Bill Ackman and Ryan Israel 2025 – UBS fireside – HD
Good afternoon to everyone here in Omaha, Nebraska, and to those joining us virtually from across the United States and around the world. I’m Mark Exelowitz, and I’m a managing director in private wealth management at UBS, And I am truly honored to be here with you all on the eve of Warren Buffett’s 60th annual shareholders Meeting. We all are thrilled to be back here for the second year in a row. We have a very exciting fireside chat today, covering a range of topics, including the current market environment, long-term value investing, and, of course, the tariffs. Before we begin, allow me to introduce the incredible individuals who will be participating and leading today’s conversation. To my left is salida Marcelli. Salida will be moderating today’s chat. She is the chief investment officer for the Americas at UBS Global Wealth Management. She guides the investment strategy for $2 trillion in client assets across the region and oversees the end-to-end investment platform across research, portfolio strategy, and solutions development. Big job. I’d also like to congratulate Salida for two reasons. First, UBS has just announced that beginning in July, she will be promoted to the new global head of Investment Management. Second, once again, Salida has been named by Barron’s as one of the 100 most influential… women, and U.S. finance. Both very well deserved, and I am proud to call Salida a colleague, but also a friend. Next to salida is Ryan Israel. Ryan joined Persian Square Management in 2009 from Goldman Sachs, and in 2018, he was named an institutional investor hedge fund rising star. In 2022, Bill appointed Ryan as Pershing Square’s first ever chief investment officer, saying, and I quote, he is once in a generation talent as an investor, not just in equities, but also in macro instruments. And next to Ryan, the one and only Bill Attening. Bill is the CEO. And the founder of Pershing Square Capital Management, which he established in 2003. Pershing Square Capital manages approximately $17 billion in assets and is widely recognized for delivering the best returns in the industry. In addition to his role at Pershing Square, Bill is also a member of Universal Music Group. In 2006, he and his family created the Pershing Square Foundation. Part of the Persian Square. Philanthropies to bet on innovative leaders solving humanity’s big society, environmental, and health challenges. To date, his foundation has committed more than 850 million dollars in grants and social investments. That’s a lot of money. Bill and his wife, Niri Oxman, are co-trustees of the foundation. Bill is also a signatory of the Giving Pledge, which was created by Warren Buffett, Bill, and Melinda French Gates, where he is committed to give the majority of his wealth back to philanthropy. I just want to say on a personal note, Persian Square is a franchise client of UBS and my team, and I want to thank both Bill and Ryan for that, and also for them to be. Being here today. Before I hand it over to Salita, the lawyers insist that I read the following disclaimer. As you may know, Pershing Square Capital Management is an SEC registered investment advisor. As a result, there are regulatory constraints on the topics that we can discuss today. As much as I am sure, Bill and Ryan… We’d love to answer all your questions. I must ask that you refrain from asking questions on the following topics. Persian Square’s past and current performance, Persian Square’s existing funds, and any plans that they have to raise new funds in the future. So with that, now I will hand it over to Salida, who will lead the conversation with Bill and Ryan. Following the discussion, of course, we’re going to open it up to the audience. Thank you very much. All right. So Mark did a nice introduction, but I’m not even sure an introduction is needed for you, given that our room is standing only today, with several hundred people and a big wait list. But I have to say, did you know this is hot off the press? Bill was recently in a stock picking contest with Robin Hood Foundation, one of the largest charities in New York for poverty. And he became, he was the winner. And with a significant return of 350 percent, along with some of the best investors of our time. Um, so we’re really excited, I’m sure we’re going to talk about some of those trades. It’s great to be with you here for the second year in a row. And I’m so glad we did this pilgrimage from New York to Omaha again, and I think it’s a very worthwhile trip. Because, as we know, this is the mecca for value investors. And I know my fellow panelists, our seasoned Berkshire vets. But for me, it was my first time last year, and no doubt it’s a unique level of energy here this weekend. And the impact that Warren Buffett has had on Bill and Ryan’s career was pretty apparent last year when we were having our conversation. And I think Buffett’s wisdom is only more relevant and important in times of uncertainty like today. So really excited to continue conversation this year. And then one final thing before we dive in. That I learned last year is that Bill and Ryan love engaging with the audience. So I’m just here to warm them up and then they’re all yours. All right. With that, let’s get going. So the market narrative this year is very different than what it was about a year ago when we were sitting on these chairs. What are some of the lessons in the spirit of this weekend that you’ve learned from Buffett that helps navigate today’s investment landscape? And what does it take now to be a successful value investor? Sure. Well, I think you’re entirely right, Salida, that so much has changed in the last year. It seems like it’s very hard to get away from your desk, as Mr. Buffett would say, and go get a pepsi without missing a whole bunch of tweets or headlines. And so the markets are incredibly volatile, as we all know. And for, I actually think, very good reasons. There’s a lot of policies that are changing dramatically. A lot of changes in leadership have happened with the election. A lot of uncertainty about the state of the… economy, about what the Federal Reserve will or won’t do. And I think at times like this, what I remind myself of is ultimately, when thinking about investing, it’s very important, well, of course, we need to pay attention to the headlines and understand are there significant changes that will have long-term impacts on the economy or businesses that we’re looking at. Ultimately, thinking about the business as a present value of the future stream of cash flows, and really trying to understand competitive advantages, what growth trends will look like. I think a world of volatility presents a lot of opportunities. For people who can think long-term about their businesses. But it’s very easy to forget that in a market that seems to fluctuate. And so I think just rereading some of the Berkshire letters, really thinking through about the principles. That the market is ultimately a weighing machine in the long term, but it certainly feels more now than it, I think, used to in the past, that it’s a voting machine. And remembering which game you’re really trying to play. So I think that, to me, has been the biggest takeaway in a volatile market is thinking really about long-term value and really… What the value of the business is, because there’s so much fluctuation on a daily or even an hourly basis lately. Yeah. What I would add to Ryan is, it’s a huge reminder that I think the most important thing we can learn from Mr. Buffett is owning super high quality businesses and trying to pick businesses where it doesn’t matter what’s going on in the world, the business will still sort of power through, whether it’s a tariff, whether it’s a pandemic, whether it’s the Fed raising rates, lowering rates, find the business that’s relatively immune. And put yourself in a position where you’re never forced to sell. So don’t borrow a bunch of money, don’t be investing your last dollar. But if you own the great business, it doesn’t matter much. So what we try to do is find what we think of as the truly great, durable franchise. So read Michael Porter’s book, Competitive Advantage. It’s got this five forces framework. It’s a very good way to think about the forces that impact a business and then try to contemplate. This is the most important thing. People focus too much on… PE ratio, trying to build a model. It’s more about what is the company’s durable competitive advantage? How much cash will it generate over time? How capital intensive is it? How protected is it from a couple of students leaving an elite university, renting a garage? There has to be a garage. And from there, building something that can displace you. The hardest thing is figuring out what might disrupt in a world of AI, in a world of what will be a massive acceleration in, I would say, idea and company and software creation. If you think about software, it used to be you had to be a software engineer to write software. That’s changing. And so the degree of creativity, there are a lot of super creative people who come up with great ideas, but don’t have the first clue on how to write a piece of software to address whatever the issue is. So we’re going to have a lot more disruption and trying to be able to predict that as sort of the key. And then I would say, to Ryan’s point on the margin, volatility then becomes your friend. You learn about a bunch of great businesses. A lot of other people often figure out they’re great. And then, every once in a while, nothing to do with the business, but it’s a Trump tweet. It’s a real, something that has significant economic effect and the entire market goes down. Your company goes down about the same amount, but the enduring business value protects it. That’s a great opportunity for you. Great. So we started with lessons from Buffett. But now I would love you to do a little self-reflection. Because over the last 12 months, so much has changed in the world, in the markets, but I’m sure also in your business and personal lives. So, reflecting on the past year, what comes to mind? What did you learn? What surprised you? And I’m purposefully keeping this pretty vague, so you can take it any direction you want. Sure. Sure. I think for me, it’s really about thinking about… How different the world can play out in a short period of time than what you assumed. I mean, we had a narrative about who the president was going to be, and the polls dramatically changed last July. We had a situation where people thought the Fed was on a certain path to reduce interest rates, and then all of a sudden we have the new tariff plans, And now you have this concern about if the economy is weakening, but also is there going to be a lot of inflation? So I think there was a narrative early on in the Trump administration, actually before he started, but after he was elected, where the concern was. We are going to have runaway inflation because the economy is going to run so hot. And what’s going to happen? The dollar is going to get too strong. Interest rates are going to get too high. How are we going to deal with those things? And now you could argue people are worried the dollar is going to get too low. People are very concerned about economic growth. They’re still very concerned about inflation. So I think for me, last year reflection, I mean, even to add to that, think about how the U.S. Was supposed to be the dominant AI country. And then this deep-seek model comes out in January that people start talking about. And the question is, who owns AI? Who’s going to be the most competitive? So I think just really keeping an open mind about what the narrative is that people believe is going to happen. And envisioning a way the world can play out differently has been one of my biggest reflections. And I think it’s really important to the point bill made, which is that’s why it’s so important to find businesses that you think can handle the ups and downs and the changing economic circumstances. Because so many things can play out differently than what you, or a lot of really thoughtful people, could even imagine. And so being able to say, I don’t know how the world will play out, But if I can find businesses that will do very well in these different market environments or different future environments, it’s really important. I think the biggest lesson of the last year is that President Trump, people accuse him of not being a truth seller. But actually, everything he said he’s going to do, he’s going to do. When he says, tariffs are the most beautiful word he ever heard. He meant it. And what the implications are for society and economics are a different one. Actually, I think the lessons of the last year are not dissimilar from the lessons of previous years. As an investor, you have to assume that it’s going to be an uncertain world, and the unpredictable, the unexpected can happen. And so, do you want to own company ABC in a world where were the unpredictable and uncertain. It’s going to happen. So Bill, when I think about you and the past few years, other than your investments acumen, there’s also one other thing that comes to my mind immediately. And actually, it’s like one letter, X, because you’re so candid. Curious, what draws you to the platform? So I’ve always been like a big free speech person. And, in fact, my principal driver in life was independence. And when I was younger, I did not want to be financially dependent on my parents. I didn’t want to have to… I wanted to be able to kind of live my life. So I was super motivated to be successful, so I would be independent. And part of independence is also the ability to say what you want to say about things that you think are important. And I think it’s unfortunate… that, particularly in sort of recent years, we went through a period of time where people felt they could not share their views, political or otherwise, you know, in a work environment. Otherwise, they risked a work environment, a school environment, a university environment, they risked being canceled, they risked being fired, etc. So I feel privileged in not worrying about losing my job, being able to speak freely. And I think, you know, the ability to sort of help influence the conversation. Sometimes influence the president. I think at the end of the day, I think we’ll all be judged based on the life. If I want to live a significant life, which is sort of the business plan, I think the significance comes from having the biggest positive impact in front of the largest number of people. I think that’s the definition of a significant life. And early on in my life, I thought, okay, business is about making money. Philanthropy is about doing good. And I’ll make a pile of money, and then I’ll do philanthropy, and I’ll be having an impact. And then I’ve sort of learned through the experience of philanthropy that actually, through business, you can accomplish way more good than you can with philanthropy. Philanthropy needs to be super strategic. It needs to be things where there’s a capital market’s failure, whether it’s early stage science, research or some problem that can’t be solved in sort of a capitalistic solution. But what I learned from Twitter is the ability to express your views. To a broad collection of people, you can have, I think, a very significant societal impact, and you can take on really important issues. And so I find that super appealing and fun. Thank you. Thank you for explaining that. But be honest, over and under, is there anyone in your family that gets upset that you tweet? Yes. Okay. It’s my sister. He’s not a big Trump fan. And look, Trump is an imperfect man. We’re presented, ultimately, we had two candidates to choose from. And I thought he would be by far the better president. And we’d have a better sort of outcome for society. But you can certainly criticize him and find fault with some of his decisions. And I don’t know that we’ve ever had a president that could do no wrong. Okay, great. Thank you. All right. So I want to dig a little bit deeper on the topic of the day, trade war. Many in the business world, I think, including yourself, Bill, shared concerns following the Liberation Day. Some policies since then have been paused or walked back. Where do you think we go from here? Do you think the damage is done already? Can the economy hold up? Sure. So I think we look back. What were the president’s goals? I think his goals are… One, I think we’re in a complicated geopolitical environment where it seems like the world’s become a less safe place. It’s not smart for the United States, or really any country, but certainly our country that has the resources to do so, to rely on countries that could ultimately be our adversaries for kind of key strategic assets and products. So whether it’s semiconductors, whether it’s kind of key pharmaceutical ingredients, whether it’s things that we need just generally steal. The ability to manufacture things to protect our country, to help our economy, it’s critical. I think one, he wanted to bring some of those activities that have been outsourced to other parts of the globe, back to the country. I think his other objective was, if you think back to World War II, U.S. helped save the world. Europe was a mess. We introduced a Marshall Plan. We helped not just Europe, but Japan and Asia recover from World War II. And part of that recovery is we allowed the allies, in effect, to build up trade barriers that would enable them to protect their markets so that they could rebuild their industrial economies. And then, with the passage of time and significant progress over time, our allies with significant trade barriers started to outperform us. You think about the Japanese auto industry beginning a couple of decades ago, and America sort of lost jobs. Fell behind in some cases competitively with respect to certainly the manufacturer of products. On the services side, or on the software side and the IP side, I think we’ve really excelled, but we lost ground there. And I think Trump would like to see, you know, balance of trade, certainly with countries like China, et cetera, you know, be addressed, which seems like a reasonable goal. So if we focus on those kind of key objectives, you know, tariffs can be a tactical tool to address them. I think… We were all surprised, including Ryan and I. I think the expectation was going to use tariffs as a tool. Our expectation was we might. Reciprocal tariffs, it meant someone’s charging us a 12% tariff and we’re charging two. You know what? We take the tariff to 12, and if they bring them down, we bring them down. And we use them to create a more open trading environment. So Liberation Day, I think we were all excited when he announced reciprocal tariffs. It was only when that chart went up and the calculation of reciprocal came back with a number, a cube of the expected tariff rate. And, you know, what we kind of have to remind ourselves about? Trump, whether it’s his dealings with universities or his dealings with, you know, other countries, is he has a certain negotiating style. I guess I would describe it, which is very aggressive, asked for a lot. And also, he promised that if a country retaliated, that he would retaliate even further. And that’s how we got to 145 percent tariffs with China. So I think… He sort of made his point in a very significant way. I think the world has had the opportunity to experience what the impact of effectively shutting down trade with China will mean, both for China and for U.S. businesses and the U.S. economy. I think he sort of made his similar point, kind of more broadly with other countries. I think the pause was a very good idea. And I think the ability to use this pause to make the beginnings of deals with… Other countries, I think, can head us in the right direction. The point I made over the weekend and kind of tried to make it a little simpler today is that. I think keeping tariffs at 145% with China is a mistake for many reasons. But even from a negotiating perspective, it’s critically important in a negotiation that you are in the strongest possible position. And 145% tariff is going to have a very negative effect. It’s already having a negative effect on all. All businesses that in any way source product in China, in particular, smaller businesses that aren’t going to warehouse huge amounts of product, not that many companies do at this point in time. Imagine the Omaha toy retailer, right? And the source is probably nearly 100% of their products in China. They cannot afford to buy inventory that costs 145% more, and nor are they going to be able to raise their prices to a level that will… Enable them to remain profitable. It’s putting a huge strain on small companies and also has a negative effect on our economy. So my advice to the president, pause the China tariffs or take them down to 10% or 20%. And then actually, the balance of power in the negotiation comes back to us. And the reason for that is the shock of the tariffs has really caused. Every CEO, every owner of a business that has sourced a meaningful percentage of their product in China is… Doing everything they can right now to find alternative sources of supply. And the longer that China sort of doesn’t make a trade deal with the United States, the higher the probability is that everyone leaves. And that has a potentially long-term and devastating effect on the Chinese economies. By taking the tariffs down soon, takes the pressure off of our companies, our economy, puts the sort of negotiating power, even more so, in the president’s favor. And I think that accelerates an outcome. The risk of all of this is, I would say, the shock of the tariffs and the shock of the Trumpian approach. Here is that. The potential is to kind of destabilizing sort of the economic and, in some sense, the global world order, causing a loss of trust in the United States as a trading partner over the long term. People do not like to see that kind of extreme unpredictability. When you see extreme unpredictability, cost of capital in general rises. So people would argue they don’t want to receive a higher premium on U.S. treasuries. They want to receive a higher premium on investments in U.S. equities. And the unknown is this sort of, even if we resolve this, and we resolve this reasonably quickly, and we do get the benefit of a pause. That gives us time to negotiate deals, will there be a persistent cost? All right, you can save. Money on tariffs, and you could end up in a worse place. If our cost of capital, our equity and debt cost of capital, the yield we need to price our treasuries at is higher. With $37 trillion of debt, 25 basis points is a lot of money. And so that’s a vulnerability that we need to think about. Well, you just talked about the credibility of the United States, and there’s a school of thought out there that says U.S. exceptionalism is dead. As investors, primarily in U.S. companies, what would you say to this? Maybe, Ryan, love to hear your thoughts. Sure. I think what’s interesting, I mean, going back to the question earlier, about what have you learned over the last year, I think one of the things that’s becoming even more important is when there are narratives out in the market that are driving kind of the action of price, I think it’s really important to go back and study kind of some of the facts, to really ground yourself in a lot of the logic of why are people saying what they’re saying, but what’s actually happened. And one of the things that we did is we went back. And we looked over the last five and 10 years, all the major markets around the world, obviously starting with the U.S. markets. And when you looked at what companies had done in the U.S. Versus really any other part of the world, the U.S. Was outperforming. So, over the last five years, pre-pandemic, the last decade at least, revenue growth for the overall U.S. Stock market indices were much higher than they were for anywhere else in Europe or in Asia. Same thing with profit margins. The growth in profit margins was much higher. And then, ultimately, earnings per share was higher than everywhere else. Japan was close, but a lot of that was due actually to, I think, a lot of the positive corporate. Influence, kind of investor influence that helped drive improved capital allocation. That went from the U.S. into Japan over really the last ten years, and so the U.S. was still outperforming by far. And I think when you take a step back, that really reflect what’s happening, the economies. It’s the same scenario when you’re looking at the growth rate of the U.S. economy over time versus a lot of the other nations. It is still by far the best neighborhood, if you will. And I think a lot of that ultimately reflects the it really reflects a lot of the policies that we have, and I think there are a lot of structural reasons why. It’s going to be hard for other nations to be able to match a lot of the underlying developments that we’ve created in the U.S. And I think technology is just a prime example of that. So I think our perspective is that we expect the U.S. Companies are going to remain very dominant on the whole. We are expecting that, if you will, the U.S. exceptionalism, as people are terming it, is going to still be very prevalent. And I think over time, it’s… We don’t really see anything that’s happening now with the administration’s policies or otherwise. That would change that dynamic that’s existed for the last five or 10 years in a very significant way. Okay, great. Before we open up, I want to get a little bit into your investments. When I look at your portfolio, it’s not surprising that there are a lot of the names that were the same as last year, given that you’re long-term investors. But are there any specific industries or types of companies? That have become more interesting or less interesting in today’s world? Sure. So again, we focus on business quality. And if you look at the companies we like, vast disproportion of our investments are not characterized by an industry, but characterized by their economic characteristics. We love owning royalty collecting companies. Universal music is a royalty on people listening to music. Uber is a royalty on people. Getting driven around and ordering food. Restaurant brands is a royalty on people eating in fast food restaurants. Hilton is a royalty on, I guess, conferences like this one, and food and beverage and kind of room rates. Almost every business we own is a capital-like royalty in a very dominant market position. And we like businesses like that because they’re inherently sort of inflation protected. If you’re getting a percentage of revenues on every hamburger, Coke, and fries, if the price of hamburger, Coke, and fries goes up, magically, your revenues kind of go up. We love businesses. Warren often talks about. The best businesses in the world are businesses that can continually reinvest capital at high rates of return in their kind of core business. I think the tier above that is companies that don’t need to reinvest capital into their business, but can continue to grow at high rates of return. And and those are the businesses that we, I would say, are probably 80% of the capital that we invest. We end up in businesses that fit that paradigm. All right. Anything you want to add? I think one thing just at a high level that’s very interesting is. There was a lot of talk last year about, and really over the last couple of years, how the S&P 500, the challenge with it was. It became trading at one of the highest multiples it traded at in recent memory. And the reason for that was you had this collection of just a half dozen or so businesses. That were accounting for upwards of 25 plus percent of the market value of the S&P as a whole, which should not be even a fraction of a percent if every one of those companies in there were equally distributed in size. And so I think what’s interesting about that is people were really working themselves up about how is the market going to perform if those companies don’t perform very well. If you start looking at the stock market today, you recognize the S&P 500 is getting back to flat and recovering. A lot of the post-Liberation day. Movement now, Yet those companies have, by and large, they’re down pretty significantly still for this year. So I think one of the ways that we think about it is we always look at business quality. We try to think about what are really great, dominant businesses. And then we also look at things that, how is price changing? and what are the reasons why price have changed? So I think one of the things that’s just interesting conceptually is for a lot of the reasons people are worried about some of the larger capitalized companies, when we kind of look at a lot of the companies inside of the SPF 100, those are some of the companies that have been hit the hardest. Some of them may be absolutely justified, But generally speaking, whenever there’s a huge swath of an industry or otherwise that gets thrown out or somewhat dismissed, every now and then, there are opportunities for a select business or two within that industry. So when I was a restaurant analyst 23 plus years ago, one of my favorite things about covering a company was channel checks, especially at Cheesecake Factory. And I heard the best investors are those who get close to their products. So what’s your go-to order when you go to Burger King? Don’t tell the restaurant, friends, people, what I haven’t eaten there in a long time. What about you? Don’t tell my wife because she wouldn’t want me eating there. I’m a huge fan of the fries. So when I go, I like to get a Whopper, maybe a junior Whopper, but a large order of fries. And I take my kids, too, so I hope she’s not watching this. All right. Well, great. One more. If you had to stay at a Hilton for one night, which would it be the best one other than the Omaha Hilton anywhere in the world? Which is the best Hilton? Yeah. It’s probably a Waldorf asset. And the best one is probably… I want to go to the one in New York that’s reopening. Okay. Recommend the New York before. We like new hotels. We’re staying not at the world’s greatest hotel right now. We hope someday to aspire to get into the Hilton, get a room at the Hilton, Omaha. But I didn’t want to call the CEO to ask for a room. The room I’m in has a distinct odor and you can’t open the windows. And what? Much like Mr. Buffett, we’re going to criticize by category. We’re only on the hotel, but if. Sorry, it’s not a Hilton. I can’t remember the last time. I went to a hotel where I asked for a new room, and they upgraded me to what they call the presidential suite. Nope. All right. Well, um. Can’t open the windows. Still? Okay. I’m happy with a very small room, clean, fresh air, no smell. It’s not a Hilton, by the way. Sounds like if anybody has a spare room in their Airbnb, you build a feel of it. Next year, Airbnb. Yes. All right. Awesome. For those of you joining us virtually, thank you so much for joining today. And we hope you enjoyed the conversation. Thank you. Do we get to call on people? Why don’t we call on the young man up front here? Hey, thank you so much for taking the question. My name is Gabriel. Wait one second. Or I’ll repeat. Sorry. Hey, thank you so much for taking my question. My name is Gabriel. I am with a group of incredible students here. In this wonderful conference. So thank you for being here. I’m wondering if you have any advice for young investors, especially when it comes to gaining a better intuition for what makes a really high quality, durable asset. Yeah. Just any thoughts on that? Sure. So I’ll start. I’m sure Ryan has a bunch of ideas. I think durability comes from, I would say, patents. Are not that protective generally. Usually, what creates durability is that the company gets to a certain kind of market position to become the category leader. They offer a product or service that their customers love. They’re at a certain scale that is difficult to disrupt. And they can do things that companies of smaller scale would have difficulty, sort of challenging. Think of the market position of Amazon, for example. Right? Try it. It’s an impossibility to create a new Amazon. Just the customer. Think about a Costco, a business that has enormous buying power, has a business model where their customers are effectively subscribers, and they continually work to keep the product at the cheapest possible cost, and the customer experience great. If you look at the companies we own, think about Uber’s market position. Right, you don’t want, you want an app that gets you. A car that, you know, is going to be clean, run by a professional driver that’s done thousands of rides, and the car’s going to come quickly. So you want the biggest network of cars. Universal Music has 40% of the recorded music market share in the United States, a third kind of globally incredibly dominant market position. Hilton, the biggest network of hotels, extremely well-managed company over a long period of time. Think about how hard it could be to create another Hilton, right? There are lots of businesses that seem like good businesses. One of the tests I use is if this business disappeared tomorrow. What impact would it have on the world? And there are a lot of companies that if they disappeared, it really wouldn’t matter much. But if Amazon disappeared, it would have a very significant impact on people’s lives. Same thing’s true for Hilton. Same thing’s true for universal Music. Same thing’s true for Uber. But there’s sort of a software company that solves one specific problem that maybe someone else could solve. Most companies, I think, that make things, like that make products, it’s harder for them to have. Very durable… Kind of competitive advantages. So we tend to be investors in, you know, I would say those are the kind of characteristics that we look for. And then you want to couple it with a balance sheet. Where they’re always going to be able to make the right decision without regard to short-term financial pressures. And the ability to do that will allow them to continue to extend kind of the barriers that make it difficult. To compete. And we try to find, we like businesses that generally are not too reliant on some unique technology, sort of pure technology type companies, because the probability of someone else introducing a better version of that unique technology is high, particularly in an AI-enabled world. Yeah, so I would agree with what Bill said. And I think one of the things when you’ve done this job for a very long period of time is you can start developing pattern recognition to understand what business quality looks like. So. Immediately you can start thinking all the examples that Bill’s talked about. We’ve seen hundreds of companies that don’t quite fit those definitions, or thousands of companies that don’t, and the select few that do. When you’re starting out as an investor, though, it’s really hard because you don’t have that same level of experience to make those assessments. So I think one of the most valuable things a young investor can do, like, what I tell people, go find the biggest companies today. And then go look at those companies 10 years ago and 20 years ago and read their annual reports and figure out, just start going by the companies. How did a company get to be one of the Mag Seven today? And go, conversely, go back 10 years and go back 20 years ago and find the biggest companies that are no longer the biggest companies. And start reading what happened over the years. I think just studying businesses, business success and business failures is one of the easiest ways, at a very early on in your career to start building up that pattern recognition that you would otherwise get after you’ve been doing it for a long period of time. The best part about that is it’s all free on the SEC website. Most websites for the companies. Yeah. Everything you need to know about investing is free and totally accessible. Just a question of how much energy you want to put into learning. But right here, I’ll repeat your question. Go ahead. So I know you started out as an activist and then over the years you’ve evolved and… Evolved means I’ve improved. Just what are your thoughts on activism going forward? And you just sort of think about the next investment. So what I want to point out is, the questioner says that I’ve evolved. And I take that as a very… So it’s just a question on activism, because you’ve sort of evolved beyond that. But at the same point, you still have that in you. Yeah. So I would say a couple of things. One, when I entered this business, actually in 1992, my first real activist investment was a company called Rockefeller Center Properties. Beginning in 1994. And it sort of happened by accident, where I saw a really interesting company, a very cheap stock price and an incredible opportunity. I saw management really didn’t seem to have a clue and they were doing the wrong thing. And it was just sort of my nature not to sort of allow that to happen. I got involved, it was profitable, made a successful investment, and that inspired me to be an investor that wanted to help companies succeed. And, of course, you have a competitive advantage if you can buy a business at a time when the shareholders are really upset with how management’s running the business. And if you can buy it at that price, that reflects unhappiness. And then own enough of a stake to get a board seat or have influence. Where you can change the course of the company, where you can change the management, you know, that’s a real way to create value. When we started out at Pershing, you know, still no one had really heard of us as a firm. But as we did, a few activist investments, starting with Wendy’s International. Beginning in 2004, we started to get known among CEOs and advisors, et cetera. But we were still small pipsqueak. I was 37 years old, didn’t know CEOS on a first name kind of basis. We were not particularly well recognized. What’s happened over time, I would say we are as involved and as influential today as we were before, but perhaps because I’m now 58, on the brink of being 59, I’m the age of many CEOs. I’m either no most of the CEOs in America, or I’m sort of one person removed. All of us have kind of sat on boards of directors. We have reputation for being actually thoughtful shareholders. We haven’t had to fight our way in in the way that we had to do in the past. But the idea of taking a stake in a business and helping a business optimize itself remains an important part of the strategy. And if you look at Warren Buffett’s career and you go back and read his partnership letters, he was a shareholder activist, right? He was buying stakes in companies that did a poor job on capital allocation. Or they had a whole portfolio of securities that had nothing to do with their core business. And they were trading at a discount to their securities, you know, Sanborn Map Company. Go back and look at some of these, you know, Dempster. Mill manufacturing, a business where he brought in a CEO to do a turnaround. That was sort of early Warren Buffett. Over time, when he started running a corporation and he had to buy control, he didn’t have to be an activist anymore. Because he could cause the outcome to happen. So it’s sort of like a natural, to your point, evolution of an investor. We have more influence today. We have more capital today. We have a much more durable capital base today. When we started out, you know, it’s hard to be. Present yourself as a long-term investor when you’ve only been in business for a couple of years. When you have the credibility to say, look, we’ve owned businesses for more than a decade, and we have a track record. So still a very big believer in the ability, if you can buy a stake in a business that’s being run poorly, and you can change the way it’s run, there’s no better way to make money, particularly if the business itself is a great business. Maybe a question from the back. This gentleman here. Mr. Ekman, I wanted to ask, I’m Peter from Munich. Speak loudly, please. I’m Peter from Munich. I wanted to ask a personal question. You now have been doing this for a long time and you had wins and losses in your life. What was the biggest win moment of your life? The biggest win of my life? Yeah, I met a woman named Mary Oxman. Business-wise. But true story. So I, uh, as I like to say, life is not a straight line up. That’s true for portfolios, and that’s true for personal lives. I had a married woman that I met early in my life, and we had kids together and had a good relationship. But ultimately, we concluded we weren’t really right for each other. And when you make a decision to get divorced, it requires a certain degree of courage. You don’t really know that you’re going to find love kind of thing. And I managed to do that. I met a remarkable person and she’s had an amazing influence on my life and on our performance. Since I met her, if you’ve, you know, returned since Nary. So there you go. I highly recommend that investment strategy. Question, lady in the front here. Hi, thank you for taking my question. For the students who are around me, for whatever reason, I want to actually tell you that. I’ve seen Bill come to my class of Columbia Business School from 11 to 13. When he was going through JCPenney and Hobo Life. Why do they always have to bring up the investments where we lose money? And I, by virtue of that, I almost happen to have a front row view of how you were thinking at the time, how you were talking at the time, how you were projecting yourself at the time. And I think those would have to be one of the most painful, publicly painful years. And what strikes me is that you endured it all. You survived. You have thrived. It did not pull you down. A normal person, it would just destroy that person. So I’m not a normal person? You’re not. You’re not. You’re definitely not normal. I’ve evolved, and I’m not normal. But that endurance for pain, I see now, you know, in your ex-interactions, they went after your wife, And there’s just so much pain people have tried to inflict. As an investor and as a human being, how do you endure so much pain? What gives you that strength? And I think that’s one of the reasons for your success. Sure. So again, I go back to what I said before, which is success is not a straight line up. You’re almost guaranteed to fail over the course of your life. And it’s how you respond to failure that determines your success. I went to Harvard College and I got more out of four years of rowing, I would argue, than any particular class I took at the university. And one of the things you learn as a rower, I did varsity crew for four years, is the ability, you learn that the human body’s ability to endure pain, the threshold is much, much higher than you believe. You know, sort of that experience makes any, you know, one investment, or public, you know, look, the nature of an investor that’s concentrated, that’s an activist, that, you know, the media, you know, it’s not that interesting to write a story saying. Apple earned $4.62 this quarter. People really are not going to read that. The press likes writing about personalities and people, and that’s why shareholder activism has gotten so much press. But when they’re unsuccessful and when you’re concentrated, they’re big, they’re high profile. And, you know, there’s uncertain, you know, you’re going to get a lot of, you know, sort of criticism for that. How do you endure that? The answer is, you know, I always focus on, like, the truth. So, you know, whether I’m right or wrong, I don’t, my determination of that is based ultimately on the facts, not what people say. And investing is a business where you can look, some of the best investments, you can look stupid for a while. And so Buffett talks about the importance of temperaments. Temperaments means you’re insulated from volatility, and it also means if you’re going to be public, you’re insulated from criticism. And by the way, I listen to criticism, and I read what people say when they disagree with me. And the culture of Pershing Square is one where you are encouraged to disagree with the CEO, the CIO. It’s a very transparent kind of open culture. Something that’s bothered me. That’s free speech. That’s how we learn. You don’t learn from a whole bunch of people agreeing with you. You learn from someone. I always believed, when we owned a stock, that if Jim Chanos was short, a famous short seller, I’d call up Jim. I’m like, Jim, what’s your argument? And if I found his argument not compelling, it gave me confidence that I was right. But I would say the key to enduring challenges, which is the key to success, is one you have to be super healthy. I’ve always, always and increasingly focused on health, sleeping well, eliminating or avoiding sugar, weightlifting, playing a sport. Mark will tell you meditation. My most challenging period, I got into meditation. I got away from it a little bit, but it can be very powerful. But if you’re healthy, you surround yourself by people who love you, you have good relationships, you can endure. This stuff, this investing stuff is not a real challenge. A real challenge is like having cancer. I had a tennis coach recently who was diagnosed with acute myeloid leukemia. He had to have bone marrow transplant. I mean, that’s the hard stuff. Or having no money and being thrown out on the streets. Or these are being in Ukraine and getting hit with missiles from Russia, or being in a war. So the key to enduring things is perspective. I’ve had the most fortunate life the entire time. Even when things were really grim, right? Things were really grim, but I still lived in a nice apartment. I could send my kids to school. I wasn’t worried, except briefly, about running out of money. So get yourself to a place where you’re secure. And once you’re there, don’t ever do something where you risk that security. If you have that, and you have love and support and friends, and you have perspective, you can get through pretty much anything. And my technique through getting through challenging periods. Is one, don’t remember that you were here and don’t keep focusing on, Oh my God, I was here and now I’m here. Just focus on making a little progress every day. It’s like the steps to success, even though they’re small, the compounding works exactly the same way with money. If you’re making only 1% progress every day, which doesn’t sound like a lot for personal progress, but do the math on compounding, pretty soon you’re taken off and you can make 1% progress. Half a percent progress, or on whether it’s health, or life, or relationships. You can make more progress personally than you can investing-wise. And the compounding works exactly the same. So most of the way you solve problems is through compounding. Whether getting healthy, every day you make decisions about getting healthy, and then the compounding curve takes off within a relatively short period of time. This warrants a round of applause. Well, since we have the microphone. Okay, it’s for Olivia. Here. Okay, so because of, okay, my name is Olivia. Olivia, by the way, is a returning conference goer. This is her second question. Yes, go ahead, Olivia. Because of the tariffs, the market is going up and down, but is it a… An opportunity for investing, or would you want to wait until the impact passes? So Olivia asks, Are the tariffs creating an opportunity? Olivia is how old? 11. Okay, if you start your compounding at 11, this is an excellent question. So anytime that something happens in markets that creates uncertainty, generally stocks go down, risk premia go up. And if you wait until the uncertainty goes away, then everything reprices, you know, it’s much more likely to go back to fair value. So, the best time to be an investor deploying capital is in a period of maximum uncertainty. Whether it was COVID, now the tariffs, the financial crisis, each of these events that seemed catastrophic, it was an amazing time to deploy capital. And I think one way to do it is just by buying market indices during periods of time. But if you’re an investor and you can do real work on companies, if you can actually find the great businesses. That get mispriced. During that period, you can make even more money. So yes, as an investor, you should get excited anytime it gets exciting, anytime it gets uncertain and the clouds come in, the storm is going, that’s when you want to have capital to invest. So excellent question, Olivia. How about a gentleman in the back standing up right there. Hello. Well, thank you. This is Yilong from Ocean Park Investments. My question is a kind of related one, and it’s a rather classical question. I wonder what makes you consider, what factors makes you consider this as a selling point or this as a point to take profits? Within the context of our discussion today, especially expecting more unforeseen changes, is probably taking place in the future. Thank you. Sure. Brian, you want to take that? So I think it’s a great question. And trying to figure out when to sell a stock or an investment is one of the more challenging things. And I would say, in general, our experience has been there’s really three reasons why you sell. The first is the most painful, but probably the easiest, which is you just realize you got something wrong. As Bill mentioned, we’re always focused on the future. So we may have thought one thing, and then we realize that we were just incorrect in our analysis. At that point, it’s very often the case that you just really need to kind of sell the stock. If you want to own it. Maybe you should sell it, reevaluate all the facts when you don’t have a position, and then, very dispassionately, you can decide to buy back or not. But a lot of the times, if you sell when you’re wrong, it tends to be a good idea. We try to not be wrong that often, but obviously it happens to everybody. But that’s the easiest decision to sell. The other two, I think, are more complicated. But the second reason to sell would be when an investment no longer, if you will, meets your kind of return threshold. So you could say it’s overvalued, or you could just say that you no longer think that you’re. Expectation of kind of the future return is sufficient relative to the risks. And so that could be a case where perhaps the stock goes up and the business value goes up, but they’re not really going up at the same rate. And the stock does a lot better than the business for a period of time. So you like the business still, but you realize that going forward, it’s going to be hard for you to earn a return that you think is an appropriate return for buying an investment. And really, the third reason is just an opportunity cost. It may be the case that, for example, you have a wonderful investment, but… You then all of a sudden see that there’s another investment that might give you twice the return and you feel really great about both businesses, that would be an environment where you might want to sell one stock in order to buy another. If you don’t have cash to be able to do both. So those are really kind of the three reasons why we tend to sell stocks. How about gentleman over here in the white shirt? We’re trying to give a good workout to the mic deliverers. Set my steps today. Thank you. I was just curious if you could list some of the more interesting, tangible examples you’ve seen of AI. In whatever form. Actually expanding gross margins, and maybe in your portfolio, or in some more traditional businesses. I mean, a small one is. A number of the restaurant companies that have drive-thrus are using AI to kind of try to predict what offering to make to the customer. And they’re having some pretty good success associated with that. That’s sort of a simple example. Mine, I’m sure, has many. I think we’re very early in the AI cycle to see companies bring out AI in a way. So I think Bill gave a great one, which is, if you’re talking about margins, in terms of, it’s really cost reduction. And so I think you could see a lot of people basically taking what would otherwise be labor, that they’d have to pay a very high rate, and then they’re bringing it in to technology. And that would just- Meta, for example, says that 30% of their software is being written by AI today. Exactly. Now, a lot of those things are happening in the context of very large companies. So it’s hard to actually see that in the financials, but Phil mentioned that’s our kind of understanding of what’s happening, where companies would just be taking jobs that were done by humans, particularly some of the higher value added jobs that they paid a lot of money for. And now, all of a sudden, AI can write your code. AI can help you. basically, you know, route people to the right place where you were meeting this human operator, call centers, and there’s a great example of that. I think on the other side of that, though, would be AI creating revenue opportunities at very high gross margins. I think we’re very early in the cycle to see that. And I think that’s because, as of right now, we’re starting to see all the wonderful things that AI can do. You can see that in your Gemini, you know, models from Google. Obviously, everybody’s seen that in ChatGPT. I don’t think we’ve… We’re really just scratching the surface on people commercializing that and figuring out a way in order to make a lot of money off of that in the future. So I expect that’s going to be over the next several years where we start to see high gross margin dollars coming in from additional revenue opportunities at scale. Yeah. Using the meta example, I don’t expect that meta is going to all of a sudden have much. They’re going to use the fact that they can use AI to reduce their software development costs as a way to promote the gross margins. I think they’re just going to. Produce more software or optimize more software. Because it’s a competitive world, or your competitors are going to be using AI and become much more productive. They’re going to want to make the product stickier. They’re going to want to come up with new innovations. They’re going to want to make it, and the competitors are sort of doing the same. So I see it less of a cost reduction exercise and more, How do I make my business more of a pro-growth or pro-revenue type model. But yes, I would not want to be in the call center business. I think call center, if you’re a pure call center company, you’re going to get disintermediated by companies themselves. Develop using AI to answer consumer questions. How about the woman in the White raising her phone right there? I have a question for Bill. So what is a single biggest mistake you see investors make repeatedly? And what one principle where you most want next generation of investor? Look, I think the mistake an investor makes early on in their career is being effectively too short term and being affected by short term factors that cause you to buy or sell things. I think buying a stock and betting on next quarter’s earnings, and actually, by the way, a lot of professional investors do this, I think it’s just… One, it’s no fun. Two, it’s not a great way to live your life. And I don’t think it’s a very good way to make money. It’s hard to take a long-term view when you’ve only been at it for a short-term kind of period of time. But the power of compounding, which you don’t really appreciate at an early stage in life, is vast. And the ability to invest on a tax-deferred basis, people underestimate the frictional costs of buying and selling, principally. Uh, you know, taxes, I would say that’s one of the big ones, you know? The the get rich quickly thing can cause you to make, uh, sort of big mistakes, uh, and get caught up in, you know, the latest and greatest, uh phenomenon. Uh, maybe over here. Um, yes, here comes your mic, so the um, interesting observations you made about problems in the U.S. Education system, the incredible education system that obviously everyone all over the world wants to come participate in. It seems like some of the ways that it’s been addressed to date have been very focused on, like small symptoms. Like this president of that school is not doing a good job, whereas those are very much like the. The outgrowth of more structural problems. So I was just wondering, do you see an opportunity for some of the structural problems to be addressed? And I guess, now that you’ve been an important voice in this discussion now for more than a year, how do you sort of see the state of some initial… Internal things that the schools were doing, as well as maybe some political pressures that they’ve now suddenly had to come to face. Thank you. Sure. So if you think about being a university president, it’s a really hard job. Imagine being CEO of a company where your senior workforce, you can’t fire, right? And, by the way, and there’s no incentive compensation. And so the kind of tools that you use, I mean, and for a business that is almost entirely dependent, you know, absent kind of lab equipment. What is a university? It’s the faculty, it’s a bunch of buildings, and it’s students. The faculty are your employees, and there’s no incentive compensation, and you can’t fire them once they get tenure. I think the tenure was this device that was used. To enable universities and professors to speak their mind when they had controversial views about whether the Earth revolved around the sun or the other way, or whatever the issue was. At a time when universities were, kind of the early days, they were religious institutions, training members of the clergy. Unfortunately, I think that tenure has actually become a device to reduce free speech. The way it… What’s happened at many places, like Harvard, other elite universities, is people who go into academia generally tend to be more left than right. And as departments at universities tip one direction, the faculty tend to want more of their own kind of politically. So if you’re a P.h.D. student at Harvard and you want to get, you know, you’re aspiring to get your P.h.D. in the History department. If you present views that are inconsistent with that of a department that’s largely a progressive left department, the probability of your getting an advanced degree and getting your P.h.D. sort of goes down. And it leads to universities tipping, principally in the case of Harvard. Harvard did a survey two years ago, and 2% of the faculty in an anonymous survey were willing to admit that they had conservative or very conservative views. And my view of a university is it’s a place you should go to. We are exposed to a very broad array of opinions, conservative opinions, right, left, center, controversial opinions. But because tenure has become such a powerful economic goal of faculty, students want to get a good grade. They don’t want to write something that their professor is going to disagree with politically. Because it could affect your grade, and that might affect your ability to get into law school. So I think the system has been… What was a good idea, tenure, has become a very bad idea. And it also makes it very difficult once a university is not, you know, where there are serious problems to fix it. What will fix it, however, is financial pressure. And we can, you know, I think the administration was overreaching in its most recent, you know, letter to Harvard, if I kind of use that example. I think the basic things that President Trump was asking for were reasonable. He said, look, the university has to have viewpoint diversity. The university should eliminate its massive bureaucratic waste. The university should be a safe place for students to learn. The university should not be a place where anti-semitism is pervasive. If you go back and read the letter, his basic sort of goals, I think, are reasonable. And the idea that the U.S. taxpayer… Should fund a university. It’s a privilege for the U.S. taxpayer to provide resources to a private university. And I think there should be reasonable, it should be that that money is not being wasted on bureaucracy. It should be that money is not, in effect, reinforcing some political views and not others. I think these are perfectly reasonable objectives. And I think, if you look at Harvard, for example. Harvard’s got a $53 billion endowments, or one assumes Harvard is very independent. It’s really not. 85% or something of the endowment is invested in private equity, real estate, venture capital, totally illiquid assets. Apparently, they’re marketing a billion dollars of their private equity portfolio for sale. I guarantee you that. The price they get for that billion dollar slice of private equity is meaningfully less than the carrying value of the same assets that they hold on their balance sheet, which means that they’re not marking their balance sheet to a true mark. It’s a money losing institution that relies on investment earnings and federal funding in order to kind of make ends meet. And donations from their alums. So Harvard’s under severe financial pressure now. They’ve taken on $8 billion of debt. Some people talk about a $53 billion endowment. They don’t talk about the $8 billion of debt that they have outstanding. And if you’re an alumnus, do you really want to give money to a university that’s going to pay interest expense on a bond issue? The other thing that happens is if you’re a professor that is losing funding for your research project, you’re going to go to a place where you can do your research. They’ll start losing their best faculty, many of the best students. High school students have stopped applying and are going to Duke, or they’re going to Vanderbilt, they’re going to other schools. And if the best faculty leave and the best students leave, you know, these are, and you start being under financial pressure. That should cause the Harvards in the world to change, and they need to change. And, you know, the— Our future depends on the next generation of leaders. If the next generation of our leaders are taught that capitalism is evil, that the United States is a structurally racist country, and that people don’t sort of learn to hate their country as opposed to love their country, it’s not going to be a good outcome for America. And so it really matters what our students are learning. I didn’t focus on… What was going on in our universities? Until I woke up one day on October 8th? and, you know, 34 student organizations at Harvard came out and said, you know, uh, you know, Israel’s solely responsible for the actions of Hamas. Um, and Hamas had just murdered, you know, whatever, 1250 innocent people. They were still on, they’re still killing people. Uh, and a lot of the protests, I’m, I’m again, I’m a free speech advocate. I’m all in favor of people advocating, uh, their views. Um, uh, I think Harvard would be a much better. Place for learning if there was a lot more balance in the political views of their faculty. They need to learn a lot about how to deal with… The right way to deal with President Trump is not to get a letter from him or his administration and write back, we’re not going to do any of this stuff, and in fact, we’re going to sue you. That’s a bad strategy. What have we learned about President Trump? He’s very aggressive in the ask. He loves to make deals. And the smartest thing that Harvard could have done is, says, you know what, you’re right. We’re going to hire Alex Partners, a restructuring firm. I’m going to take it. We’re going to do a zero-based budget of Harvard University, so we make sure we’re not going to waste one federal dollar on bureaucratic or administrative waste. You’re right, Mr. President. We have tipped too far to the left. And there is not, Harvard is not a place where people who’ve got conservative or other views feel comfortable sharing their opinion. It’s a place where there’s an enormous amount of self-censorship. That’s wrong. You know, we’re going to fix that. We’re going to make an effort to recruit faculty that have broader views. We’re going to make sure every dollar of taxpayer money that we receive goes to advance, you know, interests, research, et cetera, that are in the best interests of the country. And they basically, you know, gave the president the Heisman. And now they’re at risk of losing their tax exemption. I think this is a very compelling argument. If a private institution that receives federal funding, and there are historical examples of this, I think at Bob Jones University, becomes in effect, a political advocacy organization, that’s not something that should be worthy of all of taxpayer funds. So I’ve got lots of thoughts on this topic, but I do think it’s a moment. We’re calling. The question about what our taxpayers should be funding, and which universities and why is a good, good thing. So I’m going to ask the gentleman on the phone right there. Hello, Bill. I’m Terry from Hong Kong, and I have just launched my new fund. For a new launch fund manager or some emerging manager, what’s your opinion about how to keep the Lumpen investment philosophy horizon and also keep the balance of the monthly drawdown? Yeah, how to balance that? OK, I think I heard your question. I’ll take a crack. And Ryan, if you want to add to it. Look, the biggest challenge in issuing, starting a fund. When you’re a long-term investor is, unfortunately, your short-term performance matters a lot when you start. Because you typically start absent. Coming from a big firm and launching with a large amount of capital. You don’t really have much in the way of scale. You want to get to scale so that you can obviously afford to run your business. You don’t want to do things at small scale that are not representative of what you’re going to do when you get larger. Because one, it’s bad practice. And two, it’s not a good representative of what you’re going to do in the future. So it really helps to do well out of the gates. But I think my advice in someone starting a fund would be when you make an investment or you build a portfolio, you should communicate on a regular basis with your investors. Today we bought company ABC. Here’s our analysis. Here’s why we made the investment. Here’s what we expect to happen over time. And either that will happen or it won’t happen. But people understand what your logic is. You keep them informed along the way. And over time, you start to build a track record and sense for predicting the future. And the more that you start to show that you’re right, the more people start to build confidence in what you’re doing. And then they’ll give you more capital. The other thing that you should do, and this is something I’ve been pretty good at, and it has led to more criticism. I would say we have been very, very open. About mistakes we’ve made, and very transparent about it and very willing to acknowledge mistakes. And that’s unusual. People are just, it’s the rare moment that people admit their mistakes. They sort of just write about the stuff that works. I think what builds, every investor in the world that invests in funds knows that not every investment works out. What gives them confidence is a willingness on the part of the manager to acknowledge, you know what? We thought A, B, and C. We have economic rationale for believing these things, but the unexpected happened. Um… And it didn’t work out the way we expected. We lost money. We didn’t make as much as we thought. But from this experience, we’ve learned ABC, and we’re going to apply that knowledge into the next thing. So I think my biggest piece of advice would be someone launching a fund is just be one, have a very clear sort of template. For here’s what we’re going to do. Two, you should do that. And three, you should report regularly on what you’re doing and then how it’s worked out. Acknowledge mistakes. Take credit for your successes, and, you know, be a little bit lucky. Yeah, I think that’s great on the investment side. One of the things that’s interesting, a lot of people that I’ve come in contact with classify themselves as emerging managers at various points. And I think what’s interesting is, if you analogize it as a business to a startup business, it’s actually very similar. But a lot of people who come from more of a tech background that do startup businesses understand the concept of, It may take a very long time until I build a sustainable business model at scale that is somewhat economically rewarding. That generates a lot of cash for people who are there. And therefore, I need to be very careful to provide myself a runway to get from what’s a great idea to something that’s scaled and a proven concept. I think emerging managers and hedge funds are exactly the same thing. So, I would just say, make sure that you have an understanding about how you can keep your cost structure to a level that can be funded over time. Make sure you have a long runway. And then I think, you know, in combination of structuring the business where you can afford to take a little bit longer to get to scale, will give you the power if you… Are investing. And I think all the communication points Bill made are excellent. To be able to kind of have the staying power to get to where you want to be many years into the future. Another thing I’ll tell you is that I never am impressed with a money manager who says that. I put 100% of my net worth, or 90% of my net worth in my fund. And yes, you want a manager to have skin in the game. That’s important. But you want them to have enough resources in the bank that if their fund is down 20%, they’re not panicking about their ability to kind of cover their expenses, right? In order to, one of the ways to be, to have temperament, as Mr. Buffett calls it, or be economically or emotionally indifferent to your portfolio is that you’re not at risk of a massive change in your lifestyle. If you have a bad quarter or a bad year, or you don’t earn an incentive fee. A lot of hedge funds are set up in such a manner that if they don’t earn an incentive fee, the business model doesn’t work. You want the business model to work on the basis of your own resources and whatever level of management fees that you can charge. And so, you know, you should keep some money in the bank, have some runway personally, so you don’t have to knock it out of the park quickly in order to have a viable business. Yes, in front here. Thanks, Bill. This question is for you guys. Since you just mentioned that you, with time and experience, you become good about predicting the future. So can you guys predict the future of what Berkshire will look like without Warren Buffett? So the question is, what will Berkshire look like? Without Warren Buffett. I think Buffett’s done a pretty remarkable job, and more so in recent decades, in making Berkshire into a truly sustainable enterprise. It’s not talked about a lot, but the early days of corporate governance of Berkshire wouldn’t meet many standards. I think Buffett, I think Berkshire only had one shareholder meeting a year up until, I don’t know when that changed, but it would be the annual meeting. And that would be like the the annual board meeting, and that was pretty much it for governance. And it was, you know, many friends of Warren and obviously capable people, but it wasn’t a board that would meet normal standards for, I would say, independence and otherwise. So one, I think governance has improved. Two, a lot of focus on succession, you know, and then, probably most importantly, more so than almost any CEO I can think of, very public about the culture of Berkshire and the philosophy of Berkshire and the principles of Berkshire. So these things are sort of ingrained in not just the management team and the board, but also in the shareholders and what their kind of expectations are. And I think that sets up Berkshire to continue along the same path. It’s going to be a major loss someday when Warren is no longer running the company, but he will have left behind, you know… You think about how many interviews he’s done, how many annual meetings. One of the best, actually a very good book to read is a book that’s, I forgot the title of it. But it sorts the, takes the entire recorded history of Berkshire meetings, at least since they started the recordings, and sorts it by categories. And do you remember the name of that? Yeah. Is it in their own Words? It might be called in their own Words. I’m sure they sell it at the. No, it’s not. That’s a good book, too. That’s his annual letters. This one just came out late. Let’s sit there. And it’s his annual meetings. Yes. Alex Morrison. Yes. Often no longer unscripted. And you can hear. Buffett and Munger on a vast array of topics organized by category. But if you read that, you can really understand the core principles. So I don’t think a ton about Berkshire Hathaway is going to change in terms of their philosophy. Now, there’s a $350 billion or so cash pile. Where that capital goes is going to change the mix of assets going forward. But I have to believe that. The assets that are going to be acquired are going to meet certain standards for business quality and durability, and they’ll be acquired at a price that sort of meets the history. So I think it will persist for decades in a very similar form, it’d be my guess. So I think one of the interesting things when you study succession at a lot of other companies is when you have an iconic founder, It is very difficult for the person who succeeds them to do exactly the same things that that person was doing, because oftentimes, they’ll never be as good as doing that. I think a lot of what has made Berkshire special has been Mr. Buffett’s capital allocation abilities, both in marketable securities, but also in business acquisition. So I think a new leader, absolutely what Bill said, is going to want to try to keep the culture. And I think, Mr. Buffett has built up something where it’ll be hard for them to not keep that culture. But I would actually look and say, what are the things that Mr. Buffett hasn’t done so far that… Someone who would succeed him, which Greg Ables right now would be that person, could do. And I think of two things. One, on the capital allocation front, Mr. Buffett’s not actually putting a lot of money to work. I mean, we have had some of the highest levels of cash relative to book value or market cap that we’ve had for a long period of time. I think a change will be, there’ll probably be a dividend, or there’ll be more share buybacks than would have happened. Because we got to find some way to deploy that capital. And if Warren can’t do it, I think it’s going to be challenging for Greg to do those things. Secondly, though, when you look at the operations of the business, one of the key successes for Berkshire Hathaway over time was that Warren was buying to own and he was not going to meddle in the management of the business. As long as there was some level that it would not be unending losses, where he would need to close it down or sell it. I think that at the scale that Berkshire is operating now, there are a lot of businesses where. If you compare them to the publicly traded peers, you can see that there’s a lot of opportunity for optimization. And I would also expect to see capital allocation look very differently, probably more return to shareholders, so there’s less capital to allocate to other businesses. And I also think a new CEO is going to be reluctant to make a massive bet. I think nothing would make Buffett happier than to take $100 or $350 billion and go buy something. I think that’s going to be a more challenging thing for a new CEO to do in the short term. So I think the nature of acquisitions in the short term are going to be still… Big by virtue of the scale of the company, but I don’t think they’re going to be $100 billion bets. Bill, I want to chime in with a related question. So, Bovick wants Berkshire to outlive him, but you don’t see that much in the hedge fund industry. I mean, hedge funds rarely ever live beyond their founder. Is this something you want to change? And how have you thought about that? So, you know, we don’t really look like a typical hedge fund. You know, hedge funds today, I would say. The more characteristic example are highly levered, pretty large scale firms with large numbers of employees that deploy a lot of technology. That are generally very short-term oriented and that are divided up in smaller teams that use pretty short-term incentives, very tight, kind of what they call risk thresholds. We really look nothing like that. We’re very small. We have 41 people and we’re super concentrated. We’re long only. I don’t sort of call us a hedge fund in that sort of form. Now, I do think what we do is a positive for society. Yes, we’ve been helpful to a bunch of companies over time, but I do think we’ve been a kind of a leader in sort of shareholder activism. One of the reasons for u.S. exceptionalism that I think is not talked about is the activist movement, as I would call it, in the United States. When I went into the business in the early 1990s, companies were never asked about capital allocation. They didn’t buy back a lot of stock. There wasn’t a huge amount of focus on their margins. They didn’t have conference calls. There weren’t proxy contests, and boards of directors didn’t take their jobs very seriously. They were almost all friends of the CEO, and the worst thing he could ever do was challenge a CEO. I would say because of shareholder activism, because boards can be replaced by a 5% shareholder running a campaign, there’s been a dramatic change in the balance of power between the shareholders, management, and boards. In a way that I think has led to much better optimization of companies and how they… Deploy capital and how they incentivize their people. And I think that has led to meaningful margin improvement, better capital allocation, faster growth, faster earnings per share growth. I do think that’s a big part of it. So I think we’ve been one of the leaders in this space. And we’ve done well doing it. And it’s nice to build something that doesn’t disappear when you disappear, right? So I definitely… Worked hard to build Pershing Square into something that will be a perpetuity. And we’ve taken some steps in that direction. We brought in some outside partners a year ago, and we sold a piece of our business. The capital base of Pershing Square is 90 plus percent in a similar to Berkshire life format. And a permanent sort of entity that we’re the controlling shareholder of. It gives us very long duration. But when you’re responsible for managing permanent capital, the manager of that permanent capital should be as permanent as the capital. It’s managing. Part of that is succession planning. Part of that is having someone about 20 years younger that’s super talented. Part of that is creating a culture, having principles, many of the same things that Warren has done. We’ll take steps there to make it something that can exist, hopefully, for many, many decades, and ideally, forever. The Hawaiian shirt, sort of in the back. Hello, my name is Ben and I started a company called Rooster Equity. We specialize in triple net commercial real estate and building. On that point, since you’ve been, you know, working in decades, what would you say to someone who’s earlier? What’s the most important thing early in our career, so that we can have something that lasts decades? I would say, you know, one of the things I focus a lot on is I interview everyone that, you know, we hire. It’s easy to do by virtue of our small scale, but picking the right people, first criteria in a Persian square is that you’re fundamentally a good human being. Pick people that are fundamentally good human beings to work with. Some people are not. Hopefully, many people are. There are lots of talented people, but make sure you surround yourself with really high quality people. There’s an expression, or maybe it’s an aphorism, that you become the people you surround yourself with. That’s true in your personal life. It’s also true in your business life. You know, so I’d be really careful about your partners. That goes for the people you work with. That also goes for the people you take money from. You know, when you start out and you’re trying to raise capital, you know, you think money is a commodity. and, you know, whoever give it to me first, you’re so desperate for it, you’re going to take it. Your ability to succeed matters a lot based on the people that back you. And they can be a huge… uh, enhancement to your success, or they can be a massive distraction or meaningful detriment. So I would say choosing your partners, being thoughtful about the people you take money from, uh, and then, you know, picking a business that has good, I would say, economic characteristics. Those are probably the most important things. Um, upfront. Yes. I’m from UC, San Diego. We have Duke, uh, we have Mississippi University, Mississippi. Um, and how did you come together to come here? Uh, LinkedIn and value investing, nerding. Yeah, he’s, Yeah, that’s pretty much what it is. And so this is our second time at the Berkshire conference. But a big thing that we care about, I think, is like mentorship and learning. I would like to hear actually from both you, Ryan and Bill, what has been your guys’s relationship in terms of for your side learning from Bill? And then also, what did you see in Ryan over the past many years that made him stand out as like, a really good thinker, investor, what qualities and characteristics did you pick up from Bill and you saw in Ryan? That’s a good question. All right, you go first. As you’re nice, I’ll be nice. As Bill likes to say, incentives really drive all human behavior. I think one of the things I think people misunderstand about mentorship, at least I did when I was younger, was that mentorship just means that you’re going to be able to find somebody. And that you’re gonna be able to pick up the phone, You’re gonna be able to ask them every question that you’d ever want, they’re gonna be able to give you every response that you’d want, and it would be just this sort of thing where you’re taking from them because they just wanna freely give to you. And maybe that happens, but I actually think that would be a very shallow form of mentorship. I think being in the trenches with somebody, seeing them at their best, seeing them at their worst, seeing them every day, and where they are teaching you by pushing you. And I mean that in a positive way, which is someone that you know thinks very highly of you, someone that you know expects a lot out of you, and somebody that, conversely, you have a close relationship with that you get to see through all sorts of different situations. So I think in our business… For me, what was amazing coming into this and getting mentored by Bill, and also, as Bill mentioned, what’s great is creating that culture. And we talked about Berkshire is really important. So while I’ve learned an enormous amount from Bill, he’s also built a culture. And we’ve tried together as a team to build a culture where you can learn from everybody and you can learn different things from people on the team. And the way that you advance is by arguing. So I actually think sometimes the best ways for me to have learned have been when I had a position. And Bill would be like, you’re wrong. And then I’d be like, no, no, I think I’m right. And then he might prove to me that I was wrong. And then I had to go back to the drawing board and really learn from that experience. And every now and then, with time, I got a little bit more confident and maybe I was right every now and then. But that type of mentorship, where you have an honest relationship, where there are high expectations, that demands the best from you every day, I think those are the ones that you learn from. And I think ultimately, I know, like, for me, I can’t imagine what things would be like from my investing career. But even personally, I’ve learned so much outside of investing. From Bill. I think it’s just amazing, the environment that we’ve created, where we can come in, we have honest conversations, We can really push each other to try to be the best, and you get to learn from each other. But I also think the concept of mentorship that at least I had very naively when I was younger of, oh, It’s just about trying to make a connection with somebody and take them out to lunch, then maybe have a meeting with them once a month. I think it’s very different. I think being in the trenches with somebody that you really respect, admire, and trust can make just a life-changing difference in your learning. So, you know, Ryan is a super intelligent guy. And he’s also extremely good at expressing his views. He was like one of the top debaters in the country when he was in high school. By the way, it’s hard to go back to high school. But I would say every kid should have to do debate in some form. Because learning how to express your views verbally, as well as in writing, nothing more important. So if you’re very intelligent, and you’re a good communicator, you know, those are certainly. Attributes that have really enhanced our ability to, you know, be successful, you know, together. Ryan also kind of came into this business with a huge, you know, huge passion for it from a very, you know, early age. And, you know, kind of, you know, like me, sort of read everything. Warren had ever written, watched as many videos as he could find, and did it because he was just motivated to learn. So it, obviously, I mean… This is a business that has very significant economic rewards. And if people just are in it for the economic rewards, I mean, yes, you can find they can do well, but you’ll do that much. You’ll be that much more successful if you’re in it because you just love it and you’re passionate about it. And so, you know, that was obviously a very appealing attribute, and that continues. And, you know, I’ve learned, I’m sure I’ve learned as much from Ryan as he’s learned from me. I have the benefit of, you know, some more years of experience. He has the benefit of, you know, just focusing on different things. And and a bit of a division of labor. And so, you know, it’s been a very, it’s been a very good relationship and extends beyond, you know, the two of us. We have a eight person investment team. We’ve had zero turnover in the team in the last, I guess, eight years in a business where there’s huge turnover. You read every day in our industry on Bloomberg, this person was offered $50 million to go from this firm to that firm. And, you know, I would say everyone in our investment team is someone that someone might try to pay. Tens of millions of dollars to get them to go someplace else. But we’ve built a sort of culture, mousetrap and nature of our structure that we really enjoy working together. And the other thing I would say is personal qualities matter enormously. If you don’t enjoy working with someone, particularly going through the inevitable challenging periods, it’s not going to be any fun. It’s easy to get along when everything’s going right. It’s when things are more challenging, you know, how people, the ultimate test of, of someone is, is how they respond under, under pressure, under stress. Um, and, uh, you know, I think, uh, you know, We’ve had our share of those, you know, kind of moments. and, and, uh, no one at Pershing Square yells, shouts, gets angry, you know, we’re super candid with each other. Um, but we do it in a very kind of respectful way. And I think the result of that is it’s easier to get to the truth. This is a business about getting to the truth. Looking at the facts, forming a view, in some sense, predicting the future, but being… Extremely honest is critically important, particularly when you’re working on a team and admitting your mistakes. You know what? I screwed up. You know, there’s something wrong in the model, or I missed this fact. And that’s how you build trust with people. And that’s the culture we have. And Ryan exemplifies that. Gentleman up front here. So anyway, in the spirit of Doge, any institution that has a 13F, I’ve kind of scratched my head a little bit. And on top of getting some subsidies from the U.S. government, maybe having a little bit too much money is a problem. So just like you’re talking about some academic institutions. And I know of some nonprofits, Bill and Melinda Gates Foundation, for example, they’ve got 13 that they’re not getting. As far as I know, they’re not getting subsidies. So, with all that said, in the spirit of Doge, do you think we really should take a second look at giving some of these institutions that are filing or have a financial endowment like Harvard, any money from the U.S. government? Because they seem like if they were to manage their investments correctly, they should be able to be self-sustainable. And if they’re self-sustainable, maybe that would lead to making better decisions, maybe better thoughts and opinions in the public sphere as well. Sure. Look, I think, one, I think that the whole Doge effort is a good thing. As opposed to a bad thing. I think everyone in the room knows that there’s enormous government waste. And if you go to the Doge website and you look at all the examples of just incredible waste, Everything from millions of subscriptions, software subscriptions that completely go unused, that are paid for by the taxpayer. Look, the problem with the way governments function is when people are spending other people’s money, uh, they don’t do it nearly as carefully when they’re spending their own. And when you think about our politicians, it’s that kind of great example of other people’s money. One of the other things I did not appreciate, and this is someone who’s invested philanthropic money, I didn’t appreciate exactly what a non-governmental organization is. And basically an NGO, I used to think of just an organization that’s sort of nonprofit, that does kind of good things. And an NGO really has become a way for the federal government to fund activities that it can’t legally do directly. And so there are literally billions and billions of dollars going into NGOS, where 98% of the funding comes from the federal government, but their activities are basically not, they don’t really appear on the list of things that our government is really doing. And I think that can lead to some really, really bad behavior. At least traditional nonprofits are, you know, the donors pay some attention. But if the government is your only investor, it can lead to some enormous waste and some bad activities, and some recycling of capital. Where the NGO relies on the government for funding. So the NGO does things to enhance whoever is in power. So I think at $37 trillion of debt, the largest deficit other than World War II, we’re in a major war. These are very dangerous things. I think we need to look at every dollar we’re spending. The politicians, the government is a fiduciary for the taxpayers, and it hasn’t really been acting like one. And Doge brings kind of a level of accountability that’s really important. You can argue with some of the decisions they’re making as quickly as they’re making. I’m sure they’re making mistakes when you act as quickly as they’re making, but we haven’t spent any time today talking about the fact, but we’ve run the country in a fiscally irresponsible fashion. And things got a lot worse post-COVID. Because politicians used to think seriously about numbers in the billions. And then we started spending money in the trillions. And it just sort of made, you know, people lost track of, you know, what 50 billion or 100 billion, or a trillion means. And, you know, it puts us on a path, very dangerous path to insolvency. So I’m a fan of what Doge is doing. They’re also redoing, you know, the technology of our federal government, creating accountability in the payment systems at the Federal Reserve. I think we’re going to see. Other sort of meaningful changes. But our government still relies on 50, 60 year old software, and it’s crazy. Hi, I’m Stanley from Tokyo. This question is to Bill, and I apologize, I want to mention another one of your failed investments. It’s okay. So 2015, I actually, as a young graduate, I maxed out my credit card to bid for lunch. With you for the Harbor boys and Girls. You brought a guest from Martin Franklin of Jarden. And at the time, you were in love with the idea of a platform company. And I think there was like a deck that you wrote, like 45 acts or something like that. And it was about Valiant. And during that lunch, I asked you about Valiant. Because it seems to have had a bit of crack of, you know, the whole narrative. And also stock price as well. But it hasn’t really complete fail. So after the lunch, I think a few months later, the whole thing unfolds and stocks just crashed down to. 98% or something. And then you went to the Senate for a testing hearing. And so my question is, now it’s 10 years later and 10 years wiser, you know, would you like, had you, you know, being in the same situation again, would you like fold early? And how is, I understand that you mentioned that you like, eventually folded that. Because it was becoming a very small part of your portfolio and just creates a lot of noise, news, headline, and then you just want to kind of get rid of it. But had you been in a similar situation again, would you fold early? And also from the driver’s seat, how would you psychologically admit or realizing something that you’ve given so much conviction of and admit that it’s wrong? And it’s time to fold? Thanks. Sure. So. One, this concept of a platform company, what does that really mean? First of all, I would say if you have a really talented management team and they’ve done a great job. Running a business in a certain asset category and the business is now run well and stabilized, the best thing you can do is put more assets under a great team. And Warren does this, you know, whether it’s the utility business that he’s built up over time under Greg Abel or… I’m sure there are many examples in the Berkshire portfolio where a very talented team started out with a relatively small base and then built that company through acquisition. So there’s nothing wrong with investing in a business. You might call it a platform that you can build from by adding more assets to it. But you have to make sure that the platform itself has got a good foundation. It’s got a really good team running it and that the business itself is a good business. And it’s an honest. And capable team. If you get that first part wrong, then it can become a disaster kind of going forward. Now, one of those models, now Berkshire builds these businesses using cash and acquiring other assets. There are examples, many examples in history, of people, management teams getting shareholders excited about the existing business and the potential to grow through acquisition. Where the market assigns a high value to their currency, the stock price, because of the potential for growth. And then management uses that stock to acquire other businesses. And it’s a kind of a magical thing, because if you’ve got this very highly valued currency, let’s say it’s trading at 30 times earnings, and you can buy businesses in the same sort of industry at 15 times earnings, and you can even run them better, there’s this very magical formula where you’re buying earnings at 15 times, that the market’s going to revalue it 30 times a day after you’re on it. And that can lead to kind of explosive growth in a business. But if? The business itself, a business that relies on a high stock price to continue to grow at a high rate, is fundamentally a business. That’s a high-risk business. Because there will come a time and more likelihood, whether it’s because of market conditions or otherwise. By the way, many of these kinds of operators use not just the high-priced stock. But they also use a lot of financial leverage to continue to grow. And you have to be very careful when you’re investing in companies that grow quickly through acquisitions. Because it’s easy to make a mistake when you’re buying businesses, and you’re buying businesses on a rapid basis. You combine that with leverage. You combine that with a highly valued currency. And you make a mistake. And the currency, all of a sudden, becomes no longer highly valued. And then you have a large amount of debt that you need to deal with. And a lot of value can be destroyed. And that’s really what happened in the case of Valiant Pharmaceuticals. So, a high stock price is not a durable competitive advantage. And you should be very careful about valuing a high price stock. If that’s a critical part of your thesis for the company, it’s not a durable competitive advantage. And so I would be very, very cautious about businesses that grow in that fashion. I would say that would be my takeaway from that experience. What I would just say is, I think what’s interesting is… I think the platform model, when done correctly, still works. I think Berkshire is the clearest example of that, although you can come up with a lot of other great models over time. A lot of people really admire what Mark Leonard has done with constellation Software, and you could go on. I think what’s interesting, if you think about it from a very high level, is if you think about your typical business, that is not… A platform business, you’re betting always on the management’s ability to allocate capital, But the percentage of the market value of the business that they’re allocating, if they’re not a platform company, is actually relatively small. So what you’re first order betting on actually is about the quality of the business. So it’s much more that the work that you can do and the confidence that you get is going to be about how great the business is. Obviously, the capital allocation skills of a manager team always matter, but you’d argue they matter a little bit less. If you’re looking at a company that is going to be doing its core business primarily into the future. For a platform company, to some extent, it’s a little bit reversed in the sense that you’re allocating so much of the market value of the company over time. And that can be because of a high stock price. It can be because of leverage or just this desire to constantly be growing. And so what matters a lot is really being able to judge whether the success of that capital allocation is going to be very successful. And I think, as Bill mentioned, part of that’s understanding, where are you allocating capital to? What is the story in the industries that you’re looking for? Why should it matter? But there is this additional element where the person, I think, is even more important. That’s one of the reasons why for Berkshire for a long period of time, and I would argue, even still today, Mr. Buffett is so important to that, and has historically been even more important. Because the amount of capital that’s being allocated by an individual or a team relative to the size of the company is so much more valuable. So I think it can still be a wonderful concept, But you have to have even more confidence in the person doing it than would typically be the case, where you want the person to be good. But you take a lot of confidence that the business itself is what you’re betting on for a non-platform company. Okay, so it’s been actually a little over two hours. Why don’t we take three questions and we call it a day. Does that work? We’re getting beyond the balance sheet capacity of the people in the audience. Pointing that guy. So we have a person and the person next to him saying he’s good. So we’re going to pick that guy. Yes. Hi, and thank you so much for taking my question. So, on the topic of shareholder activism, you briefly touched upon and recognized the impressive EPS growth in Japan in the recent years. I mean, as an activist, I would imagine that Japan would be a pretty interesting region. Most of the companies have pretty large net cash positions. Essentially, all of them are priced at a margin compared to their American peers. And most importantly, they have pretty poor capital allocation practices. So back to your point, Mr. Ackman. Is Japan perhaps what the U.S. Was in the early 90s in terms of shareholder activists? And are you guys looking into Japan? Sure. So we’re not looking into Japan. I would say shareholder activism requires a local presence and also local language skills, in my view. I think it’s very hard to be an activist in a country, you know, 20 hours away. The principal language that’s spoken is not English. Imagine not being able to be… Even if you got yourself on the board, what if all the conversations are held in Japanese? It’s not going to be… Maybe with Google Translate, when AI gets easier, but jet lag, and also not being familiar with the culture of the systems. And many countries are not as receptive to activists, if you will, coming from the outside. We had this issue in Canada when we ran a proxy contest. You know, against one of the most iconic Canadian companies. And it took us, it was very hard for us to recruit Canadian directors to serve. Because everyone, you know, no one wanted to go against kind of the high profile people in Canada. So I think it’s a much greater challenge. Now, for the reasons that you describe, I think Japan may be a very interesting environment for activism. And, in fact, the president encouraged shareholder activists, a while back. And I think part of… The reason for progress in both the Japanese economy and Japanese stock market relates to an environment where more pressure is being brought to bear on companies. And they’re acting in a more shareholder kind of oriented fashion. So really, the best thing a country can do, which has a lot of underperforming companies, is create a very welcoming environment, regulatory-wise, legal-wise, and otherwise for activists to be successful in the market. But I would rather… If I’m going to be an activist in a country, I want to work with a local partner who really understood the had the relationships, understood the, you know, kind of local, you know, important cultural and other legal aspects. Let’s take who’s got the best last question. The best question. You do. Well, you could get the last question. OK, it’s really hard to pick. All right, we’ll do two. We’ll take the guy in the back. And then we’ll take, who hasn’t asked a question? Who’s got a really good one? Who’s the youngest of those people? 35, How old are you? Okay, you win. Okay, we’ve got a gentleman in the back and then the 21-year-old, because we have to help the youth. Hi, thank you. I was wondering, what are your views on the outlook of home builders in the states, and whether you find durable competitive advantages in that industry? So the outlook on home builders in the U.S. So the home building business is sort of an interesting business. I mean, these are sort of manufacturing companies and their business models changed over time. Home builders used to buy a large amount of land. And then they would build a home and sell it. And they would literally crash or fall or succeed, based on the housing market. And so they were super, super volatile, even more volatile than they are today. Because they would have to borrow a lot of money to buy land. And they’re very, very sensitive to the economy and the real estate market. I think over time, many of them have become more asset light, and they don’t hold a lot of land on their balance sheet. And they’re and more like kind of manufacturing companies, and they’ve been focused on that. They’ve gotten better at that. They have higher margins. And the backdrop is a very favorable one, right? We are undersupplied, meaningfully undersupplied in housing relative to household formation in the US. And it’s, you know, I think it’s been a pretty, it’s been a pretty good business. I really haven’t studied the home builders kind of carefully, kind of in recent years. And, but, you know, the, there are certain scale economies. And, you know, there are a handful of companies that have shown kind of a pretty durable advantage through various cycles over time. So I think it’s a pretty good business, but not a great one. But, yes, it is a business very sensitive to kind of economic cycles. And I would probably be more. I think it’s a business where you want to be a little bit more trading oriented than one that you want to own forever. Because, again, the sensitivity cycles, I think it makes it more challenging. Your review. So the business model is very cyclical, as Bill mentioned. And I think one of the challenges you have is. So while right now you have this structural supply that should be released ultimately through new home sales, you’ve got a couple of problems. One is that ultimately, because interest rates are still high, the price to value equation for new homeowners is tough. And then, secondly, and currently right now, tariffs are going to be a little bit tricky. We may be able to get there, but there are a lot of costs, certainly lumber, but others. That are going to be at a higher price point. And then the question is, do homebuilders accept lower margins to move their product? Or do consumers just decide they want to buy more at even higher prices when interest rates are still pretty high? So I think they’re in a little bit of a tricky spot, despite a pretty broad backdrop. And then I would just say, over time, I think one of the biggest advantages as to structurally why homebuilders should be good is economies of scale. As these companies have grown over time, they can produce more cheaply, both in terms of acquiring land at better prices at scale, and also mass-producing houses effectively. That should be a huge advantage for them. But you’re having some cost inflation pressures right now, at a time in which consumers can’t afford. So I think there’s a lot of dynamics, as Bill mentioned, when the industry is better. And it’s very, I think it is one where the economics are improving. But I think that right now, it’s very tricky to be able to understand how those two variables net out. Where some of the shorter term negatives could really hurt profitability. One last thing on home builders. It seems to be like an industry which has not really modernized to any great extent. The way we build homes today hasn’t really changed in the last 50 years in any kind of material way. There are some startups and others focused on more modular and more, you know, robotics and, you know, other kind of manufactured type. Kind of nice homes. I think that’s some sort of, I think we should probably build more smaller, better technologically enabled homes. We don’t really need the square footage that, you know, you can see some, there’s some fun examples of. More technologically enabled homes, where, like the dining room table, you know, the classic example is, you know, how many times have you used the dining room in many homes, right? It’s sort of like this room that, you know, maybe Thanksgiving and whatever, maybe the dining room, you know, the table goes up into the ceiling and the, I don’t know, the bedroom, it becomes a bedroom, or there’s just much more efficient ways to utilize space. And so I think there’s an opportunity for an entrepreneur to manufacture and design homes more effectively. Okay. So this young man, 21 years old, claim to have the best last question. No pressure. My name is Bill. I’m looking back on the- Your name is Bill? Yes, actually. Excellent. On the earlier side in Like 07, the Wachovia investment, could you kind of talk about that decision-making process? It was said that you spent about around four to six hours of research, compared to maybe hundreds, if not thousands hours of research on your other compounding investments. Could you kind of talk about how you built conviction in such a short timeframe? Sure. So Wachovia Corporation- this was probably in November 2008, right? Smack, in the middle of the financial crisis. The weekend before… Which bank got taken over by the government? Well, this was Lehman, Fannie Mae, every financial institution were kind of failing. And the week before, a bank had gotten taken over, shareholders had gotten completely wiped out. And so I was at the Brooklyn Diner on 57th Street, which is right below our office, having my breakfast, kind of reading the news on my phone. The headline in Bloomberg read, Wachovia Corporation. To be acquired, or Wachovia Bank to be acquired by Citigroup for $2.20 a share. And the stock, was, like, at 14. And what was interesting is the public company was Wachovia Corporation, which is a holding company that owned Wachovia Bank. Wachovia Bank was a regulated financial institution. That was basically, the FDIC had determined it was effectively insolvent, and they were trying to kind of resolve it. But the market is not used to… Under thinking about holding companies versus subsidiaries. Just look at a really interesting transaction. So I finished my omelet and I went upstairs, and a colleague of mine, we printed out the 10K. I said, look, this thing’s interesting. And the stock was going to open in like an hour and a half. And so the 10K was like 800 pages. What was interesting was, I think something like 60 pages of the 800 were about Wachovia Corp, the holding company. And, you know, the balance was about the banking institution. And the holding company owned, you know, they bought A.J. Edwards, like in the last year before, for $7 billion. It was owned by the holding company. They had a Wachovia, like a high net worth kind of business. They had a couple billion dollars worth of cash at the holding company. And they had… The holding companies, oh, and Citigroup, was acquiring the banking subsidiary and assuming all of the liabilities of the bank. And all of the debt of the company was at the banking subsidiary. And the holding company, the only liability was non-cumulative perpetual preferred. And I think it was about $11 billion of non-cumulative perpetual preferred. And I was kind of intrigued by this because I always wanted to own a company where the only liability was non-cumulative, perpetual preferred. Why? Because if you don’t pay the dividend, nothing happens. And it never comes due because it’s perpetual. And it’s not debt, it’s equity. So it’s like the world’s greatest liability. But if you took A.G. Edwards, I think it was called Wachovia, asset management, cash. And the other interesting thing was that the transaction was going to create something like a $27 billion loss. And at that time, you could carry back… Uh… Losses to offset income taxes that you had paid or paid in previous years and you get a refund. And so, when you calculated the amount of the tax refund the company could get, plus the cash they had in the balance sheet, plus Wachovia asset management, plus an estimate of what we thought A.G. Edwards was worth, you got to net of the face value of the liability. We got to a value for the… The holding company of something like $12 to $14 a share. And again, that non-cumulant perpetual deferred liability wasn’t really worth par. It’s worth a lot less than that. And I’m like, Oh my God, this is going to be our Berkshire Hathaway. Because we’re going to have this massive pile of cash in this really interesting entity. And we’re going to own these ancillary businesses. And because the headline was that Citigroup was going to acquire the thing for $2.20 a share, the stock opened at $1.80 at 9.30. We bought 42% of the volume. Monday, Tuesday, Wednesday, Thursday, Friday, and we own 10% of Wachovia Corporation going into the weekend. And the stock by Friday was at like $4 a share. On Sunday, there was an announcement that Wells Fargo was going to acquire, had Top C group, was going to acquire Wachovia Corporation for $7.50 a share, or a number like this. And I was pissed. Okay. But the government was actually providing assistance to Citigroup in acquiring the bank. And the Wells Fargo transaction required no government assistance. But they were literally stealing the company. And we ended up selling for seven bucks or something, and we made a lot of money. But the reason why we were able to do the work so quickly is we were able to discard 90% of the pages in the 10K. And we got to a value of $12 to $14 a share for a stock that opened at $1.80. So we didn’t need to do a lot of work and all we needed to do was buy as much stock as we possibly could. But it could have been like, you know, an amazing. Kind of company, but it turned into a good investment. Maybe our average cost was three, and we got 750 in, like a week. I think we invested like four or $500 million. So it was good. So finally, we got a question about a successful investment. And I want to thank Bill. Parents have good judgment. And I want to thank everyone for sitting around for a little over two, two hours. We really appreciate it. Bill, I just want to thank you all for spending time with us this afternoon and everyone virtually watching. I appreciate your time. And I thought the questions and answers were fantastic. And Ryan, Bill, I think you picked a great partner in Ryan. Very thoughtful, great answers and great perspective on everything. By the way, this was hosted by UBS. We’re grateful to UBS. Great bank. I’m very confident in the future of the asset management division, but thank you, EBS.
Mark Axelowitz, Managing Director and UBS Private Wealth Advisor, and Solita Marcelli, Chief Investment Officer Americas, hosted a special fireside chat on the outlook for the world, economy, and value investing with Bill Ackman, Founder and CEO of Pershing Square Capital Management, and Ryan Israel, Chief Investment Officer at Pershing Square Capital Management.
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