Bill Ackman: The Biggest Fight of His Life

23:05Shane Parrish:I 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 HeyGen. Record yourself for 15 seconds and get an avatar that keeps you posting without filming. So you don't need to become a full-time content creator.

23:42Shane Parrish: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 heygen.com slash TKP. That's H-E-Y-G-E-N dot com slash TKP. When do you do your best thinking? Often it's 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. 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.

24:24And it leads more and more money going into the same trade, if you will, until overvaluation takes place. And then, you know, ebullience,

24:34Shane Parrish: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 all of our respective lifetimes. There are bubble-like elements. There's a lot of crazy stuff going on in the private world of venture, I think. We're starting to invest in some, talk about a bubble, we're merging and now investing in some venture stage businesses. Met with a company, let's say two weeks ago, and they weren't raising money.

25:15Two days later, they close around. They were preempted by some investor who put$50 million in at a$400 billion valuation. Then two weeks later, they raised another$50 million at a billion-dollar valuation. There's a lot of people fearing missing out on the future. A lot of capital going into venture, a lot of competition, and a lot of preempting, and leading to very high valuations. I saw a company, Series A round at a$5 billion pre-money. How do you avoid that FOMO? It depends on where you are in life. Warren Buffett was 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 an all-time low because people said he's kind of lost it.

26:04While 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.

26:12Shane Parrish:What 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. That was probably the week before the market blew up.

26:52What 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 there will, 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 a bullion, freely available capital thing to exist forever.

27:34Shane Parrish: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? Sure, it's public markets. We're investing in what we call super durable growth companies, businesses that are the most dominant companies, 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.

28:09In the public markets, 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 and more than the business plan. And you're investing in a company that is 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 into one that's going to generate cash over time. It has some similar elements, but it's much more founder dependent, CEO dependent than the public markets. The best public market companies, something happens to the CEO, you can find another great person to run it.

28:50The best private companies, without the CEO, you probably write it off.

28:58Shane Parrish:How much are you weighting the idea versus the person? I weighed 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. 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.

29:30And 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 the challenges that emerge and figure out a business model over time.

29:47Shane Parrish:How is AI changing the investment profession? The most important thing an investor has to do is assess the risk. I mean, the value of a business is the present value of the cash generates over its life. And it's life, 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 if the stock market were to shut for 10 years, you're happy to own it.

30:20It's good discipline. So the thing that you need to think through is the risk of disruption. and what AI has done is massively increase the risk of disruption. So you got to be very, very thoughtful about 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 risks of disruption created by the internet, for example. You know, Wikipedia disrupting Worldbook. 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.

30:58Shane Parrish:What businesses do you think become more valuable as a result of AI? I actually met with one of the founders of Cognition yesterday, a very interesting company. and their software or their AI, in effect, enables banks, 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 rewrite the COBOL into modern code and do it in a matter of days as opposed to many months. I think the cost to run big financial institutions is going to come down meaningfully because of AI. Big spenders, if you will, in tech are going to bring some of that.

31:41They're going to become a lot more efficient. Now, the question is, are they going to be able to keep the profit? If 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 whether 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. The problem with money generally is it's commodity and banks are in the business of providing money. So it's a complicated question. It depends on the business. I think AI will enable the creation of many businesses that heretofore could not be created before.

32:18And 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, 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. You know, 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.

32:53You 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. And 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.

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34:01Shane Parrish:Ever 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 with 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?

34:50And 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, we 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.

35:26Or even, you know, the SaaS apocalypse. Yeah, SaaS apocalypse. Which caused, you know, pretty much everything to do with software to get repriced. That 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, 10-Ks, 10-Qs, 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.

36:01We'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 the underlying issues. Then we build a model of the business and get an assessment of how does this pencil, what return does this generate at the price we can buy it for today. Those are some of the elements. Then that team will put together a deck and they'll present it to the group. Now, that two-person team is usually not Ryan or myself. Ryan's our CIO. I guess I call it the portfolio manager. and we do our own independent assessment, which gives us enough information to be dangerous to ask the right questions.

36:44Then we have the balance of the team, another five people who haven't done the work in the name. That group comes together to discuss an investment. Out of that meeting may come a decision to make an investment in the company or may say, ''Okay, there's still some open issues. Let's get to the bottom of this concern.'' Then they'll go back and do the work and come back to the team. That's the basic process.

37:01Shane Parrish: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. Yeah, 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 that happened before.

37:39If you look at our most successful investments, they've usually been cases where we've done something that someone hasn't done before. Buying credit default swaps before 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 you couldn't have found in a model. AI would not have told you to do any of those things.

38:04Shane Parrish:A lot of value investors have underperformed sort of like post-2010, 2011, but you haven't. Why 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, you can make a lot of money.

38:43So 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 had a, we've talked about it before, but we had this very large loss circa 2015, 2016. And after that experience, I said, we 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. Having a checklist is actually not a bad way to make sure you avoid mistakes.

39:16And we have a good checklist. What's on that checklist? The nature of the businesses we're investing in simple, predictable, free cash flow, So, 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. On the asymmetric side, we're looking for a case where we have a view that'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.

39:54We 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 because it's asymmetry in reverse, right? You can lose infinity and your amount you can make is finite.

40:21But we shorted the bond insurers going into the financial crisis, and that was a very - That was the MEIA 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. Then someone pitched me on a fraudulent pyramid scheme. Then we did the work and said, it's a fraudulent pyramid scheme. We said, how can we lose money shorting a fraudulent pyramid scheme and then delivering to the FTC a detailed analysis. They'll have to investigate. The people being harmed are the most disadvantaged people in society. We thought it was an amazing setup.

40:54We like to make investments where the wind is at our back. 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. We underestimated the risk of market dynamics, i.e. Carl Icahn showing up, buying the stock, putting capital to work against us. And it just reminded us that it's a really shitty business.

41:16Shane Parrish: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 a investor in companies. You make a lot more friends, You buy a stock, other people pile in with you, it goes up, everyone wins. You 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.

41:50Then 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. 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, you know, in some sense, the industry is like, okay, these guys are over their skis. We can squeeze them out. And that was not the fun part.

42:23Shane Parrish: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. You 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.

42:58And 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.

43:24Shane Parrish:I 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 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 Dr. Claude or pick your favorite website, make 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? There's another bet, and I'd love to hear your reaction to this, which is thrive as starting to buy these sports teams under the assumption that we have this barbell, 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.

44:22On 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. There's effectively infinite demand for compute, and they're very well positioned. So I think Brookfield is an AI winner for sure. They'll provide a lot of the backbone power and otherwise. I'm a big Josh Kushner fan. 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, 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... 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. The vast number of sports teams, as far as I know, if they make money, it's not a lot. It's not like the owner is expecting them to generate massive cash. 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 in expanding their franchise.

45:55Shane Parrish:Are you going to buy a sports team? No. So. 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? 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. We 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.

46:35You 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 of success of investing in a company, being a long-term investor. In 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 in the interests of the long-term holders of the business. And so today, when we buy a stake in the company, we literally get letters from the CEO. Recently, we made a number of new investments, and in a couple of the cases, we actually got very nice.

47:05Three of the five or six cases, we got letters from the CEO saying, thank you so much for investing in our company. I read your second quarter letter. You think about the business and the way we do. Let us know when we can come see you. And if we have any ideas for them, I'm sure they'll be very receptive in taking them. In that world, we don't have to be an activist.

47:25Shane Parrish: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 green mail, which has largely been outlawed. But you can view certain kinds of activism as a form of almost green mail. 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.

48:26Shane Parrish:You 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 got to allocate real time to. It's something you have to study and learn. You 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?

48:57Shane Parrish:Like, 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? Where 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, it doesn't. I think it's still a very useful tool. It's 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. We have an employee base that already owns and we spread equity very widely throughout the firm.

50:05So 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.

50:19Shane Parrish: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. I want to talk about Netflix for a second. You bought this, you 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.

50:53Stock got crushed. And we think Netflix is an amazing business with a very dominant position. and 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, well, 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. We made the decision to exit on the thesis, if you will, being broken.

52:09Now, 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. And so, with the wide dispersion of outcomes, we have a better place to deploy the capital.

52:38We 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. They became an even more dominant company. They became a much more cashflow generative business.

53:09And 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. And then relatively recently, the stock got cut in half again. Now we had the high certainty business we thought we owned.

53:43They proved themselves at a price that made sense. We bought it back.

53:46Shane Parrish:The 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. Howard Hughes was an entity we created to make another investment successful. We invested in a company called General Growth. We bought the stock during the financial crisis. We paid, 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. They were trying to avoid it. It was a case where it was inevitable.

54:21But 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 MPCs or small cities, and the market hated that business.

54:51So we said, look, let's make general growth look exactly like Simon by taking all of those businesses, all these kind of land plays, these MPCs 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 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 Howard Hughes and General Gros stock went up, like the overhang from this.

55:26So it was, David Simon called it shitco. He was putting in a competitive bid, our structure, which a deal we 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 we thought.

55:40Shane Parrish:The assets nobody wanted, so to speak. Then we hired, I thought of quite a very good entrepreneurial team, David Weinberg around her list to work through these assets over time until the portfolio was quite focused in the last five or six years to just MPCs. We said, look, the market's finally going to understand why this is a really good business. MPCs 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.

56:21What'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. We don't sell the commercial land. We use it to build whatever the community needs. And 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 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 could 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 bought a significant stake in the company.

57:34We now own 47 % of the company. And we're transforming into what we call a modern-day Berkshire Hathaway. What did Buffett do? He started with a dying textile operation. Over time, he liquidated the textile operation. He reinvested the capital in insurance and banking and a candy company and of their 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 we acquired an insurance company called Vantage Holdings, a P &C specialty insurer and reinsurer.

58:16Most 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. But he managed the assets not in just a portfolio of fixed income securities, which is the typical approach for an insurer.

58:46But 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, and 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.

59:24And 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. Each 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.

59:57So 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. But beyond that, we're going to generate billions of capital that we're going to deploy initially in insurance.

1:00:19Shane Parrish:And when you mean deploy, that goes into the equity component of the insurance company, which allows you to write more premiums, but allows you to invest 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. But what Buffett had was he had a big stake in the business. He owned half. We owned 47%. That allowed him to think long-term.

1:00:57We're taking the long-term approach. We've recruited a very, very talented team. I think we have the liability side set up for us to be doing smart things in insurance. We're going to do a good job managing the assets.

1:01:13Shane Parrish:I have so many questions about this. So modern-day Berkshire Hathaway, that term gets thrown around a lot. What 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 were 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.

1:01:45So there are a finite number of shares outstanding. And 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 70 % or 75 % insurance, 25 % real estate unless we figure out a way to do that more quickly.

1:02:14Shane Parrish: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. He 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?

1:02:48It sounds so simple. It's not sexy to be in the investment operation of an insurance company. I think that's a big part of the reason why people don't do this. Now, it's difficult to get to a 47 % stake of a public company. Usually doesn't happen.

1:03:03Shane Parrish:This is 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 2 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 2 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. Probably 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.

1:03:44And by the time he retired from that business, they get$100 million under management, of which$25 million was his, and$75 million was held by other investors. but I think he figured out that if I keep running in this partnership format, one, 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. He 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.

1:04:16And the marginal promote is not that important to me. And by the way, he was able to run the investment operations as a one-man band, which I think also enabled him to do this.

1:04:26Shane Parrish: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. He said, we were almost never forced to make decisions by circumstances. We always had options. How do you think about that? What's your reaction? We designed our business around that. The unique thing about Persim Square is, So 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.

1:05:05And then we just took public an entity called Pershing Square USA, and employees invested, you know, 500 and something million dollars in the entity. Yeah, so 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 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 during the COVID crash or to buy stock during the financial crisis. I think one of the very smart things Buffett did is he decided at a certain age that 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.

1:05:50The 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, 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, it's a many-month process for people to learn about your business again. So it's a - And you're spending all your time like raising capital? As you get bigger and bigger, it consumes a huge amount of your time.

1:06:22And I attribute our biggest investment mistake to my being distracted by having to be on the road to some extent, raising capital, trying 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, these 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. And that's plenty. You know, that's a good business.

1:06:48Shane Parrish:Let's talk about Bremont. How did you get involved with the watch company? Yeah, Bremont. The story here is I was at Howard Hughes Board Meeting, and it was in Dallas. Our office at the time was in a mixed-use complex with a shopping center. During a lunch break, I went down to the mall and I walked by a watch store. There was a very good young salesman, and he talked to me about a Bremont watch. I'd never heard of the brand before, and I ended up buying a watch. And 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 heading to London for actually Pershing Square-related reasons.

1:07:34And 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, he's like, Bill, you cannot wear a nice watch in London anymore, because you're going to get, you know, at best, they're going to steal it. At worst, you know, you can get hurt. So 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 a thief is going to go after. I'm like looking through my watch drawer and I found this Vermont watch. I'm like, that is a super cool watch.

1:08:05So I put it on. And I was staying in Mayfair and I was walking down the street and I walked by the Vermont store, 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 Bermond watches for basically for gifts. And that night I had dinner with the chair of Pershing Square Holdings and I gave him a Bermond watch and, oh, I wrote a little note when I left the shop. They gave me like a free Bermond clock that I could put on the wall. And I said, you know, who owns this company? And they said, oh, two British brothers, the English brothers.

1:08:47And so I wrote them a little note, and I said, you know, dear Mr. and Mr. English, if at some point you are interested in having a partner, I would be interested in potentially being that partner, and 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 they emailed me back. I did a Zoom and they said, actually, we have a long-time holder that's interested in selling their interest, and they're buying a smaller minority stake in the company. Time went on. The thesis at the time was we have this really good growth strategy, we're going to open all these boutiques, our boutiques are profitable.

1:09:33Well, it didn't work out and they burned through the capital pretty quickly. But I view these investments a bit like hobby investments. So it's not like something I put a lot of resources in and doing. It was a bit of a Warren Buffett style investment where I didn't do due diligence. I just assessed the character of the people I was dealing with shook hands. The only involvement I had was helping recruit a new CEO, a guy named Davide Girato. Anyway, the things weren't working out between Davide and the board. and the board had a disagreement with him about the direction of the company. And I sided with Davide.

1:10:10I 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 logo. Are we losing the ethos of the brand? And there was a bit of a board fight. and being a bit of an activist, I got a little more involved and ended up putting in a chunk more capital, buying effective control of the company. I joined the board as non-executive chair. My nephew, I inserted it as to help fix things.

1:10:53They've made amazing progress in the last, I would say, year or so. It's been a fun... 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 gonna go to the moon. I gotta get one of those. Yeah, this is, it's called Supernova. And the, one of the things that's cool, the face has all of these phosphorescent, the face lights up completely at night. It looks like these solar arrays in space. You know, it's a ceramic, you know, you've got a ceramic bezel. It's a Swiss movement, you know, one of the highest quality Swiss movements.

1:11:27And you know, it's a phenomenal design and we've got a lot of fans out there. I think people like, I like wearing a watch where the guy doesn't know what I paid for. Also, because they're less well-known, the thieves don't chop off your wrist for them yet. When we get to that point, maybe that's good for the brand.

1:11:49Shane Parrish:Talk to me about recruiting a new CEO. That's one of the things that you've done as an activist and you did it here again. What is the process that you undertake to find the best person in the world for that position? How do you do that? Why are you so good at that? So 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 lowest risk, highest return potential. So Chipotle went through crazy food safety issues, and we needed someone, and Brian Nichols' name kept coming up. And then we used these sort of expert networks to talk to people who used to work for Brian or compete against Brian.

1:12:29and you can learn a lot by the kind of 360 views and 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, over time I've become a very good judge of people. What do you need? You are super passionate about the job, a lot of capability, a lot of energy, and honesty, character, et cetera. And you can assess that, I think, in an hour.

1:12:59Shane Parrish:I want to switch gears a little bit and talk about you as a person. What are other people's biggest misconceptions about you? 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 than when I meet you in person. Bill, you seem like a really nice guy. Yeah, you're much nicer. And perhaps some of my Twitter expressions make people think I'm just a firebrand or whatever, but I'm not a hostile person. I'm just someone trying to get to the truth. I think media positions people in this way. Certain people for whatever reason, through your activism, you get positioned in this.

1:13:40Shane Parrish:Then people form these misconceptions. I actually think the Herbalife thing did do some reputational damage over time because they called me out. Being a short seller, I would say the general populace just thinks that's like an evil bad thing. And so I think having that be very much in the rear view mirror. 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 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.

1:14:19We will get quite involved in the companies we're involved in. 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. 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 three million Twitter followers. I think it ends badly for management. I think we have a sufficient amount of influence that we can get to the right answer with dialogue. That's what I think. 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.

1:14:52Today, 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. We'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,

1:15:04Shane Parrish:which is what is success for you? My definition of success for, obviously, Pershing Square is I want the investors. Obviously, you can measure it. have a very attractive, 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. For me, my definition of 60 has been a moment for me. I 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.

1:15:43It'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. I 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 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.

1:16:24Obviously, you start with your family and friends and so on. But 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. So success for me is having a significant life.