantly raising money, which is what you have to do if you're in the hedge fund business. You know, the hedge fund business, when you do really well, institutional allocators take money away from you because you come up in too big a percentage of their portfolio. When you have a bad period and people take money away from you because you're having a bad period. So you have to be and you really can't close because what happened if you're not open, people don't do diligence on you so that the next time you need to raise capital.

1:06:40It's a it's a many month process for people to learn about your business again. So it's and you're spending all your time like raising capital. As you get bigger and bigger, it consumes a huge amount of your time. And I attribute our biggest investment mistake to my being distracted by having to be on the road to some extent, raising capital to try to keep the capital base stable. And we made a decision to just get out of the business of managing money where the money could leave, you know, this sort of open ended funds. And if you look at Pershing Square today, if we just compounded anything close to historic rates, we'll be managing a trillion dollars in 20 years.

1:07:13And that's plenty. You know, it's a good business. Let's talk about Bremont. How did you get involved with the watch company? Yeah, Bremont. Bremont. Uh, so I, I, the story here is I was at Howard Hughes board meeting, uh, and it was in Dallas and it was the, our office at the time was in a mixed use complex with a shopping center. And, uh, during a lunch break, I went down to the mall and I walked by a watch store and, uh, there was a very good young salesman. And, uh, he talked to me about a Bremont watch.

1:07:43I'd never heard of the brand before. And I ended up buying a watch and, uh, I somehow lost it over time. I have like a watch safe and it kind of got buried in the watch safe. And years later I was, uh, heading to London for actually Pershing Square related reasons. And a friend had just told me that he was wearing a nice Batek Philippe watch walking down the street in London. And it was stolen and actually it's like, Bill, you cannot wear a nice watch in London anymore. Cause you're going to get, you know, at best they're going to steal it and worst, you know, you can get hurt.

1:08:17So I literally said, Oh, what watch can I wear that I can wear a little less concerned about losing it. And, or it's not a recognized brand that, that a thief is going to go after. I'm like looking through my watch drawer and I found this Bremont watch. I'm like, that is a super cool watch. So I put it on. And, uh, I was in staying in Mayfair. And I was walking down the street and I, I walked by the Bremont store, like, like literally like the day, the next day when I got to London. So I walked in, I really liked the watches and ended up buying eight Bremont watches, uh, for basically his, for gifts.

1:08:51And, uh, that night I, I had a dinner with the chair of Pershing square, uh, holdings. And I gave him a, I gave him a Bremont watch and, and, uh, Oh, I wrote a little note when I left the shop. They gave me like a free Bremont clock that I could put on the wall. And I, I said, you know, who owns this company? And they said, Oh, two British brothers, the English brothers. And so I wrote them a little note. And I said, you know, dear Mr. Mr. and Mr. English. Um, if at some point you are interested in having a partner, I would be interested in potentially being that partner.

1:09:26And perhaps I could help you grow your company. I've always kind of, my father kind of taught me to like watches. You know, it was a bit of a father son thing. And, uh, they, they, uh, emailed me back. I did a zoom and, uh, they, they said, actually, we have a long time holder that's interested in selling their interest. And, uh, ended up buying a small, a smaller minority stake in the company. And time went on. Uh, and the thesis at the time was we have this really good growth strategy.

1:09:57We're going to open all these boutiques. You know, our boutiques are profitable. Well, it didn't work out. And, uh, they burned through the capital pretty quickly, but I view these investments a bit like hobby investments. So I, it's not like something I, I put a lot of resources in and doing it. It was a, it was a bit of a Warren Buffett style investment where I didn't do due diligence. I just assessed the character, the people I was dealing with shook hands. The only involvement I had was helping recruit a new CEO, a guy named Davide Jurato. Anyway, the things weren't working out between Davide and the board.

1:10:30Uh, and the board had a, had a disagreement with him about the direction of the company. And I sided with Davide. I thought he was making all the right decisions. He dramatically improved the quality of the watches. He's a phenomenal watch designer. I love the direction, but sort of the old guard who had been with the company for 20 years felt it was too much change. It was coming too quickly. You know, we even have a new, a new logo. Uh, are we losing the ethos of the brand? And, uh, there was a bit of a, a board fight. Uh, and, uh, you know, being a bit of an activist, I, I, uh, was, sort of got a little more involved and ended up putting in a chunk more capital, buying effective control of the company.

1:11:12Uh, I, I joined the board as non-executive chair. My nephew, uh, I inserted as kind of to help fix things and they've made amazing progress in the last, uh, I would say year or so. And it's been kind of a fun, you know, other people in my industry buy sports teams. I own this little watch company and it's super cool. And this is a watch that's going to go to the moon. Um, I gotta get one of those. Yeah, this is, uh, it's called the supernova. And the, one of the things that's cool, the face has all of these phosphorescent, the face lights up completely at night.

1:11:45It looks like these solar arrays in space. You know, it's a ceramic, you know, you've got a ceramic, uh, bezel. Amazing. It's a Swiss movement, you know, one of the highest quality Swiss movements. And, you know, it's phenomenal design and, uh, we've got a lot of fans out there. And I think people like, I like wearing a watch where the guy does, you know, doesn't know what I paid for it. Yeah. And also because they're, they're, they're less, uh, well known. The thieves don't chop off your wrist for them yet. I mean, maybe that's when we get to that point. Maybe that's good for that brand.

Defining a successful life

1:12:15Talk to me about recruiting a new CEO. That's one of the things that you've done as an activist and you sort of did it here again. What is the process that you undertake to find the best person in the world for that position? Like, how do you do that? Why are you so good at that? So, uh, we've done it a couple of different ways over time for Pershing. The way we've generally done it is in our experience, finding someone who's done it before is the, is the, the lowest risk, highest return potential. So Chipotle went through crazy food safety issues and we needed someone in Brian Nichols name kept coming up.

1:12:49And then we use these sort of expert networks to talk to people who used to work for Brian or compete against Brian. And you can learn a lot by the kind of 360 views and, you know, just that kind of glowing references. And then we meet the guy. I would say one of my best skills, though it's not been perfect. I've made a few mistakes. You know, over time I've become a very good judge of people. Um, you know, what, what do you need? You and people are super passionate about the job, a lot of capability, a lot of energy and, and, you know, honesty, character, et cetera.

1:13:22And you can assess that, I think in, in an hour. I want to switch gears a little bit and talk about you as a person. Um, what are other people's biggest misconceptions about you? You know, I had this experience over the course of my life where people would say, Bill, I had a completely different impression of you based on what I read in the media. And when I meet you, uh, in person, you feel, you seem like a really nice guy. Yeah. You're much nicer. Um, and, and perhaps some of my, uh, Twitter, uh, expressions make people think I'm, I'm, I'm just a firebrand or whatever.

1:13:53Um, but, uh, I'm not a, I'm not a hostile kind of person. I'm just someone trying to get to the truth. I think media, media like positions people in this way, right? Like certain people for whatever reason, through your activism, you kind of get positioned in this. And then people form these misconceptions. I actually think that we, we, you know, the Herbalife thing did do some reputational damage over time because they sort of called me out. You know, being a short sellers, I would say the general populace just thinks that's like an evil, bad thing.

1:14:24And so I think having that be very much in the, uh, the rear view mirror, uh, you know, the Herbalife short was like the end of 2012. That was a long time ago. Believe it or not, we'd not made an activist investment for more than a decade. Wow. The last activist investment was, was in 2016. Would you ever do it again? I don't think we'd have to be an activist in any kind of traditional form. We will get quite involved in the companies we're involved in. And I guess if we were at a big stake in a company, we felt they were doing the wrong thing and we thought it was worth the energy.

1:14:55And I don't know that we're ever going to have to run another proxy contest. I don't think you run a proxy contest against someone with, you know, three million Twitter followers. I think, I think it ends badly for management. And I think we have a sufficient amount of influence that we can get to the right answer with dialogue. That's what I think. So I don't think we have to be an activist. Activism is when you're outside the boardroom and you're not going to get invited in. Today, I think any company that we're a shareholder in, if we wanted board representation, they would give it to us because we're a major shareholder.

1:15:26We've got a good reputation. We're a long-term investor. We're going to do the right thing for the business. We always end with the same question, which is, what is success for you? My definition of success for, you know, obviously, Pershing Square is, you know, I want the investors. Obviously, you can measure it. You have a very attractive, you know, life-changing, make a life-changing investment with us so that by the time they retire, they can do the things they want to do. They can pay for education for their kids. They can buy the house they want to retire in. You know, for me, my definition of, you know, 60 has been a moment for me.

1:16:00I celebrated my 60th birthday in May. Wait, go deeper on that, a moment for you. What does that mean? I sort of think about each year, like I love the summer. It's one of my favorite times of year. And the summer goes by so quickly. And, you know, most people live, you know, healthy people live to their 80s. I'm 60. So that's 20 to 25 years from now. And I'm hoping to AI and, you know, doing a better job enables me to live to meaningfully more than that.

1:16:31I have a grandmother who lived to almost 106 and she smoked and drank. I don't know if that was contributing to her longevity, but, you know, I want to, by the time I have no more time, I want to have had a significant life. And my definition has always been, I want to have the greatest beneficent impact on the largest number of people. You know, obviously you start with your family and friends and so on. But, and actually I think this institute is going to be a way I'm going to be able to have a huge impact and something that's really needed.

1:17:03So success for me is getting, is having a significant life.