Bill Ackman on His Investing Playbook, His Bullish and Bearish Bets, and What Could Trigger the Next 2008

0:00The key to being a successful long-term investor is being able to survive those kind of challenging market periods when everyone else is panicking. In fact, you want to have money to invest when others are panicking. Bill Ackman doesn't just manage a portfolio. As the founder of Pershing Square, he has built one of the most closely watched hedge funds on Wall Street. When this guy tweets, he literally moves markets. Today, he tells me the biggest tip for investors. Invest in something that you believe will withstand the test of time. Because the value of a business is the present value of the cash it generates over its life.

0:32The macroeconomic risks he's worried about. I think the biggest risk to markets is that there are a lot of very levered players in the market and we're at risk to some kind of extrinsic shock. And that stops to go down a lot. And which company will win the AI race? Some people are afraid of AI. I think it's going to be very destructive to jobs and so on. I think it will be a big driver of economic growth, a big driver of job growth. but you have to learn how to use the tools. I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab.

1:10Bill Ackman, welcome to Money Rehab. Thanks for having me. So the economy feeling funky, but to be fair, it always feels a little bit funky. I don't think there's ever been a time It hasn't. What's your overall take on what's going on in the economy and markets right now? So I think it's an unusual time in history. I think the big story is really AI. AI is driving an enormous amount of entrepreneurship. It's giving access to, you know, intelligence to a very broad group of people, you know, at very low cost. You know, Google is basically free. And then you have this massive infrastructure built in connection with AI.

1:44So you have, some of the largest companies in the world competing to build the model for super intelligence and they need access to compute and data and we're seeing a land rush as people are literally acquiring land building data centers filling them with gpus memory and enabling this technology that's transforming the world and i think it's going to have an enormous impact on all of us you know some people are afraid of ai i think it's going to be you know very destructive jobs and so on, I think it will be actually a big driver of economic growth, big driver of job growth, but you have to learn how to use the tools.

2:23But I think the big story is really AI. Yes, we have a war going on in Iran that I think will resolve itself. I don't think it's going to go on for years. I think it will resolve itself one way or another in a way that won't be too impactful in the US. And then I think you're seeing companies are actually doing quite well for the most part, but it is a bit of a bifurcated economy where some of the kind of lower income Some people are challenged with inflation. And that's a major concern. So it's not all roses, I would say. It's definitely not. It never is. So with OpenAI, Anthropix, SpaceX all going public, who do you think the winner is going to be?

3:01You know, Anthropix seems to be the leader in terms of frontier models and building a business that apparently turned profitable recently. That's pretty impressive. What concerns me about OpenAI is, you know, kind of a prediction of very significant losses for the foreseeable future. And also, I think the open source models are getting so good. And, you know, the people will have access to either lower cost or free models that will enable them to answer most of the important questions or solve the problems that they need. So I'm less of a believer in betting on the frontier model company. You know, SpaceX is a very interesting business.

3:35You know, the Starlink franchise is enormously profitable and a near monopoly on kind of global satellite telephony. You know, their space franchise is incredible. And they have an amazing position in terms of data infrastructure. If you want to rent 100 ,000 GPUs, about the only place you can do that today is SpaceX. And they're earning very high returns on those assets. And then they have their own AI models that launched a new one recently. So it's an incredible collection of assets run by, you know, the most talented technologist entrepreneur of our generation. And I think the only question is just price at a trillion, wherever it is, six or seven.

4:13There's less upside than if you could buy for half that price. But, you know, I wouldn't. The word is never to bet against Eli. So, you know, I think that SpaceX will be an incredibly important company over the next whatever period of time. Now, it's not in the Pershing Square portfolio because it doesn't have the degree of predictability that we're looking for. We like businesses that sort of today, when you think about a business, a business, you know, people think about stocks and bonds, right? Bonds, you get paid a coupon, you know, an interest rate, you know, a couple of times a year. And, you know, if it's a fixed rate bond, you're going to get your six or seven percent for sure.

4:50And at the end of the life of the bond, you're going to get your principal as long as it's a credit worthy company. A business is a bit like a bond as well, except the coupon, the interest payment is not known. You have to estimate what it's going to be. And the interest payment, a way to think about it, the way we think about companies is we think about the earnings as sort of the yield on the business. So people talk about PE, right? A stock's trading at a PE 20. Well, if you flip over the PE, it's a 5 % earnings yield. One way to think about it is you're investing in a company that's generating a 5 % return on your investment today.

5:24And the question is, is that 5 % yield going to grow over time? Or is someone going to come up with a business that disrupts it and the company is going to disappear? And so, you know, stocks are riskier than bonds because there isn't the same degree of certainty about their future. But if you narrow down the universe of companies you invest into these really predictable, you know, businesses where their market position is, we believe, so dominant, And you can earn well in excess of bond-like returns without taking a ton of risk. So is market too expensive right now? You know, I would say in spots.

5:55I think it's hard to generalize about the market. You know, people look at the stock market and say, okay, today, the PE today might be 21 or something like this. And the average PE in the market might be 17. So they can say, look on the margin, look at some value. But, you know, the value of a market is a function of what the earnings are going to be in the future. And earnings have continued to significantly exceed expectations. And earnings are growing at a faster rate than historically. And, you know, a big percentage of the market is represented by, you know, kind of the biggest companies.

6:25And those companies, whether it's the NVIDIAs, the Microsofts, the Googles, the Alphabets of the world, are much higher quality businesses growing much more quickly than, you know, if you look back 20 years ago, what the top six or seven companies were back then. So I think it's a higher quality collection of companies that deserves to trade at a higher multiple. And to my point, if Microsoft and Amazon and Meta are cheap stocks, which we believe they are, you could argue the market's not expensive at all. So if somebody had a thousand bucks to invest right now, where should they put it? I would find a handful of businesses that don't use a lot of leverage.

7:06You want companies that don't use a lot of financial leverage. They're businesses that you like and admire that make good decisions over time. and a business where you believe if the stock market were to shut for 10 years, you'd still be happy to own it 10 years from now. Don't invest in kind of what seems to be most exciting now. Invest in something that you believe will withstand the test of time because the value of a business is the present value of the cash it generates over its life. And you have to be able to predict it's going to be around a long time. I'd love to see how that's reflected in Pershing's portfolio right now.

7:38You guys keep it to 12 to 15 investments. Why do you keep it so tight? And what are you excited about right now? Sure. So our approach is to find what we believe to be the best businesses in the world. Businesses that will survive the test of time. Businesses that will survive the disruption of AI will be beneficiaries. At a minimum, you know, will be either neutral or beneficiaries of AI. And so our portfolio, you know, is comprised in some cases of companies we've always wanted to own, but weren't cheap until more recently. I put Amazon on that list, Meta on that list, Uber on that list, Microsoft, you know, businesses that we've always admired were always too expensive.

8:14And a lot of money in the markets is flowing toward kind of the new, new thing, you know, stocks, you know, semiconductor stocks or memory or, you know, places where people have recently made money. And we focus on where we're going to earn a high compound return over the next three, four or five years. and that's enabled us to fill a portfolio with these very high quality, we call durable compounders. What's up with Brookfield though? Yeah, Brookfield really fits the model as well. We like companies that have, that are sort of not particularly capital intensive that earn kind of royalty-like returns or if they have a degree of capital intensity, they can earn very high returns in the money they invest.

8:54Brookfield's in the business of asset management and they're very good at it. Really private equity, real estate, infrastructure, a lot of the energy power related businesses. And so as more and more capital is going in to build data centers, et cetera, that's a field where Brookfield is going to be a very successful participant. And they manage other people's money and are a royalty and a fee on that capital. And that's a very good business. I mean, there's years that you've delivered some crazy 50 plus percent returns, which is incredible. Hedge funds are out of reach for a lot of people. Of course, You created PSUS to democratize hedge fund access.

9:29Do you think more hedge funds should do that? Or is it to, by nature, risky and volatile for retail investors? It depends what you do. I think what we do is actually relatively low risk. We buy very high quality companies. We own them for the long term. We get pretty deeply involved in those companies and help them be successful. So we'll occasionally join boards, but we'll always, I would say, have management's ear to the extent we have ideas that can help a business be successful. The vehicle we mentioned, PSUS, you could think of it as a hedge fund, but it's one of the only publicly traded hedge funds.

9:59It happens to be available at this very moment at a very attractive price. So if you like Microsoft, let's see, Microsoft right now is trading at, let's pull it up, the ticker. Microsoft today is trading at$387. Well, if you want to buy it at$310, well, you just buy PSUS because PSUS is trading at a 22 % discount to the value of its asset. So it's a publicly traded fund that trades in the stock market. And it, you know, it trades based on supply and demand for the shares in the short term. The assets we own are worth almost$50 a share. And the stock's about a 22 % discount. So you guys got it at a better price, but you got a ton of it, right?

10:37You recently bought 2 billion of Microsoft and then sold some Alphabet to free that up. Are you still bullish on Alphabet or are you just more bullish on Microsoft? Two things matter to us. business quality, long-term growth, durability, kind of the overall quality of the business, and then the price. And we try to buy at a price that offers a very attractive return over time. And occasionally in business, we only gets to a price where the go-forward return is less than our kind of threshold. And we sold Google, not because we didn't think it was an amazing business, but rather because the price got to a level where we felt the go-forward return was lower than what could be achieved by redeploying the capital into Microsoft.

11:13What company now do you think is like Apple? in the 80s? Apple has not been the most innovative company in the last decade. It's still an amazing business, but I don't even remember which iPhone I have. And I don't think it's materially better than the iPhone I had a few versions ago. You don't have the newest iPhone, Bill? I believe I do, but is it iPhone 17? I don't even know which one it is, is my point. But the one I had before, actually a few iPhones ago, was better because the battery life was better than the one I have now. Some people are making the argument that this notion of walking around a phone, five or 10 years from now, you're not going to walk around the phone anymore.

11:52You're just going to be connected. And you don't have to carry this device that you can lose or people can steal. You'll just have some, I don't know, a little pin on your shirt that will pick up all of your, answer all your questions. Or maybe even in your brain. Yeah. Actually, it's an area that I've been spending some time on recently. There are a number of companies working on kind of brain, you know, computer interfaces. And it's going to be amazing for people with brain injuries and people who've lost vision. And eventually, I think it will be, I think you're right. I think you'll, maybe you'll wear a hat and the hat will be your connection to the internet.

12:28Yeah, more like what is going to see the most exponential growth. You know, people were complaining that a lot of these companies are staying private for a long time, but now we're seeing them go public. So if a new investor is listening, what's the best advice you would give to new investors? I think you get into trouble when you try to make money really quickly. You know, so options and leverage and very speculative type businesses. You know, when you start with a relatively small amount of capital, I remember when I had a few thousand dollars of investment capital. You know, you want to kind of make money quickly.

13:04I think one of the important things to understand is the power of company. You know, Berkshire Hathaway stock was like$48 a share, you know, in the 1960s. You know, you've become a millionaire investing with Warren just buying a share kind of back then. But it didn't happen overnight. You know, so the key is buying businesses that you believe will compound at a high rate over a long period of time. And, you know, the consumer, you know, often has insights before Wall Street. I mean, Tesla, the company was appreciated. The big shareholders were retail investors because institutions didn't understand how great Tesla was as a company, as a car.

13:43So look for those experiences, products in your life run by companies or built by companies that you admire. And that's a good place to start. And then read the end report, see what they say about their business. And then think about it. Is this a business that you believe can withstand competition? or is it, you know, my concern, you asked me before about some of the AI companies, or Anthropic has the lead now, you know, at a certain point in time, OpenAI was the leading company. And then Google was the leading frontier model company. And, you know, there are a lot of very talented people running private, you know, I just saw a startup where they raised a couple hundred million dollars in their seed round at a$2 billion valuation.

14:26And that was just an idea. and their second round is going to be 5 billion. And they're far from having a product or a service or a dollar of revenue. But there's an enormous amount of capital out there looking for the next Anthropik. And so that's going to be a very competitive space. So I'd rather own, go back to the Uber example. Almost everyone's had experience with the service Uber. And I think it's an amazing service. And the stock is very cheap today because people believe that the Tesla you know taxi if you will is going to disrupt uber and you know i think the consumer is going to go to the uber platform to order their car as opposed to you know the tesla app because you want you know you want the lowest cost car that's going to get you from place a to b in the shortest period of time so you know look for a business that you that where are you spending your time and you know amazon i i order from amazon every time i learn about a new book you know going to the pharmacy in new york city has got to be about the worst experience right all the stuff's hidden behind plastic and you have to call a salesperson to open a thing to get a razor blade okay meanwhile you go on amazon and get it delivered in two hours and who can compete with that right so think about Great dominant business where the probability of competition is extremely low.

15:49But the frothiness that you mentioned with the startups and these crazy valuations, does that concern you? Do you think we're headed toward an AI crisis or are we in a bubble? By the way, this particular company, which I looked at, the investors are probably the most sophisticated investors in AI companies with the most experience. And they're the ones setting the valuations at such super high kind of levels. You know, look, I think in private markets, there's more risk of a quote unquote valuations being massively above perhaps where they should be. But you're also seeing businesses that are able to go from zero.

16:25I mean, look at Anthropic. It went from zero to many tens of billions in revenue in a very short period of time. And this is a this is a never before seen phenomenon. So if companies can scale that quickly, then you can justify much higher private market values. Some of the money moves you made during 2008 made people wonder if you could possibly see the future, Bill. So if that is at all true, what are some of the opportunities you're predicting now? Seeing the future is very often just studying the present and looking for examples in history. And, you know, in 2008, really before 2008, it was several years before 2008, we saw a number of companies doing stuff we thought was crazy, which is there were these businesses called bond insurers and they were had triple a ratings which means you know as good as the government in terms of credit worthiness and they were guaranteeing very risky mortgages and collecting money and reporting big profits and we said this is not sustainable and that was not so much predicting the future but identifying something now that just seemed wrong and we knew eventually that would that would if you will that would blow up in terms of predicting the future you know markets are going to be volatile there'll be some upcoming panic about markets.

17:39I don't know exactly what the catalyst is going to be. There is a ton of speculation. There's a huge amount of leverage being used by professional investors, by retail investors. My biggest piece of advice to your audience is don't borrow money against stocks because that's how you get wiped out. And betting on sports is not a great, unless you've got some real edge. I think a lot of younger generations wasting a lot of money betting on sports. Maybe it's fun, but don't that money that you need to live on. So no prediction markets, it sounds like. Unless you have a huge edge. I guess if you know a ton about a certain space and that gives you an edge and the market's mispricing that edge, fine.

18:17But why wouldn't you suggest borrowing against your portfolio so you wouldn't have to sell your equities? The problem is that stocks can trade at any price in the short term. And when you borrow against your equity portfolio, you can get a margin call. And what that means is, you know, if you're living off your brokerage account and you've got, you know, 50 cents leverage against the dollar portfolio, you know, the stock market goes down 20 % or your portfolio goes down 20, 30%, you have to post more collateral. They can sell you out. And the key to being a successful long-term investor is being able to survive those kinds of challenging market periods when everyone else is panicking.

18:56In fact, you want to have money to invest when others are panicking. You know, we've made a big chunk of our profits over the last, you know, 20 odd years have come from times where the market was blowing up. And we had hedged that risk and we had capital to deploy, both in 09, 08, 09 and during COVID. Because this is a very sexy thing people talk about online. They say rich people bargain their assets instead of selling them. Rich people become a lot less rich when they do that sometimes. setups. Carl Icahn very famously was very highly levered against his own stock. And then the stock got crushed.

19:31And he went from$20 billion net worth to three or four. So rich people can lose a lot of money using marginal leverage. I mean, I guess if you can use marginal leverage, if you use five cents against your dollar, maybe you're okay. But if you use 30, 40 cents, you start putting yourself in a risky position. So it sounds like you're a long-term bullish, like Warren and just boring stuff? Maybe it's boring to you, but I don't think maybe volatility is exciting to people. I like businesses where I know they're going to be here 10 years, 20 years, 30 years from now. That's how you make a fortune over the long term.

20:08I'm bullish on boring all the way. So aside from not borrowing against your portfolio, what's the worst advice you've heard from new investors? I don't like this trend of one-day options. It's just gambling. I mean, no one knows whether a stock's going to go up or down over the course of a day unless you're trading on inside information. So it just seems like a crazy game. So what do you think is the next crisis? Is there a next 2008? I mean, I think there are always things to worry about, right? So one thing to worry about is, you know, we've been spending more money than we've been taking in as a government, as a country.

20:45Right. So we've got a deficit and we've been financing that deficit by issuing treasure bonds. And so we've got whatever, 34 trillion or something like this of national debt. And we have to issue that debt at a time when lots of other companies that used to be buying in their stock are now issuing a lot of debt and need more capital because of this massive AI infrastructure kind of boom. So there's a huge demand for credit at a time when the government itself is also issuing more and more of its own bonds. And the risk there is that all that supply needs to be absorbed by investors, and that can cause rates to go up.

21:28So one risk to markets is rates going up. Another risk is you have a lot of the very, as I talked about, levered players in the market, which means that if there's some kind of event that comes from left field that shocks people and they panic and they sell you can see a cascading you know as as people other sellers have to sell because they borrowed money so i think the biggest risk to markets is that there are a lot of very levered players in the market and we're at risk to some kind of extrinsic shock and that could stop to go down a lot now if you have an unlevered portfolio with very high quality businesses and you don't need the money tomorrow that's fine a good opportunity for you to buy more if you've got a margin debt you're gonna get wiped out or you're gonna have to sell at the bottom which is what you don't want to do so the key going back to my hero you know mr buffett his key was just longevity right he's 95 and he set up berkshire hathaway in a way that he would never get a article or the equivalent so it could compound not every year like you mentioned we've had a couple of really amazing years probably a third of the time we've been up you know north of 30 40 percent for the year but we've had a handful of you know down down years this year we're down you know slightly but that's okay you don't need to make money every year you just need to persist and own businesses that can compound at high rates and you wake up five years ten years from now and you'll have a lot of money the other key for for building wealth over time is spending less And it's hard to do that, you know, foregoing the short term experience or pleasure, you know, planning for your for the long term, you know, that requires some restraint.

23:13Well, that's why I think a lot of people are talking about a looming retirement crisis. And I know that you advocate for people without employer-sponsored plans like 401ks to be able to get access to retirement savings options. I mean, usually the debate is centered around the fact that we move from defined benefit, so pensions that have gone by the way of the dodo bird or the blackberry, I suppose, to define contribution plans like a 401k or an IRA. So can you explain this? Like I'm five years old. What kind of plan actually fixes this problem? I think the issue for the country, which the president is taking steps to fix, is call it 60 % of the workforce, their employer provides some kind of tax advantaged way to save money, typically a 401k plan.

24:03and the ideal one is where you have to opt out so you're you're kind of forced in or not pushed in nudged in to take five percent of your income whatever the number and invest it in a tax-exempt plan that can grow over time and invest in the stock market the biggest opportunity a young investor has is time because the power of compounding your money multiplies over long periods of time, but you have to start early. And, you know, it's hard to start investing when you're young because this is a time when you, you know, you want to be buying things, clothes, a house, paying rent. But, you know, setting aside the discipline to invest money and have to grow tax-free in a Roth IRA or one of these accounts is the most powerful way to save for your retirement.

24:50The problem is, I say, 60 % of the country workforce has these kind of programs. 40 percent you're an uber driver maybe a restaurant you know with a latest etc and your company doesn't give you a 401k plan you don't have a easy way to start saving for your future and the president just made law where these kind of trump savings accounts very similar to what government employees have where you can start with a thousand dollars in savings and then you know each year you contribute and invest the money in the market and will grow over time You know, wages have not grown at the same, wages grow at a much slower rate than stocks over a long period of time.

25:35And so you want to, it's very important that every American owns kind of a piece of the stock market if you want to be in a good position by the time you retire. Okay, so with that said, can we play a game called bullish or bearish? Okay. Gold. No opinion. You don't own gold. I don't. Well, I bought jewelry from my wife. So I guess the family owns some gold. I don't personally actually own any gold. I have a platinum engagement ring. But other than that, I have no medals to my name. I guess you could say this. My dad bought gold many, many years ago, probably in the 1970s, and held it. So I always want some percentage of my ass is gold.

26:14It was not a very good investment. But when it reached a little over$4 ,000 maybe in the last period, I convinced mom to sell that gold that dad had put aside. It wasn't a huge amount of money, but I guess you could say I was not that. I'd rather own businesses that can compound value than gold. But I like jewelry. So you're bullish on buying your wife jewelry. It's a very, very good advice to all husbands out there, but not like GLD. You're not owning an ETF that tracks the price of gold. I don't really have a view. I don't know whether gold is going up or down. I don't think of it as a great investment asset, even though it's done actually quite well.

26:54It's just not my thing. The problem is it's an asset that's only worth what people tell you they're prepared to pay for it. And it doesn't pay you any yield in the meantime. Whereas every other asset that I invest in is one that generates some form of yield. It generates earnings or it pays a dividend or it's rent from a building. Whereas gold is just a speculative asset. So I don't find it. I don't think it was an investment. I think it's a speculation. I like it. So you don't pay attention to silver or copper or anything? I sort of am aware of it. Copper, even gold, are inputs to various industrial processes that affect the cost of things.