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There will come a time. There'll be some form of are we in one now? We're certainly in a transition. You could say AI is absolutely transformational and it's the most transformational technology I think of, 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.
So the thing that you need to think through is the risk of disruption . What AI has done is massively increase the risk of disruption. You've done a lot of research about bubbles. I'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, exuberance, and then eventually the bubble bursts.
They 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 of all of our respective lifetimes.
There are bubble-like elements. Uh, 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 talk about a bubble where Persian is now investing in some venture-stage businesses. You know, met with a company, let's say two weeks ago , and they weren't raising money.
Two days later, they close a round, 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.
You know, I saw a company, Series A round at a 5 billion pre-money . How do you avoid that? It depends on where you are in life. You know, um. 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 Berk's 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 soldiered on. I think it's a question of short-term versus long-term perspective. What advice? 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 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, uh, one weekend, and it listed all of the internet companies in the public markets and how much cash, based on their burn rate, how many months to go before they went to zero.
That was 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 take in 50 million or 100 million, and you completely change the way you deploy capital, betting that there will be, any time you need money, you could just tap the markets.
There will come, there'll be some form of a blow up, a pretty high-profile one where people lose a whole bunch of reset, and companies that are disciplined in how they utilize the capital they have, years of runway, will be the survivors. And the ones that have to raise money in months will be gone.
My 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 exuberant freely available capital thing to exist forever. So raise money now but keep it in the bank, don't spend it? Or spend it judiciously. How 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?
Public markets, we're investing in what you call super-durable growth companies. You know, 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, you know, either gain or maintain market share and grow their business and have pricing power in the public markets.
You, 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. In venture, you're really betting on the person 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. The best public market companies, if something happens to the CEO, you can find another great person to run it. The best private companies, you know, without the CEO, it's probably lights off.
How much are you weighing? Sort of the idea versus the person. I weigh 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, the original doesn't work. You know, my most successful venture investment, I didn't like the idea.
This was, um, Coupang, which was, uh, Bom Kim, and his business plan was to create the Groupon of South Korea. And 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 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, the value of a business, the present value of the cash it generates over its life. And it's 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 a quiet, 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, good discipline. So the thing that you need to think through is the risk of disruption and what AI has done is massively increased the risk of disruption.
So you got to be very, very thoughtful about, you know, the businesses—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 the risks 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. What businesses do you think become more valuable as a result of AI? Actually met with one of the founders of Cognition yesterday.
Very interesting company, and their software or their AI, in effect, enables banks, you know, big financial institutions, for example, that spend a ton of money on dealing with legacy systems because of an agglomeration of acquisitions they did over time. They can kind of rewrite the COBOL into modern code and do it in a matter of days as opposed to many months.
And I think the cost to run big financial institutions is going to come down meaningfully because of AI . Big spenders, if you will, on tech are going to be—they're going to become a lot more efficient. That's now , the question is, are they going to be able to keep the profit, right? If everyone is going to be forced to use the best software to run their business more efficiently, become more AI-native , the question is whether they get to keep that profit, or if 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 it's a commodity, and banks are in the business of providing businesses. AI will enable creation of many businesses that couldn't be created before. And AI will enable entrepreneurs, people to become entrepreneurs, never 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 whatever it. Yeah, how easy it is for people to now create their own agents to do stuff for them. The pace of improvement is by far the fastest of anything I've ever seen.
Think about Microsoft in the old days, 1.0 versus 2.0, it might be a couple years or more between updates of consequence. Here you get an update of consequence in days. It's a bit like driving a Tesla and, you know, overnight they're updating the software . Does that scare you as an investor? I'm not frightened.
So, "scare" is probably the wrong word, but I would say you have to be and how they are and complicated for investors how to predict the risk of disruption that seem like dominant businesses will be some dispelled. From the moments of his daughter's serious illness, to the ups and downs of his investment life, to his second life after 60, he holds nothing back this time.
Next, we have carefully organized the 20,000-word interview content into 12 major themes. It is highly informative and worth your time to settle down and listen carefully. First, regarding his experience with his daughter's serious illness, he realizes that something good will grow out of every bad thing.
Ackman's daughter, Lucy, suffered a sudden and severe brain hemorrhage due to a congenital arteriovenous malformation in her brain, and it went undiscovered for a long time. Although she was later saved, she was unable to walk for a time and even lost her ability to speak. This part takes up nearly 20 minutes in the original interview, but we won't go into the details of her condition or the old specifics.
However, there were a few moving moments; after his daughter was hospitalized, Ackman moved his office straight into the hospital. At the time , Pershing Square happened to have two IPO projects underway, so he would hold 45-minute Zoom meetings in the hospital room, spend 15 minutes with his daughter, and then return to the next meeting.
He later said that looking back, all the skills, experience, connections, and resources he had accumulated over the decades seemed to have uniquely prepared him to help his daughter at that very moment. This endeavor later evolved from helping his own child to helping many more people facing similar circumstances.
He bought a biotech building and is preparing to establish a research institute focused on brain rehabilitation, physical recovery, and longevity, viewing it as a very important mission for the rest of his life. Q: People ask you, "Bill, how do you handle something like this?" Ackman: The first thing I had to do was find a way to help my child.
As progress was made on that, something else quite wonderful happened. It made me feel that good things can grow out of bad situations. I have this belief that something good always grows out of every bad situation; this is one of the good things that grew out of the suffering he endured, and that makes me feel good.
Q: Have you always held this view, or did you learn it later? Ackman : I realized it over time. I’ve been through several near-death crises in business, and every time, my situation improved significantly afterward, so these were valuable lessons. "That which does not kill you makes you stronger"—that statement is absolutely true.
How do you balance life and career? Q: How do you maintain a healthy state of mind? What do you do to keep your head clear? Ackman: I play tennis or do some form of exercise almost every morning. I think this is probably the most important thing I do all day. Because it’s the only time in my entire day when I can be completely focused on the ball flying toward me, without thinking about anything else happening.
So I feel this is a very important form of meditation for me. Other things are getting a good night's sleep, spending time with family, and so on. Q: Do you still meditate? Ackman, I haven't thought about it for a while. In this challenging year, I did it—I was going through a divorce, alone—and it was truly helpful.
I should probably set aside 20 minutes a day to meditate. How do you manage it all? You have four essentially public entities, you have a daughter to take care of, you have a wife and children, and you want to be a good husband. How do you reconcile all of this, Ackman? Pershing Square has come a long way since I founded it.
When I first started, I was basically the boss who did everything, and I came up with all the ideas. I had one analyst to help me execute my ideas, and that's how we were. If there was an activist investor, that person was me. Over the years, we’ve built an amazing team. In our industry, an individual's career half-life at a company is very short.
People are highly paid, and top talent can jump from one place to another, just showing up to earn million-dollar bonuses, and so on. The result is that this industry has a high turnover rate, while Pershing Square has zero turnover. If we're talking about turnover, we really haven't had any. We've obviously made some mistakes and replaced a few people over the years, but look at the investment team; it’s been the same team for nine years now, just with a few new additions.
This is actually a very good thing. If new people are constantly coming and going like a revolving door, it’s hard to truly trust them in the long run or know if they are telling you the truth. Are they telling you about all the risks and the full potential gains in specific situations? When you build relationships with people, work together for nine years, and have a culture of transparency and honesty, I never doubt anything the investment team members tell me.
What they tell me is the plain, honest truth, which is a very reassuring state of mind. So, to answer your question, Pershing's investment process is run brilliantly by a very experienced team. I play an important role and have final decision-making power, but I’m no longer the one generating most of the ideas.
I only generate a small fraction of the ideas for the portfolio now, which is very helpful. As for the business itself, it's structured so that Ben is responsible for running many of the daily business segments of Pershing Square. This frees me up to think, to handle more strategic matters , and it also allows me to occasionally come up with an idea, so Pershing runs itself to some extent.
We have several public entities and an excellent accounting team; these public companies all operate in much the same way. They actually just have one management company collecting fees from the entities they manage. That is Pershing Square, which has two publicly traded funds that essentially hold the same investment portfolio.
We have a certain fiduciary responsibility to these entities, but they actually each have independent boards, so our role is that of an external investment manager. Both of these have excellent boards; typical closed-end fund boards are simply embarrassing. If you look at the proxy battles Paulson and Weinstein launched, the same six directors sat on the boards of 86 closed-end funds.
When you sit on 86 boards, it’s hard to truly fulfill your governance duties; ISS gives a typical cap of four. We hire real directors and pay them real director compensation, and they don't serve on 50 other companies at the same time, so our board is outstanding. What we do is inherently simple, so Pershing runs somewhat on its own, relying on delegation and incentive alignment.
Our incentive alignment is the best, because no one is paid based on a single stock; it’s all based on overall performance. At the end of the day, performance is the biggest driver for our management company, because the compounding of the underlying assets is what grows our fee stream. So this is a highly aligned entity.
I personally hold about 45%of the company's shares, the team holds about 35%, and the remaining small portion is held by the public and some strategic investors who invest alongside us. So as long as incentives are aligned, the right people are chosen, and a few principles are carved in stone and stuck to for a period of time, you’ll be super competitive.
I know you want to be the best investor in the world—that’s one path; there is another path, the role of a father and a husband. What I want to say is that building AOI has occupied a significant part of my mind recently. As you would expect, over the past 60 to 90 days, because I have been building the team—just like everything else—there’s always that moment, a bit like when we win a proxy battle, take control of the board, and now have to bring in a new CEO.
Once the CEO is on board, the team is in place, and everything is announced and ready to go, I will no longer be involved in daily operations. AOI will be the same way; in a sense, it will be like another portfolio company. We will both be on the board, with me serving as chairman, but I don’t think I can build AOI while simultaneously waging a proxy battle.
AOI is the Ackman Oxman Institute. Second, the process from discovering a good company to ultimately investing $ 1 billion. How do you go from "I'm interested in this company" to "We're going to write them a billion-dollar check"? Ackman: It’s usually not a company we've never heard of. We are always looking for the best businesses in the world, and over time, we’ve built a library of companies we track long-term.
We’ve always liked their business, but haven't had the chance to buy, because we might do a lot of research, but then see a price —like a 35x P/E ratio—and we just can't pull the trigger; it's hard to hit our 20%+ return target, which is our goal. So, we finish our homework, put it on the shelf due to valuation, and then wait for that day to come.
Either a macro event happens, like the pandemic, which gave us the chance to buy these kinds of businesses, or the SaaS bubble bursts, which reprices almost every software-related asset— that gives us the opportunity, for example, to buy Microsoft at what we see as a very attractive valuation, along with a host of other truly high-quality companies.
The process works like this: we usually send two team members to conduct in-depth research on a company. They obviously start with the SEC filings, the 10-K annual reports, 10-Q reports, and earnings call transcripts, then we distill the key questions we need to resolve, which are the core issues we want to understand.
We spend a fair amount of time using expert networks, talking to former employees of the company, other industry experts, and people from competitors to get to the bottom of deep-seated issues. Then we build a model for the business to evaluate whether the math works at the current entry price. We look at what kind of returns the current price can generate, and then this group puts together a presentation to report to the whole team—this two-person group is usually not Ryan or me.
Ryan is our Chief Investment Officer, and I am the portfolio manager; we make our own independent judgments, which gives us enough information to ask the right questions, and then the rest of the team—the other five people who haven't done that research—Everyone gathers together to discuss the investment.
The meeting might result in a decision to invest in the company, or it might be that there are still questions to resolve, so we go and get those answered, they go back to do more homework, then come back to the team— that’s the basic process. How are you using AI internally within this investment process?
Is it to speed up your work or to do things you couldn't do otherwise? Ackman: Right now, we mostly use AI as a research tool to understand a relevant topic. Truth be told, it hasn't deeply permeated our processes yet; we don't use it for modeling. In a world where everyone has equal access to AI, it is hard to differentiate oneself.
I think what’s left for humans is thinking outside the box, the creative process, and distilling insights from all the facts. AI is a bit like a retrospective of everything that has happened in the past. Look at our most successful investments; they are usually things others didn't do, like buying credit default swaps during the pandemic, buying stock in a bankrupt company, or shorting a triple-A rated company before the financial crisis.
These all rank among our most successful investments, and you simply won't find them in a model; AI wouldn't tell you to do these things either. Third, we have to carve our investment principles into stone. Many value investors underperformed after 2010 and 2011, but you didn't. Why do you think that is, Ackman?
We’ve always been good at continuously raising our standards for business quality; we want to own the best companies in the world, those with very low risk of being disrupted, and I think we’re quite disciplined in that regard. Another point is that we aren't just long-only equity investors; on the rare occasions when we have a view on macro events, we seize the opportunity to make a lot of money, which is different from others.
And when you have that kind of judgment and can find an asymmetric way to bet, you can make a lot of money. For instance, entering the pandemic, we made a lot of money because, I would say, we realized the global economy had to shut down weeks before the rest of the world. We made a lot of money because we judged that massive inflation was inevitable, so we bet that interest rates would rise.
There is one more thing we have done, which we have discussed before. We once had a huge loss around 2015, 2016. After that experience, I said we should just carve our investment principles into stone and put them on our desks; it's a great approach. Creating a checklist is actually a good way to ensure you don't make mistakes.
We have a good list. What’s on the list? Ackman: The nature of the businesses we invest in is simple, predictable, and they must generate free cash flow. The types of management teams we look for, focusing on large-cap, liquid, publicly traded companies, and avoiding shorting —that was a valuable lesson.
On the asymmetric opportunity side, we look for situations where we have a judgment that differs from the rest of the world , and then find a tool to express that view where the return relative to the capital invested is very large, but it remains very simple. We look for the best durable growth companies in the world and spend a lot of time thinking about them.
Obviously, we want them to be run by the world's best teams, and if they aren't, we need to have candidates in mind to replace the existing management when necessary. Fourth, you actually never liked short selling. Why did you stop shorting? Ackman, I’ve never actually liked short selling because the asymmetry is reversed; your losses can be infinite, while your gains are limited.
Before the financial crisis, we shorted bond insurers like MBIA, but most of our profits came from credit default swaps, not from shorting the stocks. After that, we didn't do anything for a while , and then someone recommended a pyramid scheme company to me. After finishing our research, we concluded it was indeed a pyramid scheme.
How could we lose money shorting a scam? We then submitted our detailed analysis to the Federal Trade Commission for investigation, and since the victims were among the most vulnerable in society, we felt it was an excellent setup. We like to make investments where we have the wind at our backs. We thought the wind was with us; we were helping a group of exploited, vulnerable people who were being taken advantage of by an evil company, so it had to work.
But we underestimated the risk of market games, specifically when Carl Icahn entered, bought the stock, invested capital, and turned it against us. This made us realize how dark this business can be. That was the pyramid scheme you shorted—we won't mention its name—but it brought a massive amount of attacks upon you.
There were websites dedicated to targeting you, and a famous CNBC show as well. What is the personal cost to you when you are willing to publicly put forward such a contrarian view? Ackman, buying is investing; you make more friends that way. You buy a stock, others buy along with you, the price goes up, and everyone is happy.
When you short a stock—and in that case, we held the vast majority of the short interest, so everyone else was basically on the other side—you are facing a company that views us as an existential threat, and they are willing to use any means necessary. They have been attacked by critics and the media for a long time, so they had already built a system to fight back against their detractors.
So they were already well-prepared to deal with us. Then it turned into a hedge fund-style short squeeze, with everyone saying, "Let's squeeze Bill." That was the unfortunate part of it. In a sense, people in the industry felt these guys had overplayed their hand, and we could push them out; it wasn't the fun part.
Looking at it from the perspective of public life, you've been much more vocal in recent years compared to before. Why now? Ackman: It's always been something of a free speech issue. Back in my high school year, I was voted most talkative, and my yearbook motto was "a closed mouth gathers no feet." I have always been known for daring to express my own views.
An important driving force in my life is that I have always wanted to speak what I believe. As my follower count on Twitter grew, it gave me more influence editorially. When I care about various issues, I want to help push a certain narrative, which is why I've been more vocal, and it has indeed been effective and rewarding.
Starting with small things, you can actually influence the government or the course of history with a single tweet; that's pretty cool . If no one is willing to say "the emperor has no clothes," many bad deeds will just slide by quietly. I want to return to the AI topic: how do you personally use it?
Ackman: I've been using it a lot more recently. My daughter went through a major health event, and AI is excellent at cross-checking and helping you make medical decisions for your children; it's an incredibly powerful tool. I think every doctor should use it to cross-check their work, perhaps using a specialist or your favorite website, your favorite AI.
The demand for computing power is practically infinite . Do you think companies like Brookfield will become more valuable? Those kinds of tangible, infrastructure-like assets are becoming more valuable in the AI world. There's another bet, which is the acquisition of sports teams. The premise is this barbell strategy: on one side is AI, and on the other, these real-world experiences will become increasingly meaningful to people.
Ackman, let's talk about Brookfield first. I think it is a remarkable company that is run exceptionally well. They are very good at infrastructure, very good at financing, and very good at building— think data centers, think electricity. You know, the demand for computing power is practically infinite, and they are very well positioned.
So I think Brookfield is definitely an AI winner; they will provide a lot of the backbone support. For example, electricity and so on. I am a big fan of Bruce Flatt. I don't know how much of these recent baseball investments are related to the firm and how much are personal actions; I'm not entirely sure.
But I do think many people sitting alone at home feel lonely, yet when you go to a big event, like a Knicks game, the feeling you get —maybe half the crowd is unhappy when it ends, but during the game, it’s a deeply human, communal experience. Though I’m not sure if baseball teams are valued in the same way I evaluate most other assets.
I feel they are valued more like pieces of art rather than as financial enterprises. Most sports teams, as far as I know, don't make much money even if they are profitable, and owners don't expect them to generate significant cash. They settle for small returns today, banking on the promise of greater cash flow in the future.
I think most sports owners are willing to spend every allowable dollar on expanding the team. Would you ever buy a sports team? No. Why are you no longer keen on public activist shareholder campaigns? You've shifted from an occasionally high-profile activist investor to driving change behind the scenes—why the change, and is this approach more effective?
Ackman , it’s because we can now effect change behind the scenes, which we couldn't do when we started. We entered the industry with no credibility, no reputation, and no board experience; I was in my early 20s. In that world of limited capital, your reputational capital is also limited. You could only buy 5%of a company and had to win based solely on the strength of your ideas to get big institutions to support you; you might even end up in a proxy fight.
Twenty years later, having served on multiple boards—and the same applies to other members—we have a successful track record and are known as long-term shareholders and investors. Early on, people would call you a short-term investor, but over time, we’ve been able to prove that our interests align with those of the long-term holders of the business.
So today, when we buy a stake in a company, the CEO writes to us proactively. We’ve made several new investments recently, and in three out of five or six cases, we received letters from CEOs saying, "Thank you so much for investing in our company. I read your Q2 letter, and you think about businesses the same way we do; let us come visit you when it’s convenient." If we have any thoughts for them, they are certainly very willing to listen.
In this environment, we don't have to be activists. Do you think an investor should be required to hold a stock for a certain period before launching an activist campaign? Ackman, I don’t think there should be a legal mandate for that. To answer your question directly, the kind of activism that focuses solely on pumping up the short-term stock price at the expense of the company's long-term interests clearly makes no sense.
For example, drastically cutting expenses and reducing investment just to report a stronger quarter won't lead to good results, or leveraging the company to return capital to shareholders—the most extreme version of this was greenmail, which is now largely prohibited. You could view certain forms of activism as a near-version of greenmail, benefiting short-term holders at the expense of those who are forced to continue holding the stock.
The board's duty is to put a stop to such things. I believe today's shareholders, like Vanguard and BlackRock—those index fund holders— are permanent holders; they won't support short-term measures that lead to negative long-term consequences. Five, how should ordinary people invest ? Question: You mentioned index funds.
For an average wage earner who wants to invest, what is your advice? Ackman: If you want to be an investor, this is something you must truly invest time in to study and learn. You have to do your homework on companies; that is one choice. If you just want exposure to the stock market, I think index funds are a great way to go; in the long run, they outperform the vast majority of active investors.
Question: What would you do? Would it be regular monthly investments? Or would you wait on the sidelines if you feel things are expensive? Ackman: The key is to start early. The sooner you start saving money that you can invest for the long term, the better it will be for your retirement; that is the power of compounding.
I wouldn't sit idle just because I think the market is expensive and hold onto cash. Question: You mentioned stock options before; I'd like to return to that topic. What is your take on stock options? From the perspective of a mature company, like Microsoft, they can clearly afford to pay cash, yet they use options or restricted stock.
Ackman: A major advantage of restricted stock or options is the vesting period, which is essentially a staggered payout mechanism. It can retain talent in a way that simply paying annual cash bonuses cannot, so I believe it remains a very useful tool. It clearly also leads to stronger incentive alignment, making employees truly care about the stock price, and I think this is an important discipline for employees.
As for Pershing Square, the management company, that was a gift we gave ourselves when we took it private; we don't plan to issue any meaningful amount of options or restricted stock. Our staff is already widely invested; we have distributed equity broadly across the company, so about 80%of the firm is owned by the team.
Therefore, we are in the fortunate position of not having to issue equity or options, and we won't need to for a long time. But perhaps 20 years from now, a new generation will emerge that doesn't have any equity in the firm, and we might choose to use them; they would be a useful tool. I was very happy when the market gave me the opportunity to buy.
After it went public, it gave me a chance to buy in at around $ 23. Yes, I bought some too. Sixth, why did you sell Netflix at a loss and now you're buying it back? Do you want to talk about Netflix? You bought it, sold it about a month later, and now you've bought it back again. What's behind this decision?
You were wrong at first, and now you're right. How did you change your mind? Ackman, Netflix is one of the companies in our firm's portfolio that we have researched extensively for a long time. The first opportunity arose—at least that's how we thought about it when they missed their subscriber growth guidance and the stock price plummeted.
We thought Netflix was an amazing business with a very dominant position, so we bought a significant stake in the stock. Then we met with management and shared our detailed analysis with them. They completely agreed with our thesis on the company, so we felt we were highly aligned with management. We talked about some issues, such as why Netflix wouldn't launch a lower-cost ad-supported model, and they said we would never do it.
About three or four weeks later, they announced their earnings. If you go back and listen to that earnings call, the management team looked like they were stunned. They missed their subscriber numbers again and seemed very surprised by it. They said, "We have to adapt, we have to launch an ad-supported model." Just three weeks prior, they had said they would never do it.
My conclusion is that when you invest in a company and then receive new information that is inconsistent with your original thesis, you either double down because the stock is cheap and you believe the new information is irrelevant. Or you have to exit because the thesis is broken. We decided to sell on the premise that the thesis was broken.
We stated in our letter to investors that we sold for this reason. We believed management had the ability to solve this problem, but Pershing Square invests in the companies with the highest certainty in the world, and the dispersion of results widened significantly. They might get it right and hit a home run, but there was a greater probability they wouldn't.
They knew nothing about the ad model and didn't know if it could succeed. Given such a wide dispersion of outcomes, we had better places to allocate that capital. We took the money and bought Alphabet ( Google). Because for us, we don't have to make the money back the same way we lost it. We can realize a tax loss at any time, which has value to us, and then reallocate that money to places with higher certainty.
Looking at the Pershing Square portfolio, what we own are the most certain and predictable companies in the world. Netflix lost that element of certainty, at least in our minds. Afterward, they executed brilliantly, built a very successful advertising model, became a more dominant company, and turned into a business that generates more cash flow.
They won the streaming wars; Disney, Paramount, and the others were all pushed aside. Their position in innovation is incredibly vital. Every creative professional goes to them to sell or produce content, but because they executed so well, the stock price returned to a very high valuation multiple, making it no longer attractive.
Then, the stock price was slashed recently, so we once again had this high-certainty business we thought we owned. They proved themselves at a reasonable price, and we bought back in . Seventh, build Howard Hughes into a modern-day version of Berkshire. Regarding your involvement, I think the business the public understands the least is Howard Hughes.
How did you get involved, and why are you so excited? Ackman: Howard Hughes was originally an entity we set up specifically to make another investment successful. We invested in a company called General Growth during the financial crisis. The stock had fallen 99.5%, and we bought a 25%stake in the company a few months before they filed for Chapter 11 bankruptcy.
In fact, we were the ones pushing the board to file for Chapter 11. But we believed we could lead the restructuring and let shareholders retain their investment in the company, perhaps just with some dilution. I joined the company's board and led that restructuring. The complexity of General Growth was that, compared to its direct competitor Simon Property Group—a company that remains quite successful today—Simon, in addition to top-tier malls, also held a lot of land, did a lot of development, and had a business acquired from Rouse.
They owned what are called MPCs, and the market hated that business. So we said, let's make General Growth exactly like Simon by spinning off all those businesses—all those land investments , these MPCs, and anything that didn't look like a classic shopping mall. We stuffed all the non-core assets into Howard Hughes.
This was a first for me; usually, when you spin off a company, the parent company's stock price drops by the value of the spin-off, because it's like a dividend. But this time, when we spun off Howard Hughes, General Growth's stock price actually rose because the burden weighing on the market had been lifted.
Simon’s David Simon called it a "junk company" when he was making a competing bid. It did sort of live up to that nickname, as it was just a pile of assets nobody wanted . Then we hired a very talented entrepreneurial team to lead the division, and over time, the team gradually turned these assets around until the portfolio became highly focused.
For the past five or six years , only MPCs have remained. We say the market is finally beginning to understand why this is a good business. MPCs are master-planned communities that have grown into small cities today . We own The Woodlands in Houston, a small city of about 150,000 people with high-rise office buildings, shopping malls, schools, and churches.
Think of this business like the game "SimCity." We act as the stewards of these communities, and the advantage is that we own all the commercial and residential land. We sell residential land to builders, but we keep the commercial land to build whatever facilities the community needs. Spanning several decades, this business generates a massive amount of cash over time.
We have a series of such small cities, but after Wall Street refused to touch this business for 14 years, we said it was time to transform Howard Hughes into something else. The reason Wall Street disliked Howard Hughes ' core business was the poor long-term track record of land and development, but our land is completely different from ordinary land.
Imagine if you owned New York City, all the vacant commercial and residential land, and held it for 100 years; you could absolutely make trillions of dollars— that is the real opportunity. Moreover, the land we own is all in areas with population inflows, such as Texas, Las Vegas, and Hawaii. However, as a publicly traded stock, it has always traded at a significant discount to its asset value.
So, over time, we continued to buy a substantial stake, and now we own 47%of the company, transforming it into what we call a modern-day Berkshire. How did Buffett do it? He started with a failing textile mill, gradually liquidated the textile business, and reinvested the capital into insurance, banking, a candy company, and other businesses.
He eventually built a conglomerate, one that compounded capital at a high rate over a long period with almost no share issuance. What we have done since investing in this company, starting from when I became executive chairman and Ryan became their chief investment officer, is acquire an insurance company with educational advantages, which was a specialty reinsurer under PNC.
Recently, we recruited what I believe is the best management team in the insurance industry; we will grow this small insurance company into a large one over time, with this talented team underwriting the risks we take, while Pershing Square manages the assets. What makes Buffett unique is that he operates the insurance business himself.
He didn't start off very well and took time to learn, but when managing assets, he didn't just build a fixed-income portfolio, which is typical for insurance companies. He invested almost all the float generated by insurance into short-term Treasury bills to ensure sufficient capital for claims, then used the remaining assets to buy common stocks.
As we know, Buffett is an exceptional common stock investor, so the insurance company ultimately earns money on its liabilities by underwriting profitably, collecting more in premiums than it pays out in claims. On the other hand, he earns substantial returns on assets. When your asset returns are significant and your cost of liability is essentially zero, you can operate an insurance company with even higher annualized returns.
This is exactly what we are pushing forward at Howard Hughes. Nobody pays attention or cares right now because it is still a real estate company that people dislike. But the nature of the core Howard Hughes business is self-liquidation over time; we sell hundreds of millions of dollars in land each year, and the land assets disappear year by year.
We sell hundreds of millions of dollars in condos in Hawaii annually. We have $ 4 billion worth of condos signed and in the process of delivery, and the real estate business generates nearly $ 300 million in net operating income each year. In the past, we reinvested all the cash generated back into real estate, such as buying another MPC in Phoenix.
We no longer do that. We will invest the capital needed to maintain these small cities as desirable places to live, ensuring they remain excellent residential communities. They are also consistently ranked among the best places to live in the country. Beyond that, we will generate billions of dollars in capital, first to invest in insurance; since acquiring the holding company, we have already added $ 300 million in additional capital.
We are also looking for ways to accelerate this transformation, shifting from a real estate company to an insurance holding company. What Buffett has is a large stake in the business; he holds half, and we hold 47%. This allows him to think long-term, so we are taking a long-term approach and have recruited a very talented team.
So, I believe the liability side is structured to let us do smart things in insurance, and we will manage the assets well too. Question: What does a modern-day Berkshire mean to you? Ackman: It means we will largely operate in the way Buffett does, where insurance will be the driver of Berkshire's value.
In the long run, what drives Berkshire is its insurance business. When Buffett talks about acquiring Coca-Cola, American Express, and other companies, those assets were all bought with insurance company money. So, we will manage this insurance business with a long-term perspective and grow the business without issuing a large amount of common stock; the number of shares outstanding is limited.
The beauty of insurance is that it is inherently a highly cash-generative business. Over the next few years, you will see this company transform. Today, it is roughly 70%real estate and maybe 30%insurance in terms of capital, but it will shift. In five years, it will be about 70%to 75%insurance and 25%real estate, unless we find a faster way.
Number 11: What are the key elements of Buffett’s successful management of Berkshire? If you had to list the keys to Berkshire's success, what would they be? Ackman: First, he has control, allowing him to take a long-term view without being swayed by shareholders' short-term gains or losses. He has permanent capital, he pays no dividends, and he retains all the capital generated by the business.
He has a gift for investing in common stocks, the ability to recruit capable people to run Berkshire's various businesses, and he doesn't rely on issuing massive stock options to dilute shareholders. He also doesn't rely on acquisitions to dilute them. Why haven't many people copied this? It sounds so simple.
Running an insurance investment business isn't " sexy," which is a big reason why people don't do it. I think this is one of the main reasons. Additionally, it is very difficult to acquire 47%of a public company; it usually doesn't happen. It is often a matter of historical circumstance, a product of history.
Question: Do you think Berkshire's success is largely due to the fact that Buffett could have charged a 2% management fee and a 20%performance fee at some point, but instead took a meager salary, letting his own wealth grow alongside his shareholders '? If he had charged "two and twenty," how different would Berkshire's success be?
Ackman said at the portfolio level...I believe the fact that he was willing to work for almost nothing has been very helpful to the spirit and culture of Berkshire, and it probably made compensation negotiations with other employees easier. Look at Buffett's early days running the partnership, where he took 25%of profits above a 6% return, with costs borne by the partners.
When he exited that business, he was managing $ 100 million, of which $ 25 million was his and $ 75 million belonged to other investors. I think he realized that if he continued running it as a partnership: first, he wouldn't have permanent capital; second, he was tired of dealing with investors who kept adding and withdrawing money, as their entries and exits affected his performance.
He likely did the math on the power of compounding: "If I own half of this small Berkshire and generate a 20%annual return for the rest of my life, the end result will be fantastic." Editor: I don't think the fee is that important. By the way, he is able to manage investments alone, and I think that also allows him to do this.
I remember chatting with Charlie Munger one night. I asked him what the most underrated aspect of Berkshire's success was—the part people talk about the least. He said, "We are almost never forced by circumstances to make a decision, so we always have options." What is your reaction when I ask for your take on this statement?
Ackman: We have designed our entire business around this point. What makes Pershing Square unique is that if you look at each of our entities, we manage an offshore entity called Pershing Square Holdings, where employees hold 28%. We manage Howard Hughes, and employees hold a similar percentage both directly and indirectly, plus their stake in the Pershing Square funds.
Later, we took an entity public called Pershing Square USA, and employees invested about $ 500 million into that entity as well. What sets us apart is that we have "skin in the game " in every public entity we manage, and each one is a permanent capital vehicle . This means even if the market panics and people want to cash out, they can sell the shares of these companies, but the capital remains within the entity.
This allows us to buy stocks, like buying the dip during the COVID crash or during financial crises. I think one very smart thing Buffett did was that at a certain age, he figured out exactly how he wanted to live. He didn't want to live a life constantly dealing with continuous fundraising, which is exactly what you have to do.
If you are in the hedge fund industry, the business of hedge funds, institutional investors will pull their money out when you do too well because you become too large a portion of their portfolio. If you perform poorly for a while, people also pull their money out because you aren't doing well. So you are forced to, and you simply cannot close your doors, because once you do —if you aren't open—people stop doing due diligence on you.
Next time you need to raise capital, it takes months to get people to understand your business again. As a result, you spend all your time on fundraising, and scale just eats up a huge amount of your time . I attribute our biggest investment mistakes to the fact that I had to run around fundraising, distracted, struggling to keep the capital base stable.
So we decided to completely exit that type of "money can leave at any time" wealth management, which is the open-ended fund. Look at Pershing Square today. As long as we compound at a rate close to our history, we will manage $ 1 trillion in 20 years, and that is plenty; it’s a good business. Q: You accidentally bought a watch and ended up acquiring a watch company.
Q: Let's talk about Jean Rousseau watches. How did you get involved with this watchmaker? Ackman: Jean Rousseau watches, the story goes like this. I was in Dallas for a Howard Hughes board meeting, and our office was in a complex that had a shopping mall. During a break, I went downstairs to the mall, walked past a watch shop, and a very capable young salesperson started talking to me about Jean Rousseau watches.
I had never heard of the brand, but I ended up buying one. I don’t know how I lost it, but I had a watch cabinet, and it was buried deep inside. Years later, I was planning a trip to London, and a friend just told me his nice Breitling had been stolen on the streets of London. He said, " Bill, you can't wear a nice watch in London anymore, because you'll either get it stolen or get hurt." Best case, it gets stolen; worst case, you might get injured.
I thought to myself, what kind of watch can I wear that I wouldn't mind losing, one that isn't a brand thieves would recognize and target? I rummaged through my watch drawer and found this Bremont watch, it was super cool, so I put it on. I was staying in Mayfair, walking down the street, and the next day I passed a Bremont boutique.
Once in London, I walked in and really liked the watches, so I bought eight of them, mostly as gifts. That night I had dinner with the Chairman of Panmure Gordon; I gave him a Bremont watch, and when I left, I left a note. The store even gave me a free Bremont clock to hang on the wall. I asked who owned the company, and they said it was a pair of British brothers.
I wrote them a note saying, "Dear Mr. England, if you're ever looking for a partner, I'm interested in being that partner. Maybe I can help you grow the company." My father was the one who got me into watches; it was a shared hobby between father and son. They wrote back , we had a meeting, and they said a long-term shareholder happened to be selling their stake, so I bought a small minority interest.
As time passed , the thesis was that we had a great growth strategy and would open many boutiques, assuming they would be profitable. It didn't work out, and they burned through capital quickly. But I treated this as a hobby investment and didn't put in too many resources. It was a bit like a Buffett-style investment; I didn't do due diligence, I just assessed the character of the people I was dealing with.
My only involvement was helping to recruit a new CEO, named Davide Cerrato. However, things didn't go smoothly between Davide and the board, and the board disagreed with him on the company's direction. I stood on the side of the founder, Nick English. I thought his decisions were right; he significantly improved the quality of the watches and was an excellent watch designer.
I liked this direction, but the old-school members who had been with the company for 20 years felt there were too many changes, too fast —even the logo was changed. Did we lose the brand's spirit? The board had an argument. I have a bit of an activist investor streak, so I got more involved, invested a significant amount of capital, bought actual control of the company, and joined the board as non-executive chairman.
I also brought in my nephew to help with the restructuring. They’ve made incredible progress over the past year or so, which is quite interesting; while others in my circle buy sports teams, I own a small burger chain— it's super cool, and it's going to take off. Tenth, how do you find an excellent CEO for yourself?
Let’s talk about recruiting a new CEO; this is something you often do as an activist investor, and you've done it here again. How do you find the person best suited for this position in the world, and what is your process? Why are you so good at this? Ackman: We’ve tried a few different approaches over the years.
For Pershing Square, our usual approach is to find someone who has already done this; it’s the lowest risk and highest potential reward ratio. When the Mexican fast-food brand faced a food safety crisis, we needed someone, and the name Brian Niccol kept coming up. We then leveraged expert networks to talk to people who have worked for or competed against Brian.
This 360-degree evaluation can teach you a lot; it’s all very valuable. Then, we meet the person. I would say one of my best skills, although not perfect—I've misjudged a few times—is that over the years, I've become very good at judging people. What you need is extreme passion for the work, strong ability, abundant experience, as well as integrity and character; I think I can judge that in an hour.
Eleventh, what is the biggest misunderstanding about Ackman from the outside world? Question: I’d like to change the subject and talk about you as a person. What is the biggest misunderstanding people have about you? Ackman: I’ve had this experience often throughout my life; people say, "Bill, my impression of you is completely different." That’s based on what they read in the media, which is different from meeting you in person.
You seem like a genuinely kind person. Perhaps some of my expressions on Twitter make me seem like a powder keg, but I’m not a hostile person; I’m just seeking the truth. I’m just someone who wants to find the truth. I think the media tends to label people; for various reasons, certain individuals are molded into that image through their aggressive actions, and people form misunderstandings as a result.
I think Herbalife really damaged my reputation. Over time, because they publicly named me and labeled me a short seller, the general public began to think that short selling is an evil and bad thing. So that is long in the rearview mirror; the Herbalife short was back in late 2012, which was a long time ago, believe it or not.
We haven't done an activist investment in over a decade. The last activist investment was in 2016, and you ask if I'll do it again? Ackman, I don't think we need to use any traditional form of activism anymore. We get deeply involved in the companies we invest in. Even if we are a major shareholder and think they are doing something wrong that is worth our effort, I don't think we need to launch a proxy battle.
I don't think you should start a proxy fight with someone who has 3 million Twitter followers; the outcome for management would be terrible. I believe we have enough influence to get the right answers through dialogue, so I don't feel the need to be an activist investor. Activism is what you do when you're outside the boardroom and can't get in.
Today, in any company where we hold shares, if we want a board seat, they will give it to us because we are major shareholders, we have a good reputation , we are long-term investors, and we do what's right for the business. 12, success is living a truly meaningful life. We always end with the same question: what does success mean to you , Ackman?
My definition of success, obviously for Pershing Square, is to provide investors with life-changing returns—to have them make a life-changing investment with us so they can do what they want in retirement, send their kids to school, and buy the house they want to retire in. For me personally, my definition is that 60 is a milestone for me; I had my 60th birthday in May.
I look at every year this way—for instance, I love summer, it's my favorite time, but summer goes by too fast. Most healthy people live into their 80s, and at 60, that means another 20 or 30 years. I hope that with AI and taking better care of my health, I can live significantly longer than that. I had a grandmother who lived to be nearly 106, and she smoked and drank.
I don't know if that was the reason for her longevity, but what I want is to have a meaningful life before I run out of time. My definition has always been to have the greatest positive impact on the most people, reaching as many as possible—starting with family and friends, of course—but I actually think this brain research institute will be a way for me to have a massive impact.
something that is truly needed, so for me, it’s about living a life that is truly meaningful. That’s all for this episode. If you’ve made it this far, please help by hitting the like button and subscribing to support the channel. See you next time.
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