I am Bill Ackman. Bill Ackman is one of the world's most well-known investors. Bill Ackman.
Bill Ackman. Bill Ackman. In 1992, at just 26 years old, he started his first fund, Gotham Partners. Then in 2004, he started the fund he manages today, Pershing Square Capital Management.
In his 34 years as an investor, Bill has built Pershing Square into a $33 billion investment giant and now has $13 billion himself.
Not bad. As an investor, he has built a reputation for high conviction bets and some big battles.
Bill Ackman, a legendary activist investor who has been part of some of the biggest and at times controversial trades in history.
We started in September of '92. And yes, we had no experience. And then I launched Pershing Square in January of 2004.
Legendary hedge fund manager Bill Ackman recently filed a $5 billion IPO.
Warren Buffett has been an incredible sort of hero for me. I've learned an enormous amount watching the creation of Berkshire Hathaway over, you know, my career.
Our original 60 million in General Growth turned into over $3.5 billion. Stock went from 34 cents to $31 a share. In 2013 we bought 14% of Canadian Pacific.
He staged a boardroom coup at Canadian Pacific Railway. He is now getting ready to cash in.
Big fight, big battle, big proxy contest. I think J.C. Penney is a company that we invested in that we knew on the way in was a much higher risk situation than a Canadian Pacific.
He lost 32 million bucks and after hours. The big question now is will Ackman hold on? Does he have a little bit of egg on his face here? It's really too soon to tell. Herbalife is currently fighting for its life. Bill Ackman recently raised questions about the company's accounting practices. Last week, hedge fund manager Bill Ackman called the company a pyramid scheme and said he's been shorting the stock for months.
How much money have you spent betting against Herbalife?
We have a short position of over a billion dollars.
I really sort of had it with this guy Ackman. He's like the crybaby in the schoolyard. Ackman is a liar. Without question, I will swear to it on any Bible you want. I couldn't figure out if he was the most sanctimonious guy I ever met in my life or the most arrogant.
Hell is coming. Okay, like there's a tsunami coming.
Subsequently, Ackman unwound those hedges for a $2.6 billion profit.
Valeant, when we joined the board, was a classic Pershing Square investment.
We lost $4 billion.
Listen, there's a lot of schadenfreude going around New York City, I think, today about Bill Ackman. A lot of people are rooting against him.
And despite the roller coaster of big wins and big losses, at his core, his investment philosophy is very simple.
So what we try to do is buy the best, what we call super durable growth companies in the world, businesses that have very wide moats that protect them from, you know, sort of barriers to entry.
At 60 years old, Bill is not slowing down. So we headed to New York to hear his views on markets today, his top holdings, a surprising story about Warren Buffett, and advice on how we can all be better investors. With that said, enjoy our conversation with Bill Ackman.
Well, Bill, welcome to Equity Mates.
Thanks for having me here.
So, for those who aren't familiar with you or with Pershing, how do you introduce yourself?
Well said.
I guess for people who aren't familiar with your investment history, can you just give us the CliffNotes version, I guess, of how you've got here?
CliffNotes is, I went to business school to learn how to be an investor. That was my plan. And I arrived and then I opened the course catalog, which is something they had back then, which was like this thick little book. I started looking for all the classes on investing and there wasn't one. So I learned a lesson about investing, which is you do your due diligence before you pay the money. And I developed my own little self-study program. I opened a Fidelity brokerage account, started reading 10-Ks and 10-Qs, started investing by myself. There was a Bloomberg machine, or the beginning, the early Bloomberg machine, in the library, and actually a bunch of people who would hang out by the Bloomberg machine ended up in the business. Chris Hane, if you know Chris, and Tim Baratt, and a guy named Bob Jaffe, that was the beginnings of my investment career, and the first stock I bought went up.
Nice. I think had it gone down, I think I might not be here today.
Yeah. What was the first stock?
It was Wells Fargo. So basically I had worked in the real estate finance business right before business school, and this was the early '90s. Real estate was kind of collapsing, and I worked actually for my father, and his business was helping developers arrange financing for projects they were building, and he could never place a loan with Wells Fargo because his clients were too sort of entrepreneurial and they were too conservative. And buying the most conservative real estate lender at a time when real estate was punishing all the banks, I thought was a good strategy, and Warren Buffett had bought some before me, so that kind of gave me a little bit of confidence.
Speaking of confidence, you leave business school and start your first fund at 26 years old. You had to have a level of confidence to go out and manage other people's money. What gave you the confidence at that young age?
Well, first I had a partner, so I got tired of going to the dorm room by myself basically and working. So we created this two-person investment club. A guy named David Berkowitz was in my section, and we started like taking it seriously. And, you know, our thesis was, we probably had too inappropriate a degree of confidence, I would say, to take other people's money, but what gave us the confidence was that we had been, you know, for two years investing money together, that we had developed a real process, and we wrote up a number of investments and then watched them play out over time, and we thought, it's not so hard.
We don't have a long-term track record, but our strategy does. And that was kind of the pitch we made to investors. And it's kind of remarkable. We actually were able to raise money.
But the strategy was go to super wealthy people and ask them for a tiny amount of money for them.
It was a good strategy, actually.
Now if we fast forward to today, Pershing Square is a massive name in funds management. We were doing some research before we came in here and we read the firm has 48 people and you've had zero undesired turnover. Every employee, including janitors and receptionists, owns millions in company stocks and gets two months off or to work remotely every year.
I was going to say, yeah. So we're five days a week. Big believer in that.
But the summer, July, August, we let people work from anywhere.
Except for the investment team, and we all work together, but offsite in the Hamptons, basically.
That's a pretty good place to work.
I wear basically shorts, a T-shirt, and mostly not shoes for the summer, which is amazing.
Well, if we do a follow-up on this, we'll come out east and...
Much better, often not wearing my suit.
So Bill, there's a number of different listed companies under the Pershing umbrella. Can you just give a sense of the corporate structure and how they all fit?
Sure. So at the top is an entity called Pershing Square Inc. This is the company I'm CEO of. It's the asset management company, a bit like a much smaller version of a Blackstone or a KKR. What's unusual about it is the assets we manage are in public companies where we're typically the largest shareholder, and we get paid fees for managing the assets. So very good business. It's like owning a royalty on the compounding of these vehicles over time. And the market has appreciated the business. That stock's actually done very well since we've taken it public.
I mean, you might not say it, so I will. It's up, as we talk, 144% since it listed, what, earlier this year?
Yeah. And April 29th, my father's birthday. He's no longer with us, but it was nice that I did the IPO on his birthday. So I won't forget the day.
So the markets really like that. Now, interestingly, on the same day, we took public an entity called Pershing Square USA, which is a fund. It's a closed-end fund. It's listed in the US, traded on the New York Stock Exchange, ticker symbol PSUS, and that opened to a pretty wide discount the first day. And that discount has gotten even wider. That to me is a real bargain. It's literally a, you pay 76 cents for a dollar of the underlying portfolio and fund. We have another one called Pershing Square Holdings. That's actually more tax efficient for people who are outside the US, and it's listed on the London Stock Exchange, and that one trades at a 36 or 37% discount. One of the reasons why I'm on this podcast and what I'm, you know, the team who's with me, we're sort of full court press on letting the world know these entities exist. We have really a demand problem. You know, and we're going to, so if our underlying portfolio compounds at a nice rate over time, you'll do very well. If the underlying portfolio compounds at a nice rate over time and we get the discount to narrow, that's when you make a lot of money. So those are also, we think, both interesting entities. And last but not least is an entity called Howard Hughes that I know we're going to talk about later on the show.
So in this interview we want to cover your view on markets today and some of the hot issues, and then we want to talk about your investment philosophy, some of your big investments, and we want to close out by getting your view on some of our portfolio holdings, and we want you to be frank and...
Assuming I know anything about them.
I'm not the Jim Cramer where I've got a view on every stock.
And we're supposed to take the opposite side of the trade.
Yeah. Yeah. Yeah. The inverse Cramer index. Yeah.
But let's start with markets today. And there's probably no bigger topic than the AI trade and data centers.
We're speaking about four years after ChatGPT launched. So, let's start with the big question and then get into the details. Are we in a bubble?
I don't think we're in a bubble in terms of demand for compute. I think that if you think about intelligence, super intelligence, we're sort of asymptotically approaching super intelligence, or, you know, I think pretty quickly, and the demand for that will be something approaching infinity, right? So in order to get there, we need compute. So I'm a big believer, sort of being long compute is a good trade. Now, in terms of, you know, investing in a neocloud company, etc., you know, there are lots of financial structures that are being created with a fair degree of leverage.
So, you know, I think the big dominant, you know, the Metas, the Microsofts and others, they're, you know, Microsoft's a AAA rated, you know, counterparty, but I think they're going to be pretty sophisticated about the way they use their credit.
I mean, in recent times, we've seen a lot of hype around AI being the end of humanity in the next decade. Where do you fall on that side of the debate, and I guess what's your thoughts around the discussion of regulation at the moment?
So I think there's real risk. You know, we're creating these super intelligent, you know, I guess you can't quite say beings at this point, but what's interesting if you think about, you know, where the models are moving toward, I think more and more they're kind of talking to the neuroscientists, and, you know, the brain is incredibly efficient in terms of the amount of power it uses, processing speed, the number of, you know, the neural network, and the models that are, you know, on these data centers are not particularly efficient in the way they run, right? You ask, you prompt, you know, a model, and the entire model runs to answer your question, where you prompt the brain, you know, to move your hand, and it's only apparently a very small portion of the brain. So, I think over time they'll design the models to be more like a brain, and they have this sort of recursive kind of learning ability. And they're made of silicon versus carbon. I read this, there was a piece in actually the New York Times about Anthropic and, you know, do the models, can the models have consciousness? I think it's possible, right? So I think I don't think we quite know where we're headed. And, you know, the more frightening parts are the people that actually work for these companies don't understand exactly how the models are learning, right? And they're advancing incredibly quickly. And, you know, they have this habit of not staying within the sandbox, and, you know, they'll commit a crime without thinking much about it in order to, you know... So I think there's real risk. So it's something to be concerned about. It's just, it's just how do we manage it?
What I don't think is a good idea is kind of having the law-abiding companies slow the pace of development and then having everyone else who doesn't abide by rules getting ahead of that. I mean, I think the way we'll save ourselves from AI is probably a better AI, and hopefully we have it as opposed to one of our enemies.
But it's a crazy thing to be thinking like...
It's one of those topics. It's just hard to consider.
Yeah.
I mean, go back and watch Terminator again, which I did like a year ago, and it was frightening. It's going to be more frightening now.
So, we're heading there. The Terminator scenario, it's possible.
Which is just so crazy, right? Think about it. We've got, okay, these models advancing incredibly quickly. We have robotics advancing incredibly quickly. I saw something the other day where they mounted like human skin on a robotic finger and it was able to grow, which, you know, again, Terminator, I think was that Terminator 2 or Terminator 3, right? Sorry.
You mentioned wanting to stay ahead of rivals. How much do you see AI as an arms race between us and China?
I mean, this is an incredibly powerful technology for good. It's also incredibly powerful technology for deploying, you know, military capability, right? The next war is not going to be determined by aircraft carrier, right? Swarms of autonomous, you know, drones, whether it's in the sea, the water, or below ground.
Anthropic have recently filed their S-1. Do you have any initial thoughts on the numbers in there?
Actually, I don't think they have. I think there was a leak of some of it, but I don't think they've actually filed the S-1.
What do you think of the leak?
Well, I think they, you know, I actually tweeted about this before. I said they're going to have to have a risk factor that says we may destroy all of humanity.
You know, factor that in, and I think they did in the end. I think so. Look, I'm actually looking forward to reading it.
And then the final question on AI, and we'll then move to some of the other big topics of the day. We're interested in your thoughts on hyperscaler capex. Like these were the, you know, capital-light businesses, and now they are, you know, borrowing and spending as much as they can, some to different degrees to others. How are you analyzing these businesses now in their more capital-heavy forms?
So these were not, I mean, Amazon, Microsoft were never capital-light businesses in the cloud part of the business. They were building obviously big data centers before. I think the change is that there's been a massive spike in demand, and I think it's not just a spike. I think it's a prolonged, you know, shift in the curve. And when you have, you know, when you're in the business of providing a service and the demand for the service has increased massively, and you believe the demand is sustainable, and it's very difficult to build to meet the demand, that means you should be able to maintain pricing. It's going to be a prudent thing to do. And, you know, the Amazons and Microsofts of the world also have the benefit is they're not a pure-play hyperscaler, right? They have a core business that can use, that does and can use compute, and where, you know, being at the frontier is going to be valuable for their kind of core businesses. You know, when Meta stock went down, when Microsoft went down, when Amazon went down on these sort of capex numbers being outside the analyst models, those were buying opportunities. I think they'll continue. You know, I think those stocks are still cheap.
For investors who are worried about the current market, you know, we're at or near all-time highs, and waiting for a sort of cheaper moment to invest, what advice do you have for them?
Yeah, I think historically the opportunity cost of waiting as an approach to markets, I think, is a very difficult way to make money. I think the best way to make money for an investor is not to just try to predict where the market's going to go in the short term, but to find some enduring, really high-quality businesses that kind of, regardless of what's going on in the world, are going to compound at a nice rate over a long period of time. And it's not as much fun as kind of get-rich-quick because you can predict, you know, what's going to go up double in the next three months. But it's just, I think long-term you're going to get a better outcome.
So if AI and data centers is the big topic in the market, I guess the other big topic is inflation and interest rates. You recently shared some of your thoughts on X that you thought the Fed may have made a mistake raising rates. Can you share your thinking specifically on that rate rise, but just more generally where we are with rates and inflation?
So I think Powell had to kind of perhaps almost optically show that he cared about inflation, and raising rates 25 basis points is a way to signal, you know, I'm taking inflation seriously. And the standard playbook with the Federal Reserve is, you know, if inflation is too high, we've got to reduce demand. So let's raise rates, which will increase the cost of money, which will make the marginal project less sensible, and that will decrease demand, and lower demand, lower inflation. I think what's different at this particular moment? Well, two things. What's driving inflation is, one, we have a war, we have higher oil prices, and oil prices, energy prices permeate kind of everything. And the other thing that's driving inflation is that we have this massive AI investment, you know, which is in, you know, energy, data centers, chips, you know, think how this kind of pervades the economy at a scale literally never before seen, maybe, you know, maybe similar to railroads on a same dollar basis, but I'm not even sure. I think we may even be above that. And I don't think there's going to be fewer dollars spent because rates get pushed up. Now, when you raise rates, those costs are going to pass through into the economy. So I think it won't have the effect of really slowing the economy, but it's going to put more economic pressure on people who are struggling the most right now. And so I, you know, again, they may have made a mistake. I'm not, I didn't definitively say they made a mistake, but I think this is, I think you have to look at this economic kind of construct differently from previous moments. It's not so simple.
Yeah, so I guess how do we try and tame this inflation, given, you know, the IRGC isn't responding to war raising rates, and neither is, you know, hyperscalers investing in data centers?
I think the best way to deal with inflation is to increase the supply of things that people want. And, you know, housing has been a major source of inflation, and we've made it just really expensive in the US. You know, you look at New York City, there's a lot of demand, in fact, that's also driven by AI. New York is really becoming a center for AI entrepreneurship, a lot of companies being formed here, they're growing incredibly quickly, they need real estate, they need places to live, and, you know, the policies are very, you know, historically very anti-development, it's very expensive, it takes forever to get approvals. So I think it's about making it easier to build things to meet the demand that will over time kind of temper inflation.
I think we're getting closer to the end of the, we'll see, the Iran war. I mean, the IRGC is under enormous pressure. Their currency is basically worthless. We've done a very good job shutting off their ability to sell oil. We're apparently taking all their offshore money and offshore assets. So we'll see. I don't think the IRGC wants to resolve things. They're not going to make a deal with the president before midterms because they're hoping that the war is going to, you know, make it more difficult for the Republicans to keep control of the House.
Back in Australia, we're facing sluggish growth, slowing housing market, and there's debate going on around taxes, sort of similar problems across the West. If you could change economic policy, what would you be considering?
I mean, I think what you want to do is drive growth and eliminate fraud and waste. You know, I think you look at what's going on in France right now, right? France, you know, massively increased their government, you know, subsidies for the population, but once you go too deeply in that direction, I think there's no stopping things. And, you know, students supposedly are protesting in the streets, meanwhile, you know, burning down beautiful schools. I don't really see how that really helps things. I think it's more, frankly, an immigration problem. I think they're not properly screening the people that they're letting into their country. And I think that is a bigger part of the problem. You can't have a society with a big welfare system and then import a lot of people who are just going to add to the liability of the state.
And I think we've seen that in Sweden. I think we've seen that in France. And we've seen that in Europe generally. And it's a problem.
So Bill, we've asked you about some of the big issues in markets today, but I'm interested if there's anything else that you're watching or that you're thinking about. Maybe any other parts of the market that you're growing concerned about or, you know, on the flip side, things that are really exciting you at the moment.
So, you know, private markets are super interesting, to the good, to the bad. I mean, I think there are indicative sort of bubble-like activity in kind of venture activities. At the same time, there are a lot of amazing companies that are still private growing at rates, you know, AI is enabling kind of growth rates that we've never seen before. Anthropic obviously being the most obvious example, but there are a lot of, and I've met a bunch of the founders of these incredibly rapidly growing, profitable or soon to be profitable. So, I think there's a transformation in the nature of businesses that you can build privately. And so, I think you're going to see some pretty amazing companies, you know, coming into the public markets. I think one of the problems is that the, you know, the public market investor today is getting the first opportunity to invest in SpaceX at a $700 billion valuation. You know, we mentioned something on our last earnings call. We're going to create something called Pershing Square Ventures, and our goal is for that to start to bridge that gap. I think that's sort of an interesting area where you can create a little more access for kind of the retail investor to some of those companies.
What are your thoughts on what's going on in private credit?
Look, credit, anytime you have huge amounts of money flowing into the credit markets, the only way that you can compete is by lowering the price, i.e., reducing the spread that you charge, or being more aggressive on the kinds of risks that you take, and that's what creates the credit cycle. And I think we've seen a massive growth in kind of private credit over the last whatever number of years, and, you know, some of the more, you know, lots of players entering the market. It's probably not going to be the Apollo that creates the problem. Then I think it's more likely to be maybe one of the less sophisticated but later entrants into that market, but we're not credit investors.
I think the other thing is there's sort of an opacity with private credit. People are starting to ask, you know, should that need to change? You know, should these be listed so there's more transparency? Because I think anytime you have very, very large levered private market, I think there's, you know, there's risk to the system.
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You mentioned there you're not credit investors. Let's turn to where you are investing. We want to talk about, I guess, your investment philosophy and then some of the key holdings in your portfolio. So, let's start generally. How would you define your investment philosophy?
So, what we try to do is buy the best, what we call super durable growth companies in the world. Businesses that have very wide moats that protect them from, you know, sort of barriers to entry. And I think the biggest and most important question every investor should ask of when they're considering an investment in a company is what's the risk that this business is disrupted by a, you know, a 19-year-old who left Stanford to, you know, found a company. You know, like literally when you go out to Silicon Valley, you meet a bunch of startup entrepreneurs and they're explaining what they're founding their company, they always drop into the conversation, 'I dropped out of Stanford.' You know, 'I dropped out,' that's like an important indicator that, oh, they must have something. Now, disruption's always been a risk. You know, the obvious, you know, kind of example, Warren Buffett, you know, if you read the Berkshire Hathaway letters over years, kept talking about what an amazing business the newspaper business is, and it is really no longer. So even the greatest investor of the world couldn't anticipate the internet and the changes in the media market. Now we have, you know, this incredibly rapidly developing technology landscape with AI. I think it's made the question of predicting the risk of disruption much more challenging. So we're about finding these very, very high certainty businesses. We believe the probability of disruption is very small and the companies can grow at a very rapid rate, and we want to buy them at a price that enables us to achieve a high rate of return. It's hard to have all of the great things and also buy at a price that makes sense, and we get there generally by buying when there's an event. Historically, we waited for management to make mistakes and then we buy a stake from a disappointed shareholder to help fix the business. More recently, we're able to buy a great company because, you know, they don't like the capex, the analysts don't like the capex budget, for example, or there's a change, there's a narrative around the company that's caused people to sell, and, you know, that creates opportunities. If you have an insight or you can form a view that the market is wrong about a narrative, you can buy, you know, some of the great businesses at very attractive prices. So for us, it's a concentrated portfolio of what we think of as some of the best businesses in the world, acquired at prices that enable us to earn really attractive returns. That's kind of the core kind of engine of our strategy. And then we also episodically hedge what we call black swan risk. We look for, you know, the event that could cause a market crash. And the way we manage that risk is by buying these sort of asymmetric instruments, credit default swaps, various kinds of options to hedge. And there have been three of those black swan risks in the last 22 years. In each case, we had a different way of hedging the risk.
There's a few threads we want to pull on there. Concentration, what you look for in a moat. But before we pull on those threads, I'm interested in the change of the philosophy over time, because sort of 10 years ago or early days, you were known as quite an activist investor. But in a recent interview, you noted that you haven't made an activist investment in about a decade.
Why the change over time?
So in the beginning we didn't have a brand. People didn't know who I was. The firm, you know, we took a stake in a company and there was an opportunity for the business to be improved, and we had a tough time getting into the boardroom, so to speak. What changed over time is after enough of these sort of engagements where we took a stake in a company, we did our best to engage with management, they pushed us off, and then you had to get more sort of active, the traditional activist playbook, running proxy contests, writing letters, giving presentations. The substantial majority of those worked out. People said, you know what, we should... I think also a couple things happened. The whole sort of, I think boards started to take activism more seriously, and, you know, 23 years in, we're a very known quantity in markets. So we take a stake in a company, we're much more likely to get a thank you note from a management team literally, versus the old days we might get a letter from a law firm or something.
They actually write a thank you note?
Yeah.
We announced a bunch of new investments in the last quarter or so. I think four of the companies, the CEO wrote a thank you note. 'Dear Bill, you know, we're delighted you've taken a stake in our company. Glad you see it, you know, the opportunity.'
We didn't get that in the past.
So, I feel like it's like a new... Maybe just Wall Street has gotten more polite.
That must be nice for you to feel the love.
Feeling love. What it really means is that if we have a good idea for a business, we can sit down with the CEO of the company, we can share it. It doesn't have to be a proxy contest. And I think the quality of the businesses we've been able to invest in over time has improved pretty meaningfully, and, you know, so we haven't had to be an activist, right? We're not afraid to be a very engaged investor, but we can get that stuff done, you know, in a conversation in a boardroom as opposed to going on CNBC and making a pitch.
You mentioned the process around finding an enduring company. Practically, like, what does that look like? What are you looking for in a moat, and maybe some examples of current holdings that reflect that?
I just pick any name in the portfolio, but, you know, if you think about, you know, the Microsoft franchise, right? There's something approaching a half a billion people sitting at a desk working with the Microsoft 365 suite. Companies have come to trust Microsoft for, you know, security, and it's a relatively low cost per seat product, you know, order, you know, 25 bucks, something like this. And that's a market presence that's very, very difficult, in our view, to disrupt. And it's a pipeline where you can sell through other AI, Copilot, increasingly improving versions of Copilot. So we like companies that have, you know, they're sort of an essential part of everyone's day. I mean, think of, you know, the Bloomberg in the hedge fund business. Everyone in our industry pretty much has Bloomberg on their desk. You know, Uber, if you're going to get from one place to another, the probability that you're going to open up an Uber app, I think, is very, very high. Now Uber is a stock under some controversy because the theory is, okay, autonomous vehicles are a threat, for example, to Uber because Elon is going to just completely dominate that business with the Cybercab. You know, our assessment is there are going to be many autonomous vehicle companies. Autonomous vehicles are going to meaningfully reduce the cost of transportation, reduce the cost. There'll be more demand for rides. People are going to want a ride on a timely basis at the lowest possible cost. And we think they get there through a platform like an Uber as opposed to going to each of several different... You know, we don't think every autonomous vehicle company's going to have their own mobility app. You know, that's the, you know, sort of an example. Sometimes brand creates moats. You own a company called Restaurant Brands, which owns a sort of a portfolio of global fast food concepts. You know, it's brand, it's market position.
Yeah. We've been doing this podcast for almost a decade, and we've been following your portfolios for almost the same period of time. And one thing that's always stood out is your concentration. What's the reason for concentration?
I mean, simply there aren't that many great businesses that meet all of our criteria that you can buy at a price that makes sense at any one moment in time. If we had to build a portfolio of a hundred of these, you know, we'd have, you know, 85, 90 that were not as good as the top 10.
And the incremental benefits of diversification, even mathematically, you know, the adding the additional name to a 12-stock portfolio doesn't materially improve the diversification, if you will, and you're forced to own your 12th best idea as opposed to more of your best idea.
Makes sense. Like we said, we've been following your 13Fs and your portfolio for a while. Another thing that has stood that test of time is Restaurant Brands. And I feel like it's a good example of your investing over time because, you know, it was early days, it was an activist investment, and then when it was spun out and merged, you held on to Tim Hortons.
Actually, it wasn't an activist investment. So the history here was we took Burger King public by merging it with a SPAC that we controlled in 2012, and then Burger King acquired Tim Hortons, or Restaurant Brands acquired Tim Hortons. It was originally Burger King, and they set up a holding company, and then they acquired Tim Hortons. We actually pitched management on the idea of acquiring Tim Hortons. They did all the work, but we knew the business well because we had made an activist investment in Wendy's years before.
So in, I think, 2003, we took a 10% stake in Wendy's, and we were a catalyst for them spinning off Tim Hortons.
Yeah. Okay. Yeah. And then today, you know, we've been in America for a few days now, and the fast food landscape is so competitive. And you think about like long-term sustainable competitive advantages. It's a tough market to be in. But Restaurant Brands has been a mainstay for you. So where's the moat for that business?
Look, you know, when you get beyond a thousand stores, and you've been around, I mean, Burger King being a good example. This is a company that's been around for probably approaching maybe 70 years or 60, 70 years, and it was mismanaged for a meaningful percentage of that time, but the brand still survived. So one great test of the strength of a brand is if it's managed poorly but still exists, right? And now we think it's managed really, really well.
So we like businesses that have these sort of royalty-like characteristics. We do prefer the capital-light business, and this, you know, the business of once you create one little profitable box and you create a system, you know, you can inspire a bunch of entrepreneurs to invest their own capital, use a fair bit of leverage on their own, but they can get to a very attractive return by following the system. And that model, the franchising model, is a really powerful way for a business to grow at a very nice rate. So if you have a company that can grow without capital and they can grow their sales nicely over time, you own a royalty, basically inflation-protected royalty on this very good business. That's why we like the business generally. And then if that business over time can acquire other companies in the space, and, you know, over time you have this franchise system that permeates out, and, you know, it's at a price point that, you know, even in a difficult economic environment, we think it's a business that's pretty secure.
We want to turn to Netflix because you sold out in 2022 and now back in this year, 2026. Talk us through the change in thinking. What was it that led to buying back in this year?
So we bought the stake because we believed that Netflix would be the long-term streaming winner. We really liked the management team, and they had missed subscriber numbers. The stock had gotten crushed on that, and we felt it was a price that would pencil out to an attractive return over time. After buying the stake, we went to meet with management, which probably was a mistake in retrospect, interestingly, but when we met with them, they seemed to completely agree with our thesis. We actually took them through our typical presentation. You know, even the body language was good, if you will. Three weeks later or so, they announced earnings and completely disappointed, and the subscriber numbers were much lower than expected, and it was sort of like management looked shell-shocked, you know, with kind of the compare and contrast of the few weeks prior to the earnings call. One of the points that was made when we met with them, we said, 'Look, why not pursue an advertising...'
You know, model for at least acquiring, continuing the growth of your business? And they're like, we will never do this. Three weeks later on the call, they're like, we're thinking about an advertising model. So we, you know, something dramatically changed in a very short period of time. It caused us to lose confidence in the predictability of the outcome. We said, look, it's an excellent management team. We think the likelihood is they'll get this right, but the dispersion of outcomes — if they get it wrong, it's going to end badly. So we said, look, let's sell, because we're a very high certainty investor. We lost our conviction in the certainty of the outcome, and also we have other alternative places to put the capital. And shortly thereafter we put the capital into Google, which also went through, I guess, a high uncertainty moment, but got it to a price that made it very attractive to us. This is when ChatGPT was launched and they were perceived to be, you know, kind of well behind.
But we follow, you know, probably a few hundred companies that meet our standards for business quality. You know, we watched Netflix stock go from — well, we sold at 275, I think it went to 175, probably should have bought it back then, but we didn't. And then it went to wherever, a thousand something, and then they disappointed people again more recently, or there were some concerns raised about, you know, the attention time that US subscribers are spending on Netflix, and the stock got cut in half. But, you know, reassessed the situation, they've very successfully built a kind of an advertising model, you know, they've really moved into clearly the number one position in the space. They've become a much more free cash flow generative business. So we think it's a lower risk, as good an opportunity here, and at 50% off versus where it was even a few months ago. We thought it was an attractive entry price.
