One of the most provocative and interesting investors in the country, a legendary activist investor, Pershing Square CEO and founder, Bill Ackman. Taking a short position and going public with it is a pretty serious business. Interestingly, some of the best businesses in the world are trading at the lowest multiples. We're kind of the rebirth of the closed-end investment company universe.
What did you think of Sarah, the CFO of OpenAI? Felt like the CEO.
Yeah, I was super impressed. Made me a lot more bullish on OpenAI and I thought she should be CEO of OpenAI. I think Sam should be chair. I think he's much better.
There was a question I wanted to ask her that we didn't get time, which was what's it like working with Sam? I mean that could have been like three hours in a documentary.
I wanted to kick this off. So thank you so much for being here. We've tried a number of times to get you to All-In and it's great to finally have you. You obviously are a legend that doesn't need much of an introduction. Lately, in the last number of call it years or months or quarters or what have you, it seems like your investment philosophy may be changing your model where you've been activist and you've entered positions and exited positions, and lately you've talked a lot about more kind of permanent long-term holdings. Would love to hear a little bit about if that is actually a change and how your evolution and your investment model has kind of changed over time.
Sure. So I would say the biggest change over time is an appreciation for the importance of what I call business quality: long-term, durable, protected, non-disruptible growth. I would say early days you're a smaller, more liquid investor. You don't have to think as long-term as you become a bigger, concentrated investor. And over time you learn the importance of durable kind of growth. That's the most important factor. I would say I'm as activist as I've ever been, but more of it's on Twitter than in the corporate context. And the reason for that is when I started Pershing Square, no one sort of knew who we were. And so I actually, one of our first investments was Wendy's International. Wendy's owned Tim Hortons, the Canadian coffee and donut chain. And the value of Tim Hortons was more than the entire value of Wendy's. So we had this very simple idea: buy Wendy's, spin off Tim Hortons, double our money. And we bought 10% of the company and I called the CEO and he didn't return my call and I called him again. He didn't return my call. I literally couldn't get a return phone call. That was the beginning. So we actually called a friend who worked at Blackstone and Steve Schwarzman agreed to write a fairness opinion on what Wendy's would be worth if we spun off Tim Hortons. We kind of mailed it in and filed it publicly and six weeks later they spun off.
And then the CEO finally called me back and he thanked me and he had gotten fired. But he thanked me because he had a huge exit package and he was very happy. But so in the beginning we couldn't get a return phone call so we had to, and we were small, so we had to go to a conference and we had to do presentations and go on CNBC. What happens over time is you join boards of directors, you become known as an investor. We're kind of a constructive shareholder. I know pretty much every CEO in the S&P 500 either directly or one person removed. And maybe we've aged a bit. But you build kind of a reputation and today we buy a stake in a company. Sometimes they'll put out a tweet saying, you know, we welcome Pershing Square as a shareholder, but they open the door for us. In the beginning, we had to bang down the door and today we get very deeply involved in our companies if it's needed. Other companies we own, there's nothing for us to do, just clap.
So you aren't considered a value-add investor at this point?
Yeah. But we only want to add value. The conversation last night was kind of an interesting one. The best investments are ones where you don't need to join the board and do anything. Well, that may be in a startup, but in a mature business, it may be. No, I think in the public company context, one of the valuable things we can do is, the problem of being a public company today is kind of the very short-term nature of markets, analysts, etc. And obviously to run a business, a good one is a forever thing. And you want to make decisions in the context of decades sometimes or certainly three, five years. And how can you do that when someone's asking about the tax rate in the second quarter? And having a big shareholder on the board where you can kind of test ideas out with the big shareholder before you expose them to the public, or the big shareholder can say, 'I'm supportive of this initiative even though it's going to hurt earnings in the next few quarters,' is a helpful thing.
I just want to connect this last conversation with Sarah to this. Are you an investor in the AI complex and how do you underwrite business model quality from what you see on the outside in the entire complex?
I mean, yes, effectively we're an investor. Actually today we own Microsoft, we own Meta, we own Amazon. Actually I think you're either directly or indirectly invested in AI. Or it's a threat. So you have to understand it. How do I think about AI in a business model context? Look, when you're a concentrated investor or investor generally and you're a long-term investor, the most important and most challenging thing to do is determine what's the risk of disruption. What's the risk of two guys, two women from Stanford in a garage, you know, coming up with something? That risk, I think, has gone up dramatically. This is the greatest era in history to build a business, right? There's unlimited access to compute, certainly for a startup, unlimited access to capital, and a lot of incredible talent, which means that the probability of your being disrupted has gone up enormously. So the hardest thing you have to do as an investor is understand, and that's really where we spend most of our time.
What's your tendency in a moment like this then? Do you swing towards the chaos or do you reposition to things that are maybe more durable and defensible from AI where the disruptibility is less?
What's interesting about markets is people always bring their eye to the new new thing. And the new new thing is sort of chips and semiconductors and energy and that's where the shorter-term capital's going. What tends to happen is really high quality things get left behind. And the same thing really happened, I was there in 2000, in that sort of bubble. This is different. I'm not saying this is, but there's some analogies. And the analogies are people got excited about internet stocks and Berkshire Hathaway traded at the lowest valuation I think it ever traded out of its history as people said, 'Okay, that's all old stuff.' I think a similar thing is happening today in a sense to Amazon and Meta, Microsoft. Those are the ones that are kind of old-fashioned companies in this OpenAI era.
So, they're undervalued in your mind?
What else is undervalued? What about the SaaS apocalypse? So, is it oversold at this point?
Again, I think it's a careful analysis. I worry more about a Salesforce than I do about your kind of... I think you got to do the work. I think it's one company at a time, but I think if you're a software company today, you have to be as AI-enabled as you can. I think there have been sort of monopolistic type profit taking off of customers when someone had a kind of a niche software product they're charging 30,000 a year or something like this. I think those companies are really at risk. Microsoft, when the average customer is paying I don't know 50 bucks a seat or some small number, that platform is worth a lot more, less of risk.
I want to go back to COVID because you had an incredibly viral moment where you were on CNBC at that moment and you pounded the table and you said this is what's going to happen and literally the market just ripped. And you were right on that side of the trade and then you were on the right side of the trade when it ripped back up. And then I think it was maybe a month or two ago I think publicly you basically pounded the table and said this market's going way higher. Can you just put us in your head like where does that desire to be so active and, you know, it gives you so much room to be wrong but then when you're right it does add to the lore of Bill Ackman of which you have a lot. So how do you balance that? Where does it come from? Like why in these moments do you just get so convicted that the conviction just has to spill out and then you're just so out there?
So I've always been like, my high school yearbook epithet was 'most verbose.' And actually my friend, who actually lives around here, his quote that he put next to my name in my yearbook, it says, 'A closed mouth gathers no foot.' That was his. And so that's kind of what I've lived by. I've always had this sort of desire to speak the truth about things. And was just talking with Jake actually. We had breakfast this morning and we're talking about my Rhonda post. You remember that one? So like there's just certain things that need to be shared and discussed. But with respect to markets, what happened was I was concerned about the country because I felt we needed to have basically a two-week pause. This is March of, or February I guess it was, March of 2020 and I assumed we were going to just do a short-term shutdown, let the virus cool down as hospitals were kind of getting overwhelmed and the president hadn't done that yet. I was kind of surprised by this and that was what inspired me to go on TV as a way to reach President Trump and say, 'Look, we need to shut down the country just for two weeks.' And I said, 'Look, you do this, okay? The virus will blow over. Stocks are at an incredibly cheap valuation. If we handle this correctly, you're going to make a ton of money.' And we're buying. Valuation is like a tether on the market, right? When it gets too high, it's like this rubber band that's stretching and inevitably it bounces back. But it works the other way as well. When stocks get too cheap, there's this, the rubber band's actually pulling valuations up. And so there are certain moments where it gets to that place. And sometimes actually if you call that out, it causes people to have kind of a psychological reset.
What happened recently that caused you to call that out?
Stocks just got crazy cheap. Just incredibly cheap of really high quality companies. What you find extremely cheap in fundamentals. Fundamentals based on what's the value of a financial asset, the present value of the cash it generates over its life. On that basis, stocks of really high quality companies are really cheap.
Is there any way to underwrite, and I don't want to pick on specific companies, but we have the three that are going public and then you have like a Palantir, let's say, and these things have become very popular in pop culture, in maxing on subreddits, on the public's consciousness, high net worth individuals wanting to buy into SPVs that are double loaded and then getting wiped off the cap tables. Is there any way to underwrite 100 times revenue, 50 times revenue, 150 times revenue in these companies or are these just tremendously overvalued because of the demand side?
I think you underwrite a SpaceX the way you underwrite a venture capital investment.
Interesting. Explain that. Unpack it.
So, everyone here invests in venture, right? You bet on who's running it, right? The talent is enormous. It's people. They taught me, I had a professor in business school. He said, 'People, opportunity, context, deal.' So on people, SpaceX, one of one. Opportunity, one of one. Context, incredible. And actually, feel bad for Blue Origin, but not harmful to SpaceX. The fact that they're way behind. Then you get to deal. Okay. That's the more complicated question for SpaceX. Again, we don't know what the valuation is going to be, but if it's a billion, a trillion, 750 billion, then you say, okay, well, let's think five years out. What does this company look like? What is Starlink? What's the trajectory of Starlink? SpaceX is near monopoly in terms of low-cost space launch. That's going to become increasingly important. And even Amazon is going to have to become an even bigger customer because Blue Origin's... And time, I would say, has become increasingly valuable in the AI era, right? You delay a model. We were talking, David and I were talking about the administration and his kind of stepping in for the president not to sign that executive order to kind of slow us down. Allegedly. You lose a month. You lose a couple of months today and it means a lot. So I think the only question I have and I haven't done the math. I actually invested in X. I invested in xAI. I'm in an SPV. Ron Baron said Bill you got to invest in SpaceX. So I'm in. So now I have, so obviously I'm rooting for kind of a good outcome. I just haven't done the math.
Yeah, you have to. What about Anthropic, OpenAI, Palantir, also fall into this category. Do you underwrite those as venture investments as well? And have you done the work on those?
They're venture investments that, what's helpful is they're not seed or series A, right? They're D or E, but they're still like venture investments. These companies have proven they can generate a lot of revenues. And actually, I was just saying on Sarah, I thought she had a very, very thoughtful explanation on how they think about committing capital, right? And that's the thing I haven't heard from on OpenAI, which is why if I were OpenAI, I would be getting that message out because, from the outside, you're like, it's a pretty interesting business model. You got a company that's making capital commitments. They're massively in excess of revenues and how do you do that and get, it's degree of difficulty, I would say, is hard.
Your perch on the boards of let's call it these more traditional Fortune 500 type businesses and your conversations with those CEOs, how are they thinking about AI? Is it something that they're tipping into with pilots? Are they doing transformation initiatives? Do they think this doesn't really apply to us? We'll deal with it later. What's your sense of how they're adopting or embracing AI?
I would say every CEO in America today is like, how do I use AI? How does it apply to my business? How is it a threat? They got to find an internal champion. They maybe have to recruit someone from the outside. I would say it's on the hierarchy of things they worry about. It's probably number one as both an opportunity and a threat. So if you're not paying attention to it, your board is going to be asking you the first question every meeting about how are we dealing with the AI threat, how are we dealing with the AI opportunity. So it's absolutely top of mind.
Are you seeing much early success? I mean through your visibility into these companies. There's a lot of mixed signals that we get like McKinsey did a study and said that 95% of enterprise initiatives actually fail. Chamath, you've made this point around 80-90% that a lot of these enterprises don't really know how to deploy AI. The fanciest title in Silicon Valley these days is a forward-deployed engineer which is basically an IT consultant who can close the gap between the promise of AI and the ROI of it. And I think people are just trying to figure out how do we use this thing? Have you seen much actual success? Is this the question right now? How do we bridge this gap?
So I haven't seen much success other than, I mean I give you the Pershing Square story. We're a tiny little company, how we're using AI today. The first use case is really on the legal side and kind of almost compliance back office type functionality. I think we're still super, super early in terms of big companies using AI effectively.
Can I test a thesis with you? The venture underwriting model where you think about people, you're underwriting a founder and their capacity to lead and redirect the organization in a changing environment and technology environment, market environment and whatnot. And we have seen repeatedly similar success at scale if the company is still founder-led, where the founder feels like they have the authority to make all the radical decisions needed to make sure that that company persists and changes as needed in a changing environment. Have you looked at founder-led companies versus non-founder-led companies where perhaps the founders really do have an inherent advantage in being able to navigate these changing environments and actually generate outsized returns over time? And I ask this particularly as it relates to the SaaS apocalypse and if you take a look at the companies that are founder-led today versus not. If you're not founder-led, you have an incentive to not make a mistake and get fired. If you're founder-led, you don't give a... Your job is to make sure the company...
Yeah, I think the answer is exactly what you said. I think the problem is that the average life of an S&P 500 CEO is probably, I don't know, four years or three and a half years or something like this and you're focused on shorter-term compensation. You generally don't have a big economic stake in the business. You're a founder. This is your entire life. It's your entire reputation. It's not like you're going to go get another job. You got to kind of make it work. And also when you're in the boardroom, you have the authority of either being a major voting voice or you've got a huge economic stake in the company. When we join a board of a company, we're often the largest or second-largest non-index fund type shareholder. That kind of gives us a little bit of a disproportionate voice in the boardroom. Imagine if you have that and you're CEO of the company, right? So I think that does give you, and also if you've gotten to be a successful founder over time, guaranteed that you've made a number of very challenging calls over time that turned out to be right otherwise you wouldn't be there. And so you look at Mark Zuckerberg, right, when he bought Instagram, everyone was shocked at the price paid, or WhatsApp, these seemed like, the company only had whatever 19 employees or something when he paid a billion something. But you make enough of those calls and you can make the other challenging call.
Is this antithetical to a Ben Graham investing model? Like you have to have a different set of skills as an investor to identify this talent?
