The key to being a successful long-term investor is being able to survive those kind of challenging market periods when everyone else is panicking. In fact, you want to have money to invest when others are panicking.
Bill Ackman doesn't just manage a portfolio. As the founder of Pershing Square, he has built one of the most closely watched hedge funds on Wall Street. When this guy tweets, he literally moves markets. Today, he tells me the biggest tip for investors.
Invest in something that you believe will withstand the test of time. The value of a business is the present value of the cash it generates over its life.
The macroeconomic risks he's worried about.
I think the biggest risk to markets is that there are a lot of very levered players in the market and we're at risk to some kind of extrinsic shock and that stocks to go down a lot.
And which company will win the AI race?
Some people are afraid of AI. They think it's going to be very destructive to jobs and so on. I think it will be actually a big driver of economic growth, big driver of job growth, but you have to learn how to use the tools.
I'm Nicole Lapen, the only financial expert you don't need a dictionary to understand. It's time for some money rehab.
Bill Ackman, welcome to Money Rehab.
So, the economy feeling funky, but to be fair, it always feels a little bit funky. I don't think there's ever been a time it hasn't. What's your overall take on what's going on in the economy and markets right now?
So I think it's unusual time in history. I think the big story is really AI. AI is driving an enormous amount of entrepreneurship. It's giving access to intelligence to a very broad group of people at very low cost. Google is basically free and then you have this massive infrastructure build in connection with AI. So you have some of the largest companies in the world competing to build the model for super intelligence and they need access to compute and data and we're seeing a land rush as people are literally acquiring land, building data centers, filling them with GPUs, memory, and enabling this technology that's transforming the world. I think it's going to have an enormous impact on all of us. Some people are afraid of AI, they think it's going to be very destructive to jobs and so on. I think it will be a big driver of economic growth, big driver of job growth, but you have to learn how to use the tools. But I think the big story is really AI. Yes, we have a war going on in Iran that I think will resolve itself. I don't think it's going to go on for years. I think it will resolve itself one way or another in a way that won't be too impactful in the US. And then I think you're seeing companies are actually doing quite well for the most part. But it is a bit of a bifurcated economy where some of the lower income people are challenged with inflation and that's a major concern. So it's not all roses, I would say.
It's definitely not, it never is. So with OpenAI, Anthropic, SpaceX all going public, who do you think the winner is going to be?
Anthropic seems to be the leader in terms of frontier models and building a business that apparently turned profitable recently. That's pretty impressive. What concerns me about OpenAI is a prediction of very significant losses for the foreseeable future and also I think the open source models are getting so good and people will have access to either lower cost or free models that will enable them to answer most of the important questions or solve the problems that they need. So I'm less of a believer in betting on the frontier model company. SpaceX is a very interesting business. The Starlink franchise is enormously profitable and a near monopoly on global satellites. Their space franchise is incredible and they have an amazing position in terms of data infrastructure. If you want to rent 100,000 GPUs, about the only place you can do that today is SpaceX and they're earning very high returns on those assets. And then they have their own AI models. They launched a new one recently. So it's an incredible collection of assets run by the most talented technologist, entrepreneur of our generation. I think the only question is just price. At a trillion, whatever it is, six or seven, there's less upside than if you could buy for half that price. But I wouldn't, the word is never bet against Elon. So I think that SpaceX will be an incredibly important company over the next period of time. Now, it's not in the Pershing Square portfolio because it doesn't have the degree of predictability that we're looking for.
We like businesses that sort of today, if you think about a business, people think about stocks and bonds, right? Bonds, you get paid a coupon, an interest rate, a couple times a year. And if it's a fixed rate bond, you're going to get your six or 7% for sure. And at the end of the life of the bond, you're going to get your principal as long as it's a creditworthy company. A business is a bit like a bond as well except the coupon, the interest payment, is not known. You have to estimate what it's going to be. The way we think about companies is we think about the earnings as sort of the yield on the business. So people talk about PE, right? A stock trading at a PE of 20, well if you flip over the PE it's a 5% earnings yield. One way to think about it is you're investing in a company that's generating a 5% return on your investment today and the question is, is that 5% yield going to grow over time or is someone going to come up with a business that disrupts it and the company's going to disappear. So stocks are riskier than bonds because there isn't the same degree of certainty about their future. But if you narrow down the universe of companies you invest in to these really predictable businesses where their market position is, we believe, so dominant, you can earn well in excess of bond-like returns without taking a ton of risk.
So is the market too expensive right now?
I would say in spots. I think it's hard to generalize about the market. People look at the stock market and they say, okay, today the PE might be 21 or something like this and the average PE of the market might be 17. So they can say on the margin it looks overvalued, but the value of a market is a function of what the earnings are going to be in the future and earnings have continued to significantly exceed expectations and earnings are growing at a faster rate than historically. A big percentage of the market is represented by the biggest companies and those companies, whether it's the Nvidias, the Microsofts, the Googles, the Alphabets of the world, are much higher quality businesses growing much more quickly than if you look back 20 years ago what the top six or seven companies were back then. So I think it's a higher quality collection of companies that deserves to trade at a higher multiple. And to my point, if Microsoft and Amazon and Meta are cheap stocks, which we believe they are, you could argue the market's not expensive at all.
So if somebody had a thousand bucks to invest right now, where should they put it?
I would find a handful of businesses that don't use a lot of leverage. So you want companies that don't use a lot of financial leverage. They're businesses that you like and admire that make good decisions over time. And a business where you believe if the stock market were to shut for 10 years, you'd still be happy to own it 10 years from now. Don't invest in what seems to be most exciting now. Invest in something that you believe will withstand the test of time because the value of a business is the present value of the cash it generates over its life and you have to be able to predict it's going to be around a long time.
I'd love to see how that's reflected in Pershing's portfolio right now. You guys keep it to 12 to 15 investments. Why do you keep it so tight and what are you excited about right now?
Sure. So our approach is to find what we believe to be the best businesses in the world. Businesses that will survive the test of time. Businesses that will survive the disruption of AI, will be beneficiaries at a minimum, will be either neutral or beneficiaries of AI. And so our portfolio is comprised in some cases of companies we've always wanted to own but weren't cheap until more recently. I put Amazon on that list, Meta on that list, Uber on that list, Microsoft. Businesses that we've always admired were always too expensive and a lot of money in the markets is flowing toward the new new thing, semiconductor stocks or memory, places where people have recently made money. And we focus on where we're going to earn a high compound return over the next three, four, five years. And that's enabled us to fill a portfolio with these very high quality, what we call durable compounders.
What's up with Brookfield though?
Yeah, Brookfield really fits the model as well. We like companies that are not particularly capital intensive, that own and earn kind of royalty-like returns, or if they have a degree of capital intensity, they can earn very high returns on the money they invest. Brookfield's in the business of asset management. They're very good at it. Really private equity, real estate, infrastructure, a lot of the energy, power related businesses. And so as more and more capital is going in to build data centers, etc., that's a field where Brookfield is going to be a very successful participant, and they manage other people's money and earn a royalty and a fee on that capital, and that's a very good business.
I mean, there's years that you've delivered some crazy 50 plus percent returns, which is incredible. Hedge funds are out of reach for a lot of people. Of course, you created PSUS to democratize hedge fund access. Do you think more hedge funds should do that or is it too by nature risky and volatile for retail investors?
It depends what you do. I think what we do is actually relatively low risk. We buy very high quality companies. We own them for the long term. We get pretty deeply involved in those companies and help them be successful. So we'll occasionally join boards, but we'll always have management's ear to the extent we have ideas that can help a business be successful. The vehicle we mentioned, PSUS, is a you could think of it as a hedge fund but it's one of the only publicly traded hedge funds. It happens to be available at this very moment at a very attractive price. So if you like Microsoft, let's see Microsoft right now is trading at, let's pull it up the ticker. Microsoft today is trading at $387. Well, if you want to buy it at $310, you just buy PSUS because PSUS is trading at a 22% discount to the value of its asset. So it's a publicly traded fund that trades in the stock market and it trades based on supply and demand for the shares in the short term. The assets we own are worth almost $50 a share and the stock's about a 22% discount to that price.
So you guys got it at a better price, but you got a ton of it, right? You recently bought two billion of Microsoft and then sold some Alphabet to free that up. Are you still bullish on Alphabet or are you just more bullish on Microsoft?
Two things matter to us: business quality, long-term growth, durability, the overall quality of the business, and then the price. And we try to buy at a price that offers us a very attractive return over time. And occasionally, a business we own gets to a price where the go forward return is less than our threshold. And we sold Google not because we didn't think it was an amazing business, but rather because the price got to a level where we felt the go forward return was lower than what could be achieved by redeploying the capital into Microsoft.
What company now do you think is like Apple in the 80s?
Apple has not been the most innovative company in the last decade. It's still an amazing business, but I don't even remember which iPhone I have. And I don't think it's materially better than the iPhone I had a few versions ago.
You don't have the newest iPhone, Bill?
I believe I do, but is it iPhone 17? I don't even know which one it is, is my point. But the one I had before, actually a few iPhones ago, was better because the battery life was better than the one I have now. Some people were making the argument that this notion of walking around a phone, five or 10 years from now, you're not going to walk around the phone anymore. You're just going to be connected and you don't have to carry this device that you can lose or people can steal. You'll just have some, I don't know, a little pin on your shirt that will pick up all your questions.
Or maybe even in your brain.
Yeah, actually it's an area that I've been spending some time on recently. There are a number of companies working on brain computer interfaces and it's going to be amazing for people with brain injuries and people who've lost vision and eventually I think it will be, I think you're right. I think you'll maybe wear a hat and the hat will be your connection to the internet.
Yeah. More like what is going to see the most exponential growth. People were complaining that a lot of these companies are staying private for a long time, but now we're seeing them go public. So if a new investor is listening, what's the best advice you would give to new investors?
I think you get into trouble when you try to make money really quickly. So options and leverage and very speculative type businesses, when you start with a relatively small amount of capital. I remember when I had a few thousand dollars of investment capital, you want to make money quickly. I think one of the important things to understand is the power of compounding. Berkshire Hathaway stock was like $48 a share in the 1960s. You could become a millionaire investing with Warren just buying a share back then. But it didn't happen overnight. So the key is buying businesses that you believe will compound at a high rate over a long period of time. And the consumer often has insights before Wall Street. I mean Tesla was appreciated. The big shareholders were retail investors because institutions didn't understand how great Tesla was as a company, as a car. So look for those experiences, products in your life run by companies or built by companies that you admire and that's a good place to start.
And then read the annual report, see what they say about their business and then think about it. Is this a business that you believe can withstand competition? Or is it, my concern you asked me before about some of the AI companies, Anthropic has the lead now. At a certain point in time OpenAI was the leading company and then Google was the leading frontier model company. There are a lot of very talented people running private companies. I just saw a startup where they raised a couple hundred million dollars in their seed round at a $2 billion valuation and that was just an idea and their second round is going to be five billion and they're far from having a product or a service or a dollar of revenue. But there's an enormous amount of capital out there looking for the next Anthropic and so that's going to be a very competitive space.
But the frothiness that you mentioned with the startups and these crazy valuations, does that concern you? Do you think we're headed toward an AI crisis or are we in a bubble?
By the way, this particular company which I looked at, the investors are probably the most sophisticated investors in AI companies with the most experience and they're the ones setting the valuations at such super high levels. I think in private markets there's more risk of valuations being massively above perhaps where they should be, but you're also seeing businesses that are able to go from zero. I mean, look at Anthropic. It went from zero to many tens of billions in revenue in a very short period of time. And this is a never-before-seen phenomenon. So if companies can scale that quickly, then you can justify much higher private market values.
Some of the money moves you made during 2008 made people wonder if you could possibly see the future, Bill. So if that is at all true, what are some of the opportunities you're predicting now?
Seeing the future is very often just studying the present and looking for examples in history. In 2008, really before 2008, several years before 2008, we saw a number of companies doing stuff we thought was crazy. There were these businesses called bond insurers and they had AAA ratings, which means as good as the government in terms of creditworthiness, and they were guaranteeing very risky mortgages and collecting money and reporting big profits. We said this is not sustainable. And that was not so much predicting the future, but identifying something now that just seemed wrong. And we knew eventually that would blow up. In terms of predicting the future, markets are going to be volatile. There'll be some upcoming panic about markets. I don't know exactly what the catalyst is going to be. There is a ton of speculation. There's a huge amount of leverage being used by professional investors, by retail investors. My biggest piece of advice to your audience is don't borrow money against stocks because that's how you get wiped out. And betting on sports is not great unless you've got some real edge. I think a lot of the younger generation is wasting a lot of money betting on sports. Maybe it's fun, but don't bet money that you need to live on.
Because this is a very sexy thing people talk about online. They say rich people borrow against their assets instead of selling them.
Rich people become a lot less rich when they do that sometimes. Carl Icahn very famously was very highly levered against his own stock and then the stock got crushed and he went from $20 billion net worth to three or four. So rich people can lose a lot of money using marginal leverage. I mean, if you can use marginal leverage if you use five cents against your dollar maybe you're okay. But if you use 30, 40 cents you start putting yourself in a risky position.
So it sounds like you're long-term bullish like Warren and just boring stuff.
Maybe it's boring to you, but I don't think, maybe volatility is exciting to people. I like businesses where I know they're going to be here 10 years, 20 years, 30 years from now. That's how you make a fortune over the long term.
I'm bullish on boring all the way. So aside from not borrowing against your portfolio, what's the worst advice you've heard from new investors?
I don't like this trend of one day options. It's just gambling. No one knows whether a stock's going to go up or down over the course of a day unless you're trading on inside information. So it just seems like a crazy game.
So what do you think is the next crisis? Is there a next 2008?
I think there are always things to worry about. One thing to worry about is we've been spending more money than we've been taking in as a government, as a country. So we've got a deficit and we've been financing that deficit by issuing Treasury bonds. And so we've got whatever 34 trillion of national debt. And we have to issue that debt at a time when lots of other companies that used to be buying it in their stock are now issuing a lot of debt and need more capital because of this massive AI infrastructure boom. So there's a huge demand for credit at a time when the government itself is also issuing more and more of its own bonds and the risk there is that all that supply needs to be absorbed by investors and that can cause rates to go up. So one risk to markets is rates going up. Another risk is you have a lot of very levered players in the market, which means that if there's some kind of event that comes from left field that shocks people and they panic and they sell, you could see a cascading as other sellers have to sell because they borrowed money. So I think the biggest risk to markets is that there are a lot of very levered players in the market and we're at risk to some kind of extrinsic shock and that stocks go down a lot. Now, if you have an unlevered portfolio with very high quality businesses and you don't need the money tomorrow, that's fine. A good opportunity for you to buy more. If you've got a margin debt, you're going to be in trouble.
to get wiped out or you're going to have to sell at the bottom, which is what you don't want to do. So, the key, going back to my hero, Mr. Buffett, his key was just longevity, right? He's 95 and he set up Berkshire Hathaway in a way that he would never get a harsh call or the equivalent so it could compound. Not every year, like you mentioned we've had a couple of really amazing years, probably a third of the time we've been up north of 30, 40% for the year, but we've had a handful of down years. This year we're down slightly, but that's okay. You don't need to make money every year. You just need to persist and own businesses that can compound at high rates and you wake up five years, 10 years from now and you'll have a lot of money. The other key for building wealth over time is spending less. And it's hard to do that, foregoing the short-term experience or pleasure, planning for the long term. That requires some restraint.
Well, that's why I think a lot of people are talking about a looming retirement crisis. And I know that you advocate for people without employer sponsored plans like 401ks to be able to get access to retirement savings options. I mean, usually the debate is centered around the fact that we move from defined benefit, so pensions that have gone by the way of the dodo bird or the blackberry, I suppose, to defined contribution plans like a 401k or an IRA. So, can you explain this like I'm 5 years old? What kind of plan actually fixes this problem?
Yeah. So I think the issue for the country, which the president is taking steps to fix, is that about 60% of the workforce, their employer provides some kind of tax advantaged way to save money, typically a 401k plan, and the ideal one is where you have to opt out. So you're kind of forced in, or not pushed in, nudged in, to take 5% of your income, whatever the number, and invest it in a tax exempt plan that can grow over time and invest in the stock market. The biggest opportunity a young investor has is time. Because the power of compounding, your money multiplies over long periods of time, but you have to start early. And it's hard to start investing when you're young because this is time when you want to be buying things and close a house, paying rent, but setting aside the discipline to invest money and have it grow tax-free in a Roth IRA or one of these accounts is the most powerful way to save for your retirement. The problem is, I say 60% of the country workforce has these kind of programs. 40% you're an Uber driver maybe, a restaurant waitress, etc., and your company doesn't give you a 401k plan, you don't have an easy way to start saving for your future. And the president just made law where these kind of Trump savings accounts, very similar to what government employees had, where you can start with $1,000 of savings and then each year you contribute and invest the money in the market and it will grow over time. Wages have not grown at the same rate; wages grow at a much slower rate than stocks over a long period of time. And so it's very important that every American owns a piece of the stock market if you want to be in a good position by the time you retire.
